Well, it is finally upon us: The inevitable recession that comes after every expansion and the corresponding stock market downturn. And oh boy is it a doozy.
Is this the end of early retirement?
First Things First
First and most importantly, thank you to all of the world’s first responders and front liners – those working to stop the spread of this pandemic and minimize the damage, the doctors and nurses and hospital staff, the heroes keeping the grocery stores functioning, the entrepreneurs converting factories to produce medical gear and supplies, the researchers looking for a vaccine and cure, and everyone staying at home when they would rather be anywhere else. Thank you. And stay safe.
The Stock Market & The Economy
At the time of writing (before stock market opens on Monday, March 23rd futures are limit down (-5%.) This puts the SP500 at ~2200, down 35% from the peak of ~3386 just a month ago.
Which means it needs to go up ~50% to return to the previous highs. This was the fastest decline in history.
And with much of the country in lockdown, it could get worse. Much worse.
20% of the US works in the restaurant industry and tourism.
Dining in restaurants in the US is down 98%. Many won’t survive and unemployment is expected to skyrocket – Goldman Sachs estimates over 2 million people to file for unemployment this week (the highest of all time.) We could see unemployment rates of 30% plus (vs 24% in the Great Depression.)
Who knows how long it will takes things to return to “normal.”
Early Retirement At Risk
We are in the middle of our 8th full year of early retirement.
Generally speaking, with years of strong investment return behind us our retirement should be extremely robust and largely immune to stock market volatility.
But that is not the case. We’ve inflated our lifestyle, grown our family from 2 to (soon) 4, eliminated flexibility options (we have a long-term lease), and the coronavirus has reduced other options (can’t just move to somewhere cheaper.)
Add all that up, and we have the same risk as anybody else retiring into this economic environment… I wouldn’t wish retiring into an economic meltdown on anybody, and yet here we are.
Where is that exactly?
Knowing the stock market is down 35% is pretty scary. What else do we know?
S&P500 total return index (SPXTR)
Including reinvested dividends the SP500 is currently valued at a level similar to 3 years ago, February 2017.
Coronavirus Course Correction
Was our retirement about to crash and burn 3 years ago? I didn’t seem to think so at the time, as that is really when we started to ramp up our spending – bigger house, more wagyu, etc…
The difference, of course, is in 2017 economic projections were positive and optimistic.
With the change in prevailing winds we are correcting our course.
At present, we are sitting on 4-5 years of cash and another 2-3 years of bonds. This cash came from a combination of:
- a stock sale in March 2019, which I used to buy bonds – much of which I have now sold (some in late February, the rest in early-mid March.)
- a stock sale in January 2019, which I used to bump our cash position for the planned expenses of childbirth and post-natal care (like we did in 2014/2015.)
Our 6-8 year runway assumes:
- no change in spending,
- dividends are cut in half (similar to the Great Depression)
- blog income goes to zero
- zero travel means nobody is interested in travel hacking
- zero capital gains means nobody is interested in tax minimization
If any of these assumptions prove to be inaccurate, then our runway will be shorter/longer.
If the stock market and economy continue to deteriorate, we will course correct further.
Some things will happen automatically:
- Jr starts to go to public school in 1st grade (saving ~$1,000/month) – timeline 1.5 years
Other options include:
- move into lower-cost housing – just a few years ago we were spending $1,000/month vs our current $2,700
- lease ends Dec 2020
- delay planned purchases
- this was the year I was going to get a new laptop. I’ll probably wait. (I typed this on the old laptop just fine)
- tighten the belt
- we have lots of fluff in our budget, especially in the food department. One example:
– 2 weeks ago, date night was ~$100 on steak and Parisian pastries
– last week, as an experiment, date night was a great hole-in-the-wall Korean restaurant for ~$15 (delicious!)
- we have lots of fluff in our budget, especially in the food department. One example:
- earn some income
- every little bit helps – no shame in getting a short or long term job
For the sake of clarity:
I have sold only bonds to hold cash. I have been buying stock. I will buy more stock if prices go lower.
Our course correction summarized: have some cash, be mentally prepared to reduce spending, wash your hands.
What I’m Doing Financially Through the Crisis
Moving Cash from the US to Taiwan, from USD to TWD – the US Dollar is going to behave erratically as various governments turn on the printing presses and economies struggle. A year of rent payments in local currency helps to sleep at night. (I’m doing it via the ATM.)
Buying stock – I’ve been buying stock on the way down
- sold some bonds to buy stock
- invested the cash in my Roth IRA (2018 contribution from April 2019) and our HSA (transferred in cash in Spring 2019)
- just transferred cash to Winnie’s Roth IRA (2019 income) and Jr’s Roth IRA (2019 income)
- will invest in a mix of US / International equities
Capital loss harvesting – thanks to years of capital gain harvesting, we have stock that is still UP from when I bought it originally (circa 2009), but DOWN for tax purposes. I’m harvesting “losses.”
Massive Roth Conversion – When I think the time is right(*), I’ll do a massive Roth conversion, filling the 0% and 10% tax brackets, and possibly more. This will move the recovery to tax-free accounts.
* I’m certain to miss the bottom by a significant margin.
Getting ready to backup the money truck
There may be a point where (reduced) S&P500 dividends will yield more than our (reduced) expenses. If/when that happens (or thereabouts), I’ll go all in.
Continuing to spend less than 4%
Even if 2020 spending is equivalent to 2019, which was the plan as of 2 months ago, we will still spend less than 4% of the current value of our portfolio.
What I’m Doing for Physical and Mental Health
This is an emotionally challenging time – my Mom, sister, and brother are all nurses. My grandmother probably still thinks this is a hoax. I hope they remain safe.
The exponential growth of this virus in numerous parts of the world show that the worst is yet to come. I fear for that near-term future.
To cope with that anxiety, I have done what I can to control what I can.
- I built a cash flow spreadsheet and plotted the next few years (anxiety becomes confidence)
- We bought a 100L chest freezer and stocked it with a Costco run in case there is a resurgence in Taiwan.
- looks like this one but smaller
- I turn off the television and computer and ignore the day-to-day behavior of the stock market.
- Regular biking (150 km this week.)
- Writing – analyzing and writing brings me inner peace
- Regular hand washing
I measure my own level of anxiety by my food cravings. When I want to eat a pint of Ben-n-Jerry’s before bed, I’m stressed. When I don’t want to eat anything, I’m overwhelmed.
At present, I still want to eat the numerous full pints of Ben-n-Jerry’s ice cream in the chest freezer, but am doing so only in moderation.
Now with our own house in order, it is time to turn my attention towards helping others. (Suggestions welcome.)
If my Ben-n-Jerry’s situation changes at any time, I’ll let everyone know on Twitter. (super critical)
Summary
Things are bad out there. As such, we are course correcting.
I have sold some bonds and we now hold ~7 years of cash and bonds. We have the option to extend that via reduced spending and downsizing and/or increasing income.
What actions, if any, are you taking?
Thanks for the info. Hope you and your family fare well.
I don’t know much about investing. I max out my employer 457. Also, have a small Roth and have opened a solo 401k for my side business. Interested in learning how the thought process behind moves like yours as well as how to best invest in times like these. Will have to look into some resources.
Anyway best of luck!
Are you available for individual financial coaching Jeremy? I’d be interested. I am married with 3 kids ages 5-9.
Hi Kevin, I do some consulting on occasion. Check out my consulting page.
The forum is also available and completely free.
Hi Jeremy. Thanks for the post. First and foremost I hope you and your family will remain well and healthy in such a historical time. I’m personally trying to fact check the piece of news I’ve seen stating that this virus can stay airborne for up to 3 hours! (https://www.sciencedaily.com/releases/2020/03/200320192755.htm). If this is true, then 6ft of social distancing might not be enough IMHO.
After reading this article, I have been pretty surprised by your statement: “At present, we are sitting on 4-5 years of cash and another 2-3 years of bonds.”.
This might be the first time I can feel a different tone in your writing that the Jeremy I used to know. I recall that you’ve been pretty open about the fact that having an emergency fund was overrated (back in 2017 – https://www.gocurrycracker.com/bank_account_overdrawn/) and that in 2019 your portfolio was only 1% in cash well as the Jeremy who was sitting on a portfolio of 90% stocks and 1% cash (https://www.gocurrycracker.com/2019-gcc-asset-allocation/). It seems that you’ve seen this coming though as you started to take some corrective action earlier this year and this is really good for you!
A few questions for you:
– What triggered such a big change in your strategy. Isn’t this timing the market to some extend?
– Do you think the US economy will tank the most and that people sitting on a USD portfolio will have to revisit their withdrawal strategy?
– Which currency do you think will come out the strongest out of this? (Asking since we do have a chunk of our portfolio invested in EUR)
As for us, we are going through a 14 days strict home quarantine here in Taipei (our experience has been good so far: https://www.nomadnumbers.com/nomad-life-during-covid-19-exiting-bali-and-home-quarantining-in-taiwan/). We aren’t showing any symptoms on Day 6 so hopefully we will be able to go through and then will be able to get some fresh air outside and exercise more.
Mr. Nomad Numbers, this is a great observation/comment on your part – so my thanks. I am VERY EAGER to read Jeremy’s response.
It definitely seems that in some ways, the numbers don’t add up.
It’s all a lie Kurt.
Glad to hear the quarantine is going as well as can be expected.
>This might be the first time I can feel a different tone in your writing that the Jeremy I used to know.
Great! I got the message across.
In early 2019 volatility was increasing (20% dip in Dec). In late March I started to do a massive cap gain harvest, but my spider-sense said things were getting frothy (PE is high, tariffs are poor policy, farmers getting subsidies to dwarf the auto industry bailout, etc…) – so I just parked it in bonds (mentioned here.) This put our portfolio somewhere around 85/15/1 stocks/bonds/cash. I just considered that taking some chips off the table since we already won big. That seemed like a poor choice as the market climbed another 15%, but was fortunate in hindsight.
Early this year I topped up our cash just to cover our baby-related cash flow for the year. I was considering more and didn’t, so unfortunate in hindsight. So I have no real wisdom or special sauce.
>What triggered such a big change in your strategy?
The only change I’ve made now is converting most of those bonds to cash, so maybe not that big of a change.
The motivation is that as the market started coming down there was a liquidity problem – bonds were correlating with equities as people were selling treasuries to cover margin but also just to have cash to live. A big chunk of our bonds were in municipals, and cities are states are going to be crushed as their tax base is wiped out – so I dumped them. Market timing? Yes.
>Do you think the US economy will tank the most and that people sitting on a USD portfolio will have to revisit their withdrawal strategy?
I think the US is –expletive deleted.– 70% of people work in small to medium businesses. On average they have 3-4 weeks of working capital. Every other country has already passed legislation to support these businesses AND THEIR EMPLOYEES through the crisis. Meanwhile the US Senate took a 3-day recess and then voted on a bill to provide cash to only the top 30% with no requirement they maintain employment. As Bernanke famously said in the GFC, “If we don’t do this tomorrow, we won’t have an economy on Monday.” We need a multi-trillion dollar infusion to just hold things in place for a few months – That moment may have already passed.
On top of this, the price of oil has plummeted (combo effort of SA and Russia.) All US shale/fracking is now unprofitable with inevitable layoffs.
Couple that with the fact that health insurance is tied to employment – I guess that is one way to reduce the burden on the hospitals as things peak.
The US was slow to respond (incompetence), has no system to track or trace people (the opposite of what you are experiencing in Taiwan), and is running out of PPEs (more incompetence.) If the PPE shortage is not remedied ASAP, medical professionals will either get sick themselves or stop coming to work (as happened in Italy.) Then the death rate jumps.
These are actions the Federal government should have taken 2-3 months ago. Because of this, the US will be slower to recover than others who take proactive measures.
As an investor or early retiree, what is the best way to hedge here? I don’t know.
>Which currency do you think will come out the strongest out of this? (Asking since we do have a chunk of our portfolio invested in EUR)
Europe is also screwed. The UK is behaving similar to the US. Many countries are just 7-14 days behind Italy. If things go very bad, China may very well come out of this like the US did out of WW2, with the only undamaged economy.
Everyone will recover, of course. Just a question of when and with how much damage.
Maybe not enough optimism on my part, there is a lot of good happening. But that is why I have so much cash. If things go better than I expect, I can put it back to work.
So your past articles about 100% stocks and an Emergency fund is over rated you completely though out the window? Now i know to take your articles less seriously. When times are bad, you now see the true colors.
Glad we are on the same page, Andy. Hope all is well.
As a long time reader of your blog and your investing principles, I too don’t understand how you can vouch 100% equities and then toss it out the window when the inevitable market crash happens. You definitely don’t “owe” anyone an explanation, but a curt reply like this just comes off as dismissive toward another reader with a very good point. Would love to hear your reply instead of blowing him off?
I’m happy to explain. I’m also happy to dismiss people who don’t act with civility.
We have never been 100% equities. You can read that post and every update since which says the same.
What I said I would do:
If market goes down 25%, I will sell half of our bonds and invest in equities.
If market goes down 50%, I will sell other half of bonds and invest in equities.
What I did:
Market went down 25%, I invested in equities.
Market went down 35%, I converted some bonds to cash
Why?
Bonds were moving downward with stocks. That has happened 4 times in history, always with a liquidity problem (e.g. 2008.) At present, I could convert that cash back to bonds and come out ahead (key words: at present.)
When will I move that cash to equities?
When the market is down ~50% (which would be a pre-crash ~4% yield.)
I hope this is the Chinese Communist equivalent of the Soviet Union’s Chernobyl — a more visible symbol of how authoritarian Communists — as part of their systemic oppression and contempt for human life. In these days of the 24/7 news cycle, the Internet, and social media, and the number of Chinese people who have been exposed to liberty abroad and know there is an alternative — perhaps not now, may not soon, this is the beginning of the end for the thugs who run China. Surely, more and more businesses will find other supply routes, and the world is on notice to seek medical goods and antiobiotics elsewhere — you can’t trust this country on integrity (I am NOT speaking about Chinese people, but the system there) on the specs for all sorts of goods, why trust them with ingredients for vitamins, supplements, medicines, antiobiotics?
Thanks for the very detailed, insightful reply. I’m glad that no one is ‘lying’ ;-) Could you also include a current ‘graphic’of your asset allocation? Just curious, and thanks again. Optimism is what we need, work on it ;-) All the best.
Jeremy with still 85% of his allocation in stocks and I assume most of his net worth is invested is scary.
But it’s good he feels fine with the decline and that’s all that matters.
I’ll do a asset allocation update soon.
Thank you very much, Jeremy, for taking the time to answers all my points. This is super informative! I’ll digest all of this and let us know if you have any follow up questions.
Thanks for the Detailed listing of how you came into much more bonds and cash Jeremy. I have been following up with a few of the financial blogs I visit to see what they are saying now, and what they were saying in the month or two leading up to late Feb.
I think one of the biggest mistakes many of the commenters here make (as well as posters on many other financial sites), is that somehow you “always” have to “stick to the plan”. Its like no one can ever alter course when there is valid new information.
I have never sold in a bear market before (2018, 2008/2009, and 2000-2002). But this time I realized it was not a regular economic cycle, or over speculation in one sector (.com or housing)….but rather an external event.
To me, this external event where the risk was (and is) quite real, justifies tossing out the rule book, and positioning oneself in more secure assets.
I have no problem jumping back into riskier investments, but won’t do so until they are priced fairly based on earnings potential and risk. They are not priced that way today.
Thanks for the post and we all look forward to an update on your AA.
I got the impression that your blog income grew to be larger than your working income before you retired.
If that is the case I’m not sure what you are worried about.
Is this question directed at me or Mr. Nomad Numbers?
For us, blog income has never exceeded our working income or our expenses and I assume it goes to zero.
Well, I am trying to hang in there. I have been taking care of my mother full time since an accident nearly six years ago. My savings have been decimated. Last year I began taking money out of my Roth. At the same time, I have been moving money from a traditional IRA to the Roth in order have income to qualify for the Healthcare supplement. My out of pocket for that doubled this year. We also unexpectantly had to replace our water/sewer line costing $7000. I was already cutting back severely as my expected dividends were only going to average a bit over $1000 a month this year. Now the portfolio is down over 40% in the last month and no signs of it getting better plus there will likely be dividend cuts. Worried I will have to sell at the depressed levels.
Groceries are another issue. Mom is high risk if she get the Corona virus(COPD, heart disease, diabetes, etc.). Every avenue I have tried in Philly has no availible delivery or pick up options, whether local grocery store or Amazon or Target. So, I can get shelf stable stuff delivered with a delay but fresh goods like eggs, milk and bread are an issue without me going out and risking infection. So, pretty worried at the moment. Also think it is going to get worst for a while before there is any improvement.
Not sure what to do money wise at the moment. I took out the last $10k I had in cash in the Roth, so that will hopefully last a while for expenses barring any new hiccups. Wish I could trim a bit more but regular medical expenses alone are about $400 out of pocket every month. Only income is Mom’s $1058 a month SS and my dividends. My savings have been covering all the extras.
I’m so sorry Art. I’ve seen a couple stories about people and stores delivering groceries for elderly folks in the news recently – is anything like that happening in Philly? Hopefully the stimulus checks come soon, last I heard between $1200-$2k per adult…
Art, sorry you have it so rough right now. I’m near Seattle and a lot of grocery stores here have their pickup options with available timeslots all filled out days in advance, preventing me from placing an order.
If this is the issue you’re experiencing, I’ve found it necessary to stay up until midnight with my pickup order ready to place, then begin placing it right after midnight. A pick-up date 3-4 days later opens up and I can select a time slot and complete the order.
Note that it is common, around here at least, that when you go to pick up the order it only contains 50-70% of what you actually ordered, due to temporary stock shortages. Over-ordering can mitigate this somewhat.
Best of luck for you and your mom to get through this safely!
Art, where do you live in Philly? Have you reached out to neighbors to help? I am also in Philly (Old City) and have offered to help out any neighbor closeby for grocery/pharmacy runs. There are many people closeby that I am sure would be happy to help a neighbor.
Hi,
I am starting to buy the stocks currently. The depressed price of these stocks enable me to generate a higher yield which will cover my expenses.
I have three buckets theory (courtesy of Firecracker – Kristy and Wanderers). The first bucket is the investment portfolio which will generate the dividend on a continuous basis. The second bucket will be the (difference between the expenses minus the generated dividend per year) mutiply by 5. This is with the assumption of the generated dividend (from the first bucket) being less than expense. The last bucket will be about 120% of the annual expense.
I continue to focus on the interests while the three buckets are doing the work in covering my annual expenses. I am flexible with reducing the annual expenses (if necessary) given that I lead a minimalist lifestyle.
WTK
Very smart WTK. Lots of flexibility in that plan.
The potential issue with your first bucket is dividends are one of the first things to go when companies are circling the wagons to conserve cash and simply survive. That will probably be a part of the bailout package as well that all loans are to be repaid prior to Distributions to the shareholders.
Out of curiosity, how are you determining how much to hold in cash vs.bonds?
My rough swag was based on the time for small and medium businesses to recover from a recession. Last time was 7 years
Thanks for the update. Thanks to your mom, sister, and brother for their hard work and sacrifice. Thanks also for the analysis. I don’t have the knowledge to do the financial analysis, but I appreciate that you explain things clearly. It helps in keeping things in perspective and lets me consider multiple ways forward. Keep washing those hands!
My Mom texted me this morning to say a 44-year-old otherwise healthy male was put on a ventilator at the hospital near her home.
The next couple of weeks are going to be hard. Yes, wash your hands!
Okay, just to clarify…. Did you sell bonds purely to free cash up to purchase stock at a discount or did you see the typically stable bond market as too erratic in this interesting environment and wanted your bond position in cash regardless?
The latter.
Bonds were not behaving as they should, moving in correlation with equities. The former would be a fringe benefit if things work out.
You regularly here that the value of having bonds, in part, is due to the asset NOT moving in the same direction of stocks. This is suppose to create a level of safety.
However, in the last two big downturns, the 2008 financial crash and now, bonds have been moving in the exact same direction. This doesn’t give investors a whole of confidence in this asset class.
that sent me for a loop, why would bonds go down? All I can tell is a lot of my Long Bond Funds, put money in Corporate high yield Bonds, and with companies suffering, they have declined. Not a lot, and in time, the distributions will fill them back up. I suspect soon Corporate Bonds may come back in favor, but I don’t know shit, so don’t listen to me.
this happens when there is a liquidity problem – people rushing to cash at any price. Margin calls cause this (people forced to cover short or leveraged positions) or when you just need cash to pay rent/mortgage/food and have no other options.
Or could it be that people were (writing this in 2021) selling bonds to buy stocks, which had gone down more?
I think Art points out a possible volunteer opportunity – a courtesy shopper. If you have the time to wait in line, someone who really needs to be at home might need some help.
Keep on washing….
Yes! I actually offered to do this for Nomadic Numbers, but Taiwan is managing this like a pro with great delivery services.
I’m an index investor mainly with LICS/ETF’s. In these unstable times is there any recommendations in particular?
I have been maxing my 401k but changed that to just get the employer match and then the rest is going into a high yield savings. Seems like cash is king right now. Certainly will make me feel better as we look to retire early in 4 years.
Cash is king for people without income.
This is a good time to think about risk tolerance. And maybe to buy at a discount.
Thanks for your update. My whole family are “essential personnel”, I work in a nursing home (part time), my husband for the local government (full time), and my son is a first responder. So none of us appear to have “job” worries. We have a nice chunk invested, I’m not watching it’s value, we have 10 years to “retirement”, though I had hoped we could go early. Weirdly, our life in rural MD hasn’t changed, except that we are washing our hands alot. I’m trying to shop very local, hoping our tiny (2400) town is far enough away and dispersed to weather this thing. Cash wise, we have about 14,000$, but I’m assuming our jobs are stable to ride this out. I’m prepared for the market to go to 10,000 SP
At 10 years to retirement this will probably help build your retirement nest egg. Nicer to buy at lower prices. Stay safe and healthy!
Thanks for this post! I imagine people will keep reading your content through all of this. We are thankful to have jobs in “essential” fields that seem pretty secure. I am able to work from home, my spouse is very cognizant of social distancing when he’s at work. We are spending less now and bumped up 401K and IRA witholding to buy low into this depressed market. The 2008 event lasted about 5 years, so we intend to keep working through that, but look forward to when the economy will propel back up again.
Sounds like a great plan. Stay safe!
And thank you!
I’d be interested in a Portfolio/financial Coaching also. Retired with a firefighter pension at this time.
Hi Je
Take a look at my consulting page. The forum is also available and free.
Hi Jeremy, At what point will SPY dividends hit the level you will get back into the market? I’m interested to know what you think is a fair, reduced div yield? Thanks for these posts.
I don’t know what that level is yet. Dividends will drop.
edit: sorry, expanding on this. At a 50% drop from the high, the SP500 yield will be 4%+ assuming no dividend cuts. Somewhere around that point is my target.
ASX S&P -33%, expect -45%.
Current gross dividends 8.51%, future gross dividends at a guess 5%.
Portfolio 90% bank deposits.
So far except for having our investments decimated over the last 4+ weeks, there is very little change in our lives. We used to go out to eat 2-3 times per week (we are cheap so no fancy restaurants) but the TN Governor just directed all restaurants to halt dine in for the next few weeks, so we will save some money and spare our waistlines.
The time for people to prepare is in advance of an emergency. It is amusing to see the hoarders out there buying up all the TP they can get, while we buy items when they are on sale and stock up, and that holds especially true for TP. Holds true for food as well.
As for investments I have been trickling some $ into my ETFs and buying a stock here or there. I just bought some T this morn since the price is plumbing lows, it has a good dividend coming up, covered call options pay pretty well, and their revenue stream is not as at much risk as say a restaurant chain. Otherwise I feel I will need 12-18 months to salvage things in our portfolio after the crisis abates.
Best of wishes to you and your family, and keep the wife and your soon-to-be born safe. And the same to your readers. God Bless all.
Best of wishes to you and your family as well, ChuckY. Thank you.
Yes, we got the TP. Got the food. Got the streaming TV, toys, and games. Now just wait for normalcy.
Invest in a Japanese toilet and save $$$ for years on TP purchases
Got one! This is from an older apartment, but our new place has a similar model.
OH YA…. I forgot what part of the world you live in where many people are highly enlightened in regards to the toilet technology.
HI Jeremy,
I am still very early in the accumulation phase but I have enough sitting around to be creative. On February 25th, when the market was only down about 7.5% I sold about 10% of my portfolio and have been slowly buying back a little each week. I also took some cash out of my emergency fund to begin buying more as well. I would put in more but I am a little concerned about losing my job in the next 6+ months and there is a good chance my wife will be unemployed in 45 days. That being said we are currently living in an $850/month winter rental with a fantastic view of the ocean and since I am no longer commuting to work I am saving almost $15/day in commuting costs.
In general I am optimistic and will be investing as much as possible during this downturn.
This downturn, if my income remains stable, could be what the financial crisis was to the current cohort of early retirees.
>I am optimistic and will be investing as much as possible during this downturn.
Sounds like you’ve thought about this smartly.
Jer,
Great piece. When you say you “moved to cash,” can you be more specific? 1-3 month T-bill ETF? Money market funds? Moved these assets into a separate bank account?
Cheers.
It’s currently in the sweep account of my brokerage account (money market at Fidelity.) I expect 0% yield.
Thanks. The USG is apparently backstopping money market funds now (as I understand it), but I went ahead and moved my money market cash into A) a bank account and B) a very short-term T-Bill ETF given recent instability in the money market sector.
BTW, at Fidelity you can change the default sweep MMF and get a slightly higher return. Given you likely have over six figures in the sweep account, it would probably be worth the 10 minutes of your time to research and change the default.
Yes, I have the higher yielding sweep MMF. I like the short-term T-bill ETF idea, thanks!
Hi,
I’m new here and am loving these ideas and information!
I have a question. I am holding a chunk of cash in Vanguard but it looks like Vanguard automatically invests this cash in its money market fund. How safe is this Money Market – especially in times like now – My income/business has been completely shuttered because of the corona virus so not sure when I will have an income stream again – as a precaution, and because I never want to be forced into shitty situations, I have always held many years of living expenses in a cash reserve. I’d love to make some income on it, but would hate to see it lose value. Is the Vanguard MMF safe? Any other alternatives? Thanks!
Well… mostly it is safe.
this is Vanguard’s disclaimer:
Vanguard Prime, Federal, and Treasury Money Market Funds: You could lose money by investing in the funds. Although the funds seek to preserve the value of your investment at $1 per share, they cannot guarantee they will do so. An investment in the funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The funds’ sponsor has no legal obligation to provide financial support to the funds, and you should not expect that the sponsor will provide financial support to the funds at any time.
If you are concerned about it, you could move the funds to a bank money market which would be FDIC insured up to $250k or whatever. If you have more than $250k you can put it at multiple banks.
Here’s what I’m doing. Adjusting my bonds/equities ratio from 30/70 to 10/90, daily over time. Its bothered me for a while that I’ve had so much in bonds, and now-ish seems to be the time to make the adjustment that I’ve wanted.
While many FIRE bloggers have recommended all America all the time for investments (VTI and BND), I’ve been more comfortable with total world versions (VT and BNDW). So I’m glad I have that allocation now and will continue the total world allocations. Don’t know that the numbers currently say VT has done better than VTI, but seeing US incompetence cranked to 11 on healthcare and governance confirms for me that having a bunch of explicitly non-US investments is good for the long term.
Sounds like a solid plan. Could be the buying opportunity of a generation
I also just started bleeding my portfolios away from bonds towards stocks. I would do this daily (to DCA), but instead will do it every thirty-one days. This allows easier tax loss harvesting.
Thanks! I just opened an AMEX savings account which gives 1.7% and is FDIC insured so seems like a good place to park my cash!
I have a question… right now my portfolio is split up kinda like this
1/3 in my i401k (mainly a mix of 80% VTI with a little APPL, VNQ (too much – what an error!), BND and VXUS)
1/3 in a taxable Brokerage (Similar holdings as above)
and 1/3 in cash
Given I keep about 5+ years living expenses in Cash i’m wondering If i should inject more of this cash into the market at this time or not.
My business has been completely shuttered because of the corona virus (my work involves photographing events and people etc) i’m wondering if i’m not better off just doing nothing.
I had just recently started investing so my portfolio is at a net loss. Not selling anything but wondering what to do. I tend to hold a lot of cash, but for me that’s my FU money…
also what are your thoughts on VNQ (reits?). right now they are the disaster of my portfolio! I definitely should prob do a little rebalancing, but also don’t want to sell at a heavy loss as I don’t need the cash right now
sorry for all the questions. Loving the blog.
hey Scott. Doing nothing is OK.
Sounds like you have rebalancing backwards – your supposed to sell what is up (or down the least) and buy more of what is down the most. The goal is to return to your target asset allocation.
re: VNQ – if you want REITs to be part of your asset allocation, then VNQ is a good one (we own some VNQ.)
Cash is good especially when you don’t know how/when you will earn income again. Apply for unemployment insurance for the self-employed.
If you have extra $, buying more investments is also good. Stocks cost less than they did a year ago.
Thanks Jeremy!
Do you hold VNQ in your taxable account or just retirement account?
Scott
I hold it in a retirement account – REITs throw off a lot of taxable ordinary income.
Got it. Thanks!
One more – VTI – are the dividends 100% qualified? I’m having trouble finding an answer to this online
In 2019, VTI dividends were 93.79% qualified.
Have you seen our forum? It’s a good place for general questions.
Do you think we could end up like Japan and never see the stock market rise again to the high before this correction?
No.
That’s a good amount of cash/bond. 6 years is plenty of time to come out with a vaccine of some sort. I think once the new case level off, the market will calm down. That might be 4-5 weeks off, though. A large part of the US still isn’t taking this seriously enough.
I’m very worried for my brother. He’s an ER physician in the Bay Area.
With all of the world behind it a vaccine is probably 12-18 months away. Hopefully.
Stay safe! You and your brother.
Very interesting post! When you say that “I’ll go all in” if you reach a point where reduced dividend yields exceed reduced expenses, I assume you mean that you’ll take the entire 6-7 years worth of cash and put it all into the market? I’m curious why you’re not starting that process now — is it that you’re worried about a total 1929-1932 style meltdown and want to wait and see how it shakes out? I personally am following a plan where I invest in tranches at every 10% decline up to a 50% drop (at which point I will be down to two years of living expenses left in cash, and probably afraid to invest that until I see real signs of improvement). The reason I’m investing in tranches is that it’s just so hard to know when things will turn around. If they come out tomorrow and say a vaccine is definitely on its way in less than a year, then the market will probably have a big rebound. But if it’s a long and disastrous depression, I’ll probably wish I’d held on to 6-7 years of living expenses as well!
Yes, that is what I mean by go all in.
Whether I go 5 or 7 years in will probably be a gut check on how things are trending with employment, infection curves, and our income (dividends, blog, etc…)
I believe Winnie held you back from going ~100% stocks in the past, is there still resistance at this time?
We are a good team and provide balance to each other. We have bonds to sell now because she wanted more bonds/cash a year ago. It’s my fault we didn’t have more, but she also wanted to sell stock when it was 20% lower than today, so we tend to offset each others irrational moments.
Jeremy, been following you for years. First comment. I am an ex hedge fund trader now bond salesman. You are my favorite finance guy. Maybe just my favorite guy right now. That is all. You are my financial adviser, early retirement coach and therapist. I probably owe you a lot of money. Stay well, brother. Keep doing what you do.
Thank you for this. It gives me comfort and some new ideas too. It gives me comfort because I am having some of the same thoughts and experiences and it’s good to have reinforcement that my ideas are not just ravings of a solo lunatic. I dont know anyone else personally who is RE, so it’s helpful to see what others in this community are doing and planning. Thank you and stay healthy!
I do wonder what’s going to happen to many FIRE folks but sounds like you guys will be OK, which is good to hear. Hope you and your family are staying safe. Saw there’s a jump in the number of cases in Taiwan last week.
For us, we are continuing with the regular investing and dollar cost averaging.
We’ll be fine, yeah. Most people will be fine, but too soon to say how this cycle plays out.
The new cases are happening in quarantine from people arriving from overseas, so it isn’t in the general population (yet? They are on the same plane as others…)
Does tax loss harvesting offset roth conversions to zero out taxes? We’re currently pet sitting full time so income is very low and we have room to fill up at least the $24k tax free bucket.
Really kicking myself for not filling up the higher LTCG harvesting zero tax bucket since we had low income last year too.
You can offset up to $3k of ordinary income (including Roth conversions) with investment losses, the rest is carried forward.
However, losses are first used to offset gains (if any).
In short, to use a capital loss to increase the amount of tax-free Roth conversion you would need to realize a loss that exceeds all realized gains by $3k.
Glad to hear you and your family are in good shape to weather the storm. Currently I am sitting on 15 years or so of cash. With another 15 years in actual bonds (not bond funds that can get crazy). Then I would have to start selling stocks. I could only hope I live that long! It was comforting to hear over the past few days that the Fed is essentially backing all corporate and municipal debt. That helps calm people’s nerves. I’ll plug my nose and buy again once we drop below 2000, maybe push all in if it goes below 1400. The only thing that scares me is a total collapse of our financial system, then all assets are worthless. Hyperinflation could wipe out the value of cash. All bets are off then, but I don’t see that happening.
On the heat you are taking for changing your tune and being prudent financially don’t sweat it. It’s really very minor tweaks to your position you’ve always held. An event like this is a reset on the reality we once knew and understood. The whole 4% rule will probably become the 3.XX% rule. It doesn’t really change the fact that you’ll wish you’d spent less time at work once your number is finally up!
Minor tweaks to a position he’s always held?? Come on. He’s a human being and he has every right to change his mind and admit he was wrong. However, he might want to note that on his blog entries. I am concerned for those FIRE followers who are heeding the literal advice of bloggers who don’t even follow their own advice.
For example:
“Emergency Funds
Over the past couple years or so we’ve had a zero / non-existent “emergency fund.” Between blog income and dividends I manage our cash flow well enough, but on a regular basis we have close to zero cash on hand.
…I haven’t seen the point in keeping a big cash reserve around “just in case.””
Zero cash or 7 years worth of cash… big difference.
>He’s a human being and he has every right to change his mind and admit he was wrong
I like this, I added it to my disclaimer. Thanks for the suggestion.
This isn’t an emergency fund (cash set aside to cover short term unexpected expenses.) Those will just be covered by normal cash flow.
This is a short-term adjustment to asset allocation because bonds weren’t acting like bonds. With the correction, our portfolio was somewhere around 80/20/<1 stocks/bonds/cash. I changed that to 80/10/10. At some point we'll be back at 90/10/<1
JayBee,
I was a long time reader and took the articles seriously.
“I am concerned for those FIRE followers who are heeding the literal advice of bloggers who don’t even follow their own advice.”
This right here nails it on the head. I was disappointed to say the least.
Were they click bait titles? I don’t know but anyone reading, be careful moving forward.
Question: We have been out of the workforce for about 8 years now. In that time, have we ever had 100% equities? (The answer is no.)
Question2: Did I sell stocks here or buy? (The answer is buy)
Solid. We are more likely to be in a deflationary environment imo.
These are stressful times, tolerance and patience are virtues.
It’s great to hear Taiwan has the epidemic under control while there is still uncertainty here in the States. I was not sure what you meant by this statement…seems like an important line – would you mind elaborating in layman terms :) ? thanks and be stafe,
“There may be a point where (reduced) S&P500 dividends will yield more than our (reduced) expenses. If/when that happens (or thereabouts), I’ll go all in.”
So far things are under control in Taiwan. They are doing a good job. Case count keeps rising but amongst the people in quarantine so not spreading in the general populace…
If the dividend yield on the SP500 starts to exceed 4%, which I think is a 50%+ drop from the top, then I’ll buy. It’s hard to say in advance what the number is as dividends will fall but this is roughly what I’m thinking
Hi Jeremy, long time reader here, first time commenter. I’m FI and almost RE’d last year but got spooked (figured the very stable genius would really go nuts because of impeachment and the election) and returned to work last January. I feel incredibly lucky to be able to continue to pad my retirement accounts in this insane situation and my heart goes out to all those who have lost their jobs (or may, or will) and even worse, their health. I applaud your honesty in showing how the crazy market drop made you rethink your stock/bond/cash allocation and it seems to me you have a solid plan to weather this. Still, I can only imagine how nerve-racking this must be. At least you’re in a country that seems to manage this health crisis well. Kudos and Godspeed to you, Winnie and the kiddos.
Very prescient of you, nicely done.
I just try to explain what we are doing and why as openly and clearly as I can. Winnie and I talk about all of this regularly and do our best.
I feel fortunate that we are in a safe place and on solid financial ground. Thank you, Fille Frugale.
We FIREd 2 years ago. I doubt we’ll escape unscathed. Despite all the market turmoil, so far none of our anxiety has been for the stock market.
Rather we’re worried about the real economy. In South Africa we’ve just had lockdown announced. Due to aids and TB, at least 50% of the country is immune compromised.
Our worries are whether we have any chance to avoid a lot of deaths, any chance for the country not to go bankrupt and now we will have to wait in our homes and see as we cannot leave the country. Our families are here too so would prefer to be near them in these dark times.
Strength to all of you out there, the market will recover, rather deal with the human costs and be kind to a neighbour.
This is precisely my concern. If small and medium businesses go under the downward spiral will be severe. If death rates match WW2 (3% of global population), society will be fundamentally changed.
Stay safe!
Hi Jeremy,
You already won with the ability to enjoy your youth with your lovely wife and young family.
It is commendable to pivot when life changes. No shame in that at all.
Absolutely. Agree on all points.
Thanks Emily!
Jeremy, first time poster. I wanted to drop in based on a few of the posts I read here earlier. I have been reading your posts for a few years and found them to be highly informative and extremely well thought out. Personal finance is just that, personal. I agree whole heartedly with many of your posts but chose a different path because I am in a different place than you. I love your post about 100% equities but that was not the position I wanted to be in based on my own personal financial situation. I don’t take a bloggers post as gospel but I do take take in the merits of the argument and weigh it against my own personal situation. You have been very helpful in providing insight into how your situation has unfolded and I thank you very much. This includes your changes based on changing family size and plans. Your position is totally different than mine but I really appreciate the thought process so I can apply that to my own situation. I can’t speak for others on here, but I am thankful for the open and honest way you discuss your finances. Wishing the best for you and your family, take care!
Thou art truly wise.
This is the same approach I take to everything I read. Situations are different, and everybody has unknown unknowns. I just try to explain what we are doing, and why, as openly and clearly as I can.
All the best to you and yours as well. Thank you!
Us frontline folks thank you for your appreciation. Thus far, the American public seems to take us for granted and don’t have your level of sophistication or empathy.
Thank you. Hope all your nurse-family is OK.
You seem more freaked than I thought you would be:) I’m less freaked than I assumed (then again, my worry probably has more to do with being a frontline healthcare worker than with money) I would be. I realized that even if my portfolio drops in half, I’ll still be fine.
If you could convince Taiwan to sell us some masks…..
>You seem more freaked than I thought you would be:)
Me too. 3rd financial crisis, 1st pandemic. I feel OK about the market downturn, not so much the near future real world.
Stay safe!
A great and honest post and makes a lot of sense. Like most been hit hard with equities but not sold and bought a few more on the way down. Not keen to attempt to catch anymore falling knives for the time being though as want to maintain cash position in case things go from bad to really bad.
Life in Malaysia is in lockdown for the next 2 weeks and suspect it will be longer. Like you Jeremy, costs have gone up in recent years even though Malaysia is cheaper than my home country of the UK. Many pluses though that make me feel fortunate to be living in Malaysia and not the UK. Scaling back on living costs is much easier here as food and utilities can be super cheap.
Investment wise I hold gold, do you?
Also bought some more bitcoin on the recent drop in prices.
Stay safe and look forward to your next post.
Adam
Well, just to inject a helicopter view here, perhaps actually a space station view…
This does not look like WW2 to me. It is simply a disease that may kill one of 200 people over 60.
Mortality rate is likely to turn out in the 0.3% to 0.5% range based on data from countries that have better covid19 infection incidence data, such as Korea and some Western European nations, due to presumably more widespread testing. This is consistent with the Diamond Princess almost perfect laboratory where mortality was 1% in a population of passengers where 80% were over 60 years old.
Not to be callously utilitarian here as the emotional impacts are very real, but the purely economic impact does not seem that significant at these mortality rates, if anything may actually be a little positive long term as it may provide very small relief to overburdened retirement systems, especially in the developed world. Again, I’m not trying to dehumanize this, the emotional impacts are very real and, after all emotional impacts do spill into economic activity.
So, the total economic impact does not consist of the objective part only but also the subjective. The depth of the crisis will depend on what people and governments make to be, including any overreaction, no matter how irrational.
What actually worries me more is not the impact of the virus itself, but whether the virus upheaval triggers the burst of the big debt bubble we have been inflating all over the world by having pushed our central banks into zero interest rates for so long. That financial distortion was captured by US CAPE ratios stuck at 30 and massive amounts of near junk debt yielding very little. I’m afraid that the Coronavirus shock is actually bustling THAT bubble ushering is into Japan’s three lost decades now here in the US, and perhaps many other places in the world, such as Europe, where similar interest rate financial repression has gone on for so long.
Folks, us, yes us western world voters, have now kept voting ourselves ever more goodies for decades, hoping that some other taxpayer will foot the bill to fund the inefficient state that will try to provide us such benefits. Loaded with these electorally mandated obligations our governments had no option but to borrow and borrow, and to be able to do that without defaulting they had to keep interest rates suppressed. Time may have finally come to pay for all this delusion.
Jeremy, perhaps you may want to reread that last comment I posted on your “Secure Act” post, which you deleted. It may not quite look as “histrionical” from today’s vantage point.
Finally, regarding cash. What if central banks do finally break their balance sheet dam and we get runaway inflation? We are treating the power of the central banks as this unlimited final constant, but somewhere there must be a limit. A limit that when reached “whatever it takes” is just no longer possible.
I use ice cream the same way! To gauge my anxiety level. Which is your favourite Ben&Jerry’s flavor?
My 3 favs:
Karamel Sutra
Peanut Butter Cup
Mint Chocolate Cookie
Have you considered taking Jr out of daycare to raise cash? Also, how does he earn income to qualify for the Roth? Thanks!
No, that is at the bottom of any list of options. It’s not really daycare per se anyway, we just had his parent/teacher conference and he is doing subtraction of 4 digit numbers and basic writing in both English and Chinese. No need to stop that.
I pay him for creating artwork for the blog (see one example) and also for modeling services (photos, etc…) Details here.
Do you know of any apps that just do the capital gains tax harvesting? I know betterment and others have that as a feature, but I’m looking for just that if possible. Thanks!
I’m not aware of any
3 yr cash reserve + birth control
I’ve been sitting at home, trying not to go crazy! What’s helped is trying to find things that I can look forward to or enjoy that are out of the ordinary of what I do. I’ve been enjoying the NPR tiny desk concerts on youtube most recently.
The main adjustment I’ve made through this downturn is I’ve started to save a bit to develop an emergency fund. I feel stable with my job but going into this thing, I had no emergency fund and was putting my whole paycheck into the market. I think once I hit 6 months emergency fund, I’ll continue investing (in addition to the auto invest into my HSA and 401k).
In navigating this downturn, I don’t feel nervous at all for my investments. If I can keep my job, this will likely be a time that I remember was stressful but no financial burden. If I do lose my job, I’ll figure something out!
Hi there, I read your comment “suggestions welcome” and thought I could throw one in :) I know there is a blood shortage and donating blood could be a life saving and free way to help others. You might already know about this with your healthcare-working family members (and I am very grateful for them!). But just thought I’d let you know in case you didn’t think of it. Take care!
When I called my local American Red Cross to offer blood (if they can use it without having more COVID-19 tests available), I was told my area has enought for now. But they are short of volenteers to staff blood drives and to deliver blood to hospitals and laboratories. A lot of the volenteers tend to be older, high risk groups trying to stay at home. So anyone wanting to do some good or feeling stir crazy at home might offer to volenteer if your local blood bank has a need for volenteers.
JLCollins is going in the opposite direction…
https://jlcollinsnh.com/2020/03/29/my-move-from-vmmxx-to-vbtlx/
Sounds reasonable.
It’s a hard time for everyone, one way or another. I hope you’re staying safe and healthy during this time (which it seems like you are).
Personally, I find it really valuable to practice gratefulness in times like this. Even though your portfolio has taken quite the tumble, you’re still miles ahead of the many Americans that are living paycheck to paycheck and are literally thinking about how to survive and pay next month’s rent, etc. You don’t really have to worry about putting food on the table.
They All Retired Before They Hit 40. Then This Happened.
https://www.nytimes.com/2020/04/02/style/fire-movement-stock-market-coronavirus.html
Some under capitalised – just on ‘Walkabout’, a ‘Gap Year’, a ‘Sabbatical’.
My test: Adequate funds until death without earnings.
My presumption: Inflation stays < 2%.
They Decided To Be Journalists. Then They Wrote This Trash.
A touch of schadenfreude perhaps but also a reasoned caution.
Stock markets go down sometimes? I learn something new every day
Share prices, earnings per share, dividends, income vary.
Useful to know when factoring capital required to support living expenses.
‘“lean FIRE” — generally defined as a net worth of between $500,000 and $1 million’.
$500,000 / 50 years = $10,000 / year. = $833 / month = Bali living & dying expenses. Could be one way trip.
Life is a one way trip.
I think your math puts you at the 99.9th percentile of conservatism.
Retiring on CAPE ratios of 30 and expecting 7% average annual returns with half the population dreaming of a transformative socialist redistribution has always been quite delusional in my mind, covid19 or not.
With CAPE ratios of 30 you should plan on a 3.3% rule just to be middle of the road (statistically speaking) assuming also some confidence that capitalism will survive.
But If you want to also sleep comfortably that you will not be dragged out of FIRE at age 50 with no job skills left to enter a recessionary job market, you should probably use a 2% rule. And if you are unsure about the preservation of capitalism in the US you should have more than half your equities outside the US. Yes it seems absurd to invest in, say, Russia because you fear US capitalism is under threat, until you realize that Russia is trading at a CAPE ratio of 6. All kinds of inefficiencies are already baked into a dismal CAPE ratio of 6.
May I ask how you got Jr. an IRA? I have little ones but cant think of any way they’d be able to “earn income,” as I’m not a small business owner.
Love your blog—keep up the good work sir. And wash them hands.
He has to have earned income – I pay him for modeling services and artwork (full details here.)
(One example, he drew the image on this page.)
Oh wow I thouht that was an actual photo of the ‘Rona! He’s very talented (and worth every penny of his salary). Good luck with #2 btw—no more zone defense, it’s man-to-man from hereon out. Thanks, as always.
He draws with Mom quite a bit so that probably helps. She is quite talented (her instagram.)
Yeah it is going to be a whole new ballgame… free time will be a thing of the past.