My 1st Quarter 2020 Financial Situation

[audreyh1]

I think that a lot of people really didn’t understand their personal risk tolerance until this crash happened. We saw this in 2008 as well when many folks realized they weren’t happy with their existing equity exposure.

Jerry1 - compare your net worth on Dec 31, 2018.

 

[Jerry1]

Your comments are not incorrect, but what is one to do when they realize that what they thought they could tolerate is different from what they actually can tolerate. Sitting at my desk a few years ago and talking with the FA a couple years ago, the thought of a 20% decrease seemed tolerable. I’m not sure, but it may have been tolerable if it was for something like a change in administration, a war or something understandable. In retrospect, when you say you could tolerate going through 1929 and the Great Depression, I’m not so sure you (I) really believed it could happen. This feels that bad. It may not be, but even if it’s not, the fact that it feels that way is a great learning opportunity. Call it anything, but I’m not stubborn enough or stoic enough to hold the course when I realize that I’ve obviously made a mistake.

I’m good with calling it a reset. Just replace your statement above with the word wiser (instead of older) and I think you’ll see our description of what I’m doing is consistent.

 

[ERD50]

Your comments are not incorrect, but what is one to do when they realize that what they thought they could tolerate is different from what they actually can tolerate. Sitting at my desk a few years ago and talking with the FA a couple years ago, the thought of a 20% decrease seemed tolerable. ....

OK, I can understand that someone may have thought they could handle an X% drop, and then really couldn't handle it when it really happened. Let's just call it a mistake, we all make mistakes.

But I just see no way where that leads to making a change after the fact. The mistake was made. Selling low doesn't fix it. It very likely makes it worse, as you are now going to face the problem of when to get back in.

There's no easy answer. That's why we really, really need to take a deep look at what our risk tolerance is, and I think what is often left out of that is looking at the risk of being at a low AA. As you say in your OP, you are ahead of where you were a few years ago. We don't get to these peaks (where you are measuring your drop from), unless we rode that AA up. Keep that in mind.

Here's an example - $100,000 invested in 1988, adding $1,000 a month inflation adjusted. The 25/75 AA is a smoother ride, but the 75/25 AA rises to 1.5x and it barely dips lower in total just once in all those years (you have to zoom in to even see it).

https://bit.ly/2RuqStN

-ERD50

 

[Markola]

Not sure what you mean, or the significance of starting at 1988. Regardless, for all that extra risk, this stock-heavy investor would have had to wait till 2012 to see a clear liftoff from the conservative portfolio. 24 years!

 

[Jerry1]

ERD,
As I mentioned in this or maybe another thread, your post and the graph is predicated upon maximizing total return. I accept that logic. Unfortunately for my heirs, I’d be okay with the blue line, portfolio 1, as long as I am comfortable that it will provide me the retirement I planned on. Also, your graph assumes accumulation ($1K per month), which I will not have. Goal number one is securing my retirement.

Also, I don’t have any issues around when to get back in. Once I reset, I will get in. It may take a month or two because I’m in no hurry, but the level of the market will not be the determinant. The determinant is me figuring out my AA and what products make sense.

 

[ERD50]

Not sure what you mean, or the significance of starting at 1988. Regardless, for all that extra risk, this stock-heavy investor would have had to wait till 2012 to see a clear liftoff from the conservative portfolio. 24 years!

1988 - turns out that is just where it was set from last time I used it, I thought that was max history for those funds, but it's actually Jan 1987. Doesn't really change things.

Yes, no clear lift off for years, but what "risk" are you talking about? It barely dipped below ever, and that was just one short time period, was up at least some, (and then a lot), otherwise. That was really my point, it isn't as "risky" as many seem to think.

Here's another view, withdrawing rather than contributing. Back to '87, and now start with $1M and withdraw 3.6% initial ($3,000 monthly), inflation adjusted. The 75/25 gets ahead and stays ahead. End value more than double for 75/25. Turn up the WR, and the 75/25 crashes and burns while the 75/25 has more than you started with. In my view, that makes (at least historically) a 25/75 far more risky than 75/25.

https://bit.ly/3e4MDdl

-ERD50

 

[ERD50]

ERD,
As I mentioned in this or maybe another thread, your post and the graph is predicated upon maximizing total return. I accept that logic. Unfortunately for my heirs, I’d be okay with the blue line, portfolio 1, as long as I am comfortable that it will provide me the retirement I planned on. Also, your graph assumes accumulation ($1K per month), which I will not have. Goal number one is securing my retirement.

Also, I don’t have any issues around when to get back in. Once I reset, I will get in. It may take a month or two because I’m in no hurry, but the level of the market will not be the determinant. The determinant is me figuring out my AA and what products make sense.

I cross posted with you, so check out the withdraw version.

As I mentioned in this or maybe another thread, your post and the graph is predicated upon maximizing total return.

But the two are not mutually exclusive. As you will see if you run that link, the lower AA fails from withdrawals way, way before the higher AA. It is that boost from stocks over the long term that protects you from failure. Yes, they are more volatile, but as I keep saying, they drop from highs. Highs that aren't there with a lower AA. The lower AA just can't withstand withdrawals as well as a higher AA. "Failure" is my definition of "risk to a retiree's portfolio", not volatility.

Imagine this scenario: the 25/75 investor is eating the proverbial cat food, while the 75/25 investor has not had to change his/her lifestyle, and portfolio is still doing fine. Would the cat-food eater be bragging "Yeah, but my portfolio line is (was) smoother than yours! In fact, it's a dead flat line now! Zero volatility!".

-ERD50

 

[Jerry1]

I couldn’t figure out how to post a link. But I changed the starting point to be 1/2017. Interesting, the lines are almost at the same place. Good time to reset

 

[ERD50]

I couldn’t figure out how to post a link. But I changed the starting point to be 1/2017. Interesting, the lines are almost at the same place. Good time to reset

Your line just changed:

S&P 500
2,602.84
+114.19(+4.59%)

I know, it's the long term. I'm just sayin'.


To your previous comment, if you are saying you are happier with steady rather than 'maximizing total return', then why were you ever 60/40?

If you look at FIRECalc, the success rates are pretty flat across a range of 40/60 to 100/0. So if you want success and low volatility, a 40/60 would make more sense based on history. Success start dropping off pretty fast at 35% and below.

Doing a slow, steady move from 60/40 to 40/60 might make sense for you. Moving to 10/90? This just seems reactionary, and not in your best interests.

-ERD50

 

[walkinwood]

Your comments are not incorrect, but what is one to do when they realize that what they thought they could tolerate is different from what they actually can tolerate. Sitting at my desk a few years ago and talking with the FA a couple years ago, the thought of a 20% decrease seemed tolerable. I’m not sure, but it may have been tolerable if it was for something like a change in administration, a war or something understandable. In retrospect, when you say you could tolerate going through 1929 and the Great Depression, I’m not so sure you (I) really believed it could happen. This feels that bad. It may not be, but even if it’s not, the fact that it feels that way is a great learning opportunity. Call it anything, but I’m not stubborn enough or stoic enough to hold the course when I realize that I’ve obviously made a mistake.

I’m good with calling it a reset. Just replace your statement above with the word wiser (instead of older) and I think you’ll see our description of what I’m doing is consistent.

What is done is done.

You've got to do what makes you comfortable. Be careful though since all of the studies say that you've done something that could come back to haunt you. Good luck.

I hope you stick around in this forum and update us on your future moves. It will be good learning for me.

 

[targatom2019]

I would try to get at least total 30% equities back into the market at this point to at least keep up with inflation. If your 70% cash could support you for the next 15 years then why worry about the 30% equities.

 

[sengsational]

My mom asked me if she should sell equities. I, of course, said "No. If you only sell your winners, you'll never sell low." She has cash for a while, so doesn't need to do anything. But if equities are still in the crapper when she needs cash, she has gold and in fact her house (HELOC). But Jerry, to your situation, what I also told my mom is "if it goes down more, I'm a bum, if it goes up, I'm a genius", but in your case, you still have a reasonable chance you're going to turn out to be a genius, because it's not certain it won't go down a lot more. At that point, buying back will be as easy as buying can be (of course, people will be hair-on-fire screaming that it's TEOTWAWKI), but you'll know better and re-establish your allocation

 

[swakyaby]

The events of this quarter erased all gains I’ve made since retiring in Dec 2017. I had approximately 60% equities at the start and had lazily let it grow to 68% equities. Shoulda, woulda, coulda rebalanced each year; I would have been much better off, I think.

 

[FireFool]

Retirement to Date (RTD) I'm still up 41% and that's after 4 years of living expenses. Of course at the end of January I was 67% RTD, and now down 12% for the year. My heirs took some recent hits, but we'll be more than o.k.

 

[Jerry1]

Your line just changed:

S&P 500
2,602.84
+114.19(+4.59%)

I know, it's the long term. I'm just sayin'.

That's okay. I got out at 2585 so a little more than 1/2 percent. Plenty of time and room to think this through.

 

[RobLJ]

I'm about 10k less than Dec 2018, which is tolerable. In retrospect, I'm glad I got conservative (or greedy) and sold 1/3 of 2019 gains in Jan 2020, and another 1/3 in February.

Some of the individual stocks, bond funds, and international funds got hurt more than projected or more than the S&P (international funds); other bond funds did OK. I did tiptoe back in a few weeks ago when my stock allocation brushed close to 40%, but given the volatility, I'm waiting to put more cash to work in stock funds (I'm back up to 44.5% stock allocation as of today). As a percentage, I'm down a little more than 50% of the S&P losses which is not as good as I would like, due to factors above.

I'll probably also get more conservative in my main account (which I will use for withdrawals next year and maybe the next two years; it has a lot of cash) and increase the stock fund allocation/purchases in my wife's rollover IRAs, since she's a few years off from withdrawing. In the recovery, that should make her accounts worth more than mine!

That's okay. I got out at 2585 so a little more than 1/2 percent. Plenty of time and room to think this through.

 

[ncbill]

I would try to get at least total 30% equities back into the market at this point to at least keep up with inflation. If your 70% cash could support you for the next 15 years then why worry about the 30% equities.

+1

The danger to early retirees has been retiring right before periods of high inflation, e.g. the late 1960s.

In backtesting the higher the equity portion then statistically the higher the ending value of the portfolio...but if you don't care about leaving a legacy who bother?

 

[cranberryjoe]

I just did a summary of my statements as I've been doing quarterly for many years. On 3/31/2020, my NW is almost the same as it was on 12/31/2017.

This is interesting (to me) because I retired in January of 2018. Of course financially I didn't retire because I got a severance. None the less, being retired for two years and having my NW be the same as just before retirement feels a lot better than focusing on the losses I've watched in this last month hit my accounts.

I too keep quarterly financial summaries every quarter.

As of 4/1/20 I'm up 42% from retirement day in 2013. That's 7 years of living solely off my investments, and I'm way above where I started. Happy days!

The negative way to look at it is my 4/1/20 balance is about the same as my 10/1/17 balance, so I've recently lost over 2 years of gains. That's a big loss on paper. But even if I lost 7 years of gains all the way back to retirement day, I'd still be ahead.

 

[Pointby2]

On one hand, we are ONLY down to our March 2019 levels. On the other hand, I could have bought a Porsche AND a McLaren with the difference from our highs.



"c'est la vie"