My investing career has spanned some incredibly interesting timeframes – the Internet bubble burst of 2000, the Great Financial Crisis of 2008, the beginning of the COVID-19 pandemic… each unique, but with one strong commonality – in every one of them I lost what felt like a great deal of money.
But this time it truly is different in one regard… this is the first time I’ve been able to say,
“Huh, so that’s what it feels like to lose one million dollars.”
Risk Tolerance
The past 2-3 months have been pretty wild. With a significant portion of our net worth invested in global stock markets, our portfolio plunged downward with one of the steepest market declines in history. Volatility has been insane.
At the March bottom we were down more than $1 million, nearly triple what we lost in 2008.
Vanguard Total Stock Market ETF (VTI) Year to Date as of May 21, 2020
A core tenet of asset allocation is to invest in a way that let’s you sleep at night. “Don’t be too aggressive!” they say.
Another core tenet is to reassess your risk tolerance if something happens that causes you to lose sleep. Like, say, a pandemic.
But let me tell you, sleep isn’t the problem. It’s the days – watching your portfolio drop $100,000+ in value day after day after day after day is not the most fun I’ve ever had.
I did not like it. No sir.
Losing a crap ton of money in 2000 and 2008 and everything being OK left me with a notoriously high tolerance for risk.
But…
This time around I don’t have a steady paycheck from a benevolent employer. With 2 kids and a long-term lease we are less flexible. And for extra fun, income has mostly disappeared – blog revenue has collapsed and dividends are being slashed.
Good times.
Actions (speak louder than words)
I wish I had taken the time to write down my thoughts in mid-March rather than after a massive (but partial) recovery – it would have been great for my own self-edification. But the truth is at the time I just didn’t feel like writing or thinking. A protection mechanism maybe? Perhaps I’ll get the chance again soon.
But what I can honestly assess is my actions.
Thanks to previous exposure therapy I recognized the anxiety and gnawing feeling in the gut that comes with watching your wealth casually disappear.
This experience is so important that I even tried to relive the worst market moments of the past.
Even though I was aware I shouldn’t be doing so, I would spend time checking stock prices when the market opened each day (9:30 PM my time.) The pandemic was the main conversational topic on my thrice weekly bike rides. It was always front and center – you can’t turn your eyes away from that major accident.
Because emotions are by definition impossible to control, it is important to have a written plan to follow when things go sideways.
My plan for a market crash was to sell bonds and buy stock.
What I did: sell bonds, buy stock, and accumulate cash.
Not perfect adherence to the plan, but the direction was right and panic free.
Thank you Douglas Adams – btw the TV series Dirk Gently’s Holistic Detective Agency on Netflix is beautiful.
But not anxiety free. Alas, I also starting drinking coffee and eating carbs again, 2 habits I had previously cast aside.
Temet Nosce
Fortunately for us, the market had previously given us $1+ million in play money before deciding to take it back again, and we had already pulled some of it off the table.
Or in other words, we had already reduced our exposure to risk.
So what went wrong? Why did I succumb to food cravings and only partially follow my action plan?
I believe my elevated stress levels were based on 3 things:
- I had viewed blog income as an additional safety net. Even though I expected income to drop towards zero in a recession, I didn’t like it when it happened.
- Bonds are supposed to go up when stocks go down. But they went down too! “In a market crash, the only thing that goes up is correlation.” I didn’t like that either.
- I didn’t like that the recovery was so rapid, rising before I had a chance to buy at the bottom. The market waits for no-one.
I think worthy of mention here is that our net worth collapsing isn’t what bothered me. And actually, our net worth is higher today for having sold bonds and purchased stock in March (but would be higher still had I followed the plan to the letter.)
Another way of stating this: changing our asset allocation to have more bonds / fewer stocks wouldn’t have helped.
iShares Municipal Bond Fund (MUB) Year To Date 2020 –
Bonds went down too – That big downward lump in the middle is not GCC Approved.
Is this a pretty story? No. But it is an honest one.
Summary
I hated losing $1,000 in 2000.
I didn’t like losing $10,000 (amongst other things) when those planes flew into the World Trade Center.
I was somewhat OK with losing $400,000 in 2008 – life just continued as normal.
I did not enjoy losing $1 million in the COVID-19 collapse of 2020, but I appreciate that I was able to have the experience.
I am certain I won’t be pleased about losing $10 million many years from now in a future market event, but since our portfolio continues to have a high equity allocation so it will probably happen.
In summary:
- Having a written plan is good.
- Following it is even better.
- More exposure therapy was not fun (is it ever?) But it is important.
- Change to target asset allocation: none.
- Carbs are delicious
I didn’t quite get to $1mil in losses, but I have a screen shot from March 22nd that I’ll never forget. Losing over 200k in a single day was unbelievable.
Congrats on the bond allocation plan working out, I pushed a lot of my bond allocation in a bit too early and am still letting the portfolio dig itself out.
It will never get easy to see this.
I have a similar screen shot etched in my brain.
Anytime market drops, I just open s&p 500 historical chart. It reminds me everything will be ok again… so focusing on quality stock is the key regardless of market.
Just curious , how much have you regained since bottoming out a few months ago? Also , go curry cracker, how much have you regained?
I dunno fer shure. I think around Jan 1, 2020 levels
I remember having a coworker tell me her mom was freaking out because she’d lost $50k, and I told her I’d lost $85k and wished I could “lose” more. I poured in quite a bit of available cash, but things ramped up a lot more quickly than I could scrounge up more. And who knows, maybe we’ll get a double dip?
I have no idea where the market goes from here. It was really interesting to me that the market kept rising as the unemployment numbers skyrocketed.
Mar 23: Having watched short sellers risk all, with the clarion call from rescuing USA cavalry carrying over the near horizon, I said to wife ‘Time To Buy’ – wife said to me ‘Could Fall Further’.
What could have been a gloat worthy profit was not a goaty loss.
We had that same conversation.
“In the short run the market is a voting machine but in the long run it is a weighing machine.” – Benjamin Graham.
‘In the short term the market is a noisy alternator producing random numbers but over the long term it is a faint generator producing yield barely perceptible amid the noise’ – Bullockornis.
Still can’t believe the markets turned around so quickly. I expected them to stay at the bottom , at least for a few weeks. What has happened is difficult to understand.
same
I think it may be a false, temporary recovery. Even if we don’t get a second wave of the virus, large employers may lay off more people by end of year and not give any raises.
I ran out of dry powder weeks before the bottom.
That’s probably the more profitable route since prices never really dropped below 2017/18 levels.
This us, same.
I am in the lost over $1M club as well, surprisingly it didn’t really bother me a whole lot. Like you though I was shocked at the speed of the recovery, I only got a chance to deploy about $300k at my first strike point and stupidly missed the second tranche of $600k going by 50 points in the S&P. Still down about 2% in my brokerage account but up overall from a net worth standpoint. Oh well, the one thing that has surprised me the most though is how the value of nice real estate has skyrocketed in our area. People want a home that’s comfy in a pandemic. Maybe I’m rationalizing our paid for way too big for 3 people home, but it has been great having a fortress of solitude during these crazy times.
I’m guessing we are going to get another chance to test our mettle, lots of powder still dry here. I’m admittedly in the once you are wealthy stay wealthy camp.
“I didn’t like that the recovery was so rapid, rising before I had a chance to buy at the bottom”
– market timing is a proven effective method of losing money. That doesn’t stop people from trying, though.
More an issue with bed timing. I get sleepy around the time the market opens
This was the first time I really “lost” a significant amount of money while investing. In 2008 I barely had any skin in the game. At first the decline hit me hard. I would say even super hard. Nothing can prepare you for a 35% decline in such a short time period. Nothing.
However, I just kept reminding myself that hey. I knew this would happen and I should be prepared for 50% declines and even more. So I got my act together and have been DCAing massively into the market since the big drop. If it goes lower, I will be more than ready mentally (or at least I hope so haha).
Cheers!
That was me in 2000. I had such a small amount invested that the loss was small, but at the time $1,000 meant a lot.
Yeah the lack of income is the worst when net worth is falling.
I kept thinking it would be nice to have alternate income to invest and then thought through the options of job, rentals or affiliate income and realised they all got crushed or worse, owed debt on them with no income. It is amazing how globalization equals perfect correlations these days.
Yeah, first you get a punch to the throat from the market and then a kick in the gut from the alternate income collapsing. Double fun.
It’s still pretty hard to beat blogging as an alternative – very little investment of $ or time if you are fortunate enough to get some traction with traffic early on.
I recently outlined my “nearing retirement” strategy in my blog after several friends were panic selling less than a year from retirement (hasn’t gone well for them 😔). Proper planning and execution may not beat the market, but at least provides a hedge against dips.
Glad to see a new post!
I was prepared for stocks to go down
But not bonds
I sold all bonds and went to cash
Going to keep 10/30/60
cash/stock/real estate
Portfolio Going forward
Yes, the Bonds did not behave, but they are doing better now, all my long bonds have made about 5% over the last 6 months. I find depending on the fund, or etf, the distributions eventually make up for the price drop.
Always appreciate the honesty. We bought what we could as fast as possible. Wish we could have bought more.
I moved about 5% of the portfolio from bonds to stock – not fast enough though
At some point I was down more than half a million, anxiety kicked in and, as cliche as it sounds, I ended up in a hospital with a heart attack. That was on March 15th. According to the doctor I have terrible genetics so I’m not going to blame the stress but it probably did not help. All good now btw. – not even 24 hrs in hospital and no damage. But I have a stent. I actually feel better now than before, go figure…
After 2008 I was convinced that US government would do just about anything to rescue the market but I stopped working/retired last year at 56 and just wasn’t ready for this rodeo. It reminded me of all the simulations I had seen about people retiring during economic turmoils, and how much worse off they were than everyone else.
What made matters worse Chase convinced me late last year to invest my emergency 200k cash into stocks (I wanted their 2k Private Banking bonus, lol).
When the market started bouncing back I decided to cash enough of those equities to generate 30k loss. That’s to control my income a bit in a future. Because the drop was so steep I didn’t even have to sell a lot. Then I dipped into options and started placing bets on market coming back up. Mostly, looking for bargains in dividend stocks. So I would sell covered puts (those are very safe if you’re ready for them to exercise) and if they got in the money I would let them get assigned. I can’t say I made a lot of money doing that but it was fun and I picked up some real winners (I mean for now ;).
My main asset in the IRA account – Apple (which I hold for eternity, hence the unbalanced but well performing portfolio), turned out to be much more resilient than the overall market so I’m almost back to Feb levels.
What I’ve learned is:
1. US government really WILL do anything to prop the market
2. I am much less stressed being pro-active when it comes to my net worth than helplessly watching it go down
3. I can live worry free on 40k a year if necessary
4. I’m a bit of gambler
5. If I get more aggressive with options I can generate enough income to actually live on it – and that income is not related to market performance, only to its movements
6. I hate cooking – but Instant Pot helps
7. I’m not afraid of death but if travel doesn’t come back at some point I’m going to start looking forward to it
Whoa! I think reading your comment stressed me out more than the market!
Glad to hear you are feeling better. I’m with you on #1 and #7 for sure.
Oof, yeah $1 million is crazy to see, especially since it happened within a month. My all time high to low is about $800k, but that was over a few months and o lot because of a great deal of company stock at the time. One month a very different ride.
Investing during 2008 gave the impression that we were on the brink of a serious collapse that could take many years to recover from. Times in March of this year started to sound very similar for sure.
It was Fast and Furious. And unpleasant.
market kept rising as the unemployment numbers skyrocketed only because of FED printing UNLIMITED money like they said. Where this will lead nobody knows but we all fear.
Nothing better than seeing 1M goes puff to reassess risk tolerance han!!
Having the world reserve currency is a great asset.
I personally don’t take for granted that the USA will always be the world reserve currency. Looking at history, when the change occurs, it won’t give us much notice.
Wow, $1 million net worth drop. That’s huge. Our net worth dropped about $500,000, but I didn’t stress about it. I don’t like that it bounced back so quickly either. This level will be difficult to hold. The economy is in shamble. Everything has to go right for the stock price to stay at this level.
We still have some income so that helps a lot. If we don’t have income, I’d be stressed out a lot more. Next crisis, we need to be ready with better asset allocation.
I disagree that bonds didn’t work. My bond allocation dropped about 10%. That’s way better than stock. It would have been nice if it increase, but I’ll take it. This is a big crisis.
Hopefully, we don’t see anything worse in our lifetime.
After 2008, and with a child, I moved away from equities into bonds, real estate and numismatics (a childhood hobby). So while I missed out on a lot of equity building between 2008 and 2020, during the 2020 crash, my net worth actually went up instead of cratering. I learned in 2008 that I- growing up dirt poor- have zero tolerance for risk. If a market rises 10%- a good return- it never made sense to me to risk 100k to make 10k. So I’ve taken the turtle approach, earning about 3-5 percent a year with little risk. It helps that I have a small pension from my military retirement to lean on. But I am still happy with limiting my exposure. Note, like others, I did attempt to buy into equities, but couldn’t shift money around fast enough to take advantage of it.
Oh well, back to the turtle game…
I hear the being risk averse part. My overall portfolio is up about 11%. but that is mainly due to still holding things like Home Depot… I didn’t really start trying to move money into equities immediately, but I started figuring out the plan of exactly what ETFs to move towards. I might not be buying at the bottom, but about last fall levels, which is still lower than February. I believe I have only had 1 dividend lowered (a REIT etf I had purchased at the beginning of the year), and am focusing on a bit bigger yield than I had been, and would love a 10% overall return between yield and growth. We’ll see. This was my first major downturn, and while I remember 2008, I didn’t really have anything to lose at that point.
Because we still have two incomes, I barely registered our (significant) losses in March. Not nearly as significant as yours because we’re farther back in our journey but they were a big drop on the chart. That’s not to say it didn’t bother me at all later, but I don’t follow my net worth in real time, only prices for buying.
The strange behavior of the market truly bothered me more than the losses which I assume we will recover in some set of years. It doesn’t make a lot of sense to me that with this many job losses, the market started to recover in several weeks. That part resonated very wrongly against my experience with the Great Recession and the market back then.
This was me in 2008 – I was busy with work so life just continued as normal.
A bit dystopian, but I can rationalize an understanding of market activity – the people most impacted (negatively) are those who don’t own stocks and the companies that benefit the most are already 50% of the SP500 (and rising.)
Fortunately I have others that care for my investments. The result to date has been minimal loss ( < 5%) considering the circumstances. The broker fees are more than worth the 24/7 vigilance.
Thanks for the honest assessment. There must be something wrong with me. In these once every ten years selloffs, I always simply wish I had more capital to allocate to U.S. equities. Am I a freak?
Obviously
I guess I am 🙊. But I should add that in general I felt plenty of stress during the period and indulged in stress-related eating (like you). I just wasn’t worried about the portfolio much. One other thing. In bear markets I hardly look at the overall value of my portfolio other than to conduct tax-loss harvesting. I think it is productive ostrich-like behavior…..
I can relate – it’s the big picture that is the issue (for me) more than the $. At the worst we still had more money than when we quit working 8 years ago, so… not looking is probably the best strategy.
Wow, Jeremy, $1M drop, I would have been so freaked out too!!!! I “lost” about $500K at the max but I’m still working and have a lot of cash on hand (I was supposed to be RE’d by now but changed my mind a few months ago, thinking 2020 was going to be bad due to the election – never would have imagined a pandemic though). Like others, I kick myself for not buying enough of the dip quickly enough, and I debate what to do with the rest of my cash. A good pb to have for sure. I do think stocks are way too high and will eventually slide again, unless a miracle happens and we develop a vaccine or at least a viable treatment quickly. I’m no economist, but I just don’t see how the Fed can compensate a long time for 40+M people out of work and entire industries like retail or aviation being eviscerated. Not to mention the fact that the medical stats for covid (sick and dead) will continue to grow in the US thanks to our government’s evidence-based approach to the issue (sarcasm), and the impact that will have on most people’s moods. Anyway, thank you for your honesty and kudos on your strength of character. I just can’t imagine going through this w/o a side income, so if you have to gain a few lbs to cope, imho you’re doing amazing. Onward and upward! Thank you for staying real :)
Anyone else wonder if the Feds are also saving some money by not paying out SS and Medicare for the older and frailer portion of the population that COVID preferentially kills? It is sickening to thing about, but I have heard the same for some governments’ disinterest in smoking cessation programs, where smoking related complications kill people about the same time they no long “contribute to society” thereby saving governments money.
Just you I think
Invested per Permanent Portfolio guidelines, we were down a total of somewhere around13% at the worst (I must admit, I didn’t look right away), and are presently up a little over 5%. We’ve always invested for a “disaster”; retired well at 58, and sleep easily. Wishing everyone well.
I like your quote, “In a market crash, the only thing that goes up is correlation.” I have been through a few of these also, but I was surprised at the level of panic and how things that I thought were safe went down as people sold everything. Most of them recovered quickly, but it goes to show that when people want cash, they sell everything to get it. I would have been pretty satisfied about the performance of our portfolio if I hadn’t had any commercial real estate funds. It looks like it will be a very long time before commercial RE is a good investment again. And probably never one for me again.
I’ve seen that quote in many places, not sure of the original source.
The rush to cash was something to see – I sold some bonds for a small net loss. First things first you gotta eat.
Thanks for the honest and thought provoking post. I love your blog and the way you analyze so many issues. Jives with my thought process a whole lot.
I “lost” around $200K “only” which was a sickening feeling (way behind your accumulation). In 2008 I was so preoccupied with a new position and so far away from retirement (and not really even financially literate back then) that I was bewildered but not really sickened.
This time around, I stuck to my guns and rationalized I may need to work longer (probably true). Still 100% VIIIX/VINIX (S&P 500 index through 403b’s/457/loans from 403b’s which adds up to a lot with match). Still dumping in as much as I can monthly, very thankful I remain employed. I recalled Jim Collins’ words: “It’s gonna be a wild ride.” Indeed, I now totally get that.
What got me through it is this:
Volatility does not equate Risk –provided time horizon is >10 yrs which also it is for me.
Also, your data crunching in several other prior posts helped pursuade me that this dip ain’t nothin but a blip in the BIG scheme of things (hopefully). Still hustling and saving as much as I can, grateful for what I have. Taking the LONG TERM VIEW as much as I can. But it still sucked in March. Couldn’t stand to look at Personal Capital anymore.
I also rationalized that 2019 was a crazy good year that it is OK to surrender some of those gains that felt unrealistic.
Agree 110% about carbs and caffeine. The latter is a legal perfomance enhancing drug for me.
Thanks Enrique. Going through those old market crashes is definitely a helpful way to build some fortitude. And a part of why we only bought more stock through this dip.
I do like the caffeine – maybe a bit too much sometimes. It’s great for leg day at the gym
Wowza, that’s a hit. I also turned to carbs. Can’t zip any of my jeans anymore. Finally got a handle on the carbs, sorta. Going from an active job to sitting on the couch and eating carbs is not a recipe (haha) for keeping in shape.
In addition, I just retired this week! Scary times. However, I remembered all those charts you put together about recessions through the years and stayed the course. I also lost a significant amount of money – for me. While I have some stocks I’ve held long term, I mostly day trade. I’ve been fortunate enough to make a decent amount of money in this crisis. I am actually up 90K from before the drop.
While taxes will take a significant portion of that, I’m still up. I’ve donated a lot to food banks, individuals, and causes I want to support in this horrible time. Normally, I almost never eat out, I have been ordering takeout once a week at local restaurants and then tipping nearly 100% of the meal to help support the server/delivery person. I say this not to pat myself on the back, but to remind myself that we are all in this together. We must all survive. I need to help my fellow woman and man and child because I am them and they are me. Here’s to everyone’s safety.
Thanks again to Jeremy for always sharing his journey with honesty and heart.
I love the Fred Rogers quote:
“When I was a boy and I would see scary things in the news, my mother would say to me, “Look for the helpers. You will always find people who are helping.”
As adults, we need to be those helpers. Thank you.
I suppose we can also think of taxes as a donation. The CARES Act will help a lot of people.
What is your carb of choice? (Mine is ice cream)
I love that Fred Rogers quote. It has brought me comfort many times.
Normally, my carb is Ben and Jerry’s Chocolate Fudge Brownie ice cream. However, I find it very hard to stop once I start down that yummy road. So this time I went for bagels with cream cheese. So many bagels with cream cheese. Maybe it was more like cream cheese with a bagel. Throw in some homemade pancakes and “Winner Winner, Chicken Dinner!” I feel like the prize pig at the county fair. Bwahaha.
All in all, I am very fortunate. I have friends who lost parents, friends who are nurses, and friends who are out of a job. I am so grateful for all I have.
Stay safe and many good wishes to your little family.
We peaked at $2.5 million in mid-February, and bottomed out at $2.0 in late March. The half a million drop in a month was alarming, but we still barely dipped below where we were 12 months before. It helps that we took some profits in December and January. I was more anxious with the sense that we hadn’t hit bottom. The rapid rise in the last two months does not feel reassuring. What is reassuring is the six years of expenses in cash, some bond funds, and individual bonds.
The rise over the previous year was so big that we really just dropped to 2018/19 levels. Weird.
We are in a similar position with cash/bonds so can ride this out for years.
I believe it was John Smith who said, “you have not lost anything if you did not sell. “ I didn’t sell. I comfort myself with the illusion.
We now own more shares than we did 12 months ago…
Hey Jeremy-
As I first started reading the article, I had to check today’s date (time/date awareness in lockdown isn’t high); GCC having second thoughts about his asset allocation?? Is this an April Fool’s article? I’ve long respected your iron will in the face of downturn, but I appreciate your honesty and openness even more. And just like your position on Roths has changed as life has evolved, it’s natural things like this will also change. Thanks for sharing.
P.S. I hear you about the stress eating…
After the recent purchases I think we are at about the same asset allocation as 8 years ago ;) But also heavier
While the downward spiral was indeed painful, the snapback has been incredible to see. Even with stock holdings that included oil companies and others that were pulverized, my portfolio is close to equaling my all time high from earlier this year, due to options plays as well as ballast from less risky assets. Best wishes to everyone as we navigate the market swings.
Exciting times! The market is now higher than it was in March 2019 when we decided to take some off the table.
Higher net worth now? Wow. I’ve been DCA bonds to equities, but I’m not back to even.
I kept my cool mainly by thinking “85% of a lot of money is still a lot of money” etc. When it got near bottom, that idea no longer seemed soothing.
Way better now. But still 10% lower pre-59.5 money.
But…90% of a lot of money is still a lot of money.
Still down from the top, just higher net worth than if I didn’t move from bonds to equities.
Has been crazy time for sure lifestyle and investment wise. I liked your focus on the mindset and emotional aspect to investing it’s super tough not to react. This experience has rocked my faith in my asset allocation for sure – and I am not fully invested in stocks. I am down 20% in terms of stocks but will Gold and Bitcoin up this has lessened the gut wrenching experience.
I am curious whether many FIRE guys invest much outside the market?
Hi Jeremy,
You are simply being a conscientious father. You have a beautiful family and you will do your best to take care of them.
It is understandable why you would be more conservative.
The only constant in life is change.
You’ve done a heck of a job with your retirement already. It’s time to enjoy the next chapter now.
The family man position does moderate things a bit :)
This was my first big loss: $100K. I kept a steady head but started back in with sugary desserts, which I’d given up 1.5 yrs hence. Oh and I got a loaf of sourdough. You’re absolutely right. So long, and thanks for all the fish!
I see lots of people are making sourdough (according to twitter.) Maybe something to it
2nd quarter results will be telling….and if they get a vaccine in December. etc …wasn’t affected much here in Asia… my real estate is up and Tencents is up etc …am in limbo though as we wait to retire back in Canada soon?
Except for the inability to get on a plane, life has been more or less unaffected by this whole thing in Taiwan.
Still lots of TBDs on that travel stuff though
Were you really down 1m? Or was part of that 1m unpaid taxes? (i.e. unless it was all in Roth, you couldn’t have actually extracted 1m net).
I was 35% stock 65% cash. Had preset escalating buys triggered all the way down – every 5% starting at -20%. Only managed to get half my cash in before it reversed. Thought very very seriously about doubling my buy (manually) at what ended up being the low, but thought it was going another 20-25% lower, so didn’t pull the trigger.
Sounds like I did pretty well….BUT….I have thought the market was juiced by QE since previous cash, so was only in 35% stocks since then, missed out on 12 yrs of divs and all those gains most people were losing in this crash.
Feels like it all came out even in the end.
Most important: whatever your strategy (as long as it’s reasonable), stick with it, you’ll have your day.
Stay safe everyone….your health is worth far more than these paper losses…
Dunno, I didn’t pay attention to multiple significant digits.
A lot of people are beating themselves up for not cashing in those 12 years of big gains they were sitting on before the crash….but it really isn’t that easy to extract those big gains in a tax efficient manner.
And people who bought some stock during the crash and didn’t panic sell any, are likely back to within 10% of break even again.
So, they have another bite at the apple.
Do they want to bite the tax bullet and cash out gains of the past 12 years?
And if they do….where to invest?
No easy answers…..maybe best is to go half and half….
>it really isn’t that easy to extract those big gains in a tax efficient manner.
Sure – Long Term Long-Term Capital Gains
However – 7 Years of Early Retirement Tax Optimization
I have really enjoyed reading through many of your articles. Thank you for this wealth of information!
I was wondering if you heard the recent ChooseFI podcast #193 entitled “The Role of Bonds in a Portfolio with Frank Vasquez.” Frank made a very convincing case for using a bond fund in his retirement portfolio that has a good negative correlation with equities. He specifically recommended the ETF with the ticker: “TLT” (or a similar ETF at Vanguard (ticker: “EDV”). EDV has bonds of even longer duration than TLT.
It seems to me that in retirement, it is wise to have a true diversifying asset in the portfolio. I would love to know your opinion about using TLT or EDV for the bond portion of a stock/bond portfolio, rather than muni bond funds or total bond funds which are much less negatively correlated with equities.
>It seems to me that in retirement, it is wise to have a true diversifying asset in the portfolio
This is your answer. Do what you think is best.
I didn’t listen to the podcast, but long-term bonds respond more strongly to market changes than short-term bonds. It’s why the Permanent Portfolio holds them and why they were up more in Q1 (more volatility.)
This is what’s going on in my head. As of right now I’m pretty much back to pre-covid levels except that 1/3 of my holdings is cash. But it’s in IRA. The last place where you want your idle cash to sit and lose value to inflation. I’m not 591/2 yet and so any withdrawals would be taxed AND penalized. I feel like I have no choice but go back into the market.
One thing I regret looking back is not to use ROTH account more. I assumed I would be in a lower taxed bracket when retired. That’s not the case.
>I assumed I would be in a lower taxed bracket when retired. That’s not the case.
How so?
>1/3 of my holdings is cash. But it’s in IRA
Sell $1 of X in the taxable account and buy $1 of X in the IRA? – it moves the cash where you need it to be but maybe with some tax
I dropped about 25% – not a million but plenty. I’m back to within 10% of peak. Challenge is that I was involuntarily retired before end of 2019 – not yet 59 1/2 so extracting funds would be more challenging. Fortunately my expenses dropped more than planned. And I must be very good at being unemployed – as I gat a raise of over 50% – that has never happened when I worked. Biggest challenge is selling the house – a couple buyers backed out. We eventually dropped to a very attractive price and should close next week. Dropping 20k in equity is painful – until we realize our portfolio fluctuates that much almost every week.
KevG, do you have a 401k or 457 account from the employer where you retired from last year? You can tap into that without any penalties as long as you left that employer the year you turned 55 or later:
https://www.balancepro.net/education/publications/earlywithdrawal.html
Brutally honest. Thank you.
raw and unfiltered
Carbs *are* good.
My brain says gym but my heart says taco (and margarita)
Time in the market, not time the market. I didn’t sell. I maximized my pre-tax contribution. So far so good.
I was down $300k at the bottom (so far). I developed a perverse fascination with checking the drop to see how big the “loss” was so I could tell people I was going to hold steady and ride it out. Mostly, I believed that.. and in fact I have made no changes.
It helps that I have ~3 years until retirement and I don’t need the money anytime soon. One slightly crazy action I took to try and get a psychological “winning” boost was to pay off a $12k 401k loan using zero interest credit cards within 2-3 days of the bottom. It’ll make a good story later. I hope.
Ah, to lose a million in one stretch.
I think we’ve followed the same path as you, slowly gaining some financial resilience over time even as our losses have multiplied when stuff hits the fan.
I remember in 2008 when the “economic world order will collapse” was in full swing and these weak hands hit sell right at the bottom. Boom, half my net worth gone.
In terms of finances at least, COVID has been easier to handle as we approach it from a position of strength rather than fear, despite losing multiple times (on paper) my old entire net worth from 2008.
It’s amazing what financial independence does to your mentality.
Thanks a lot for sharing the story, that is quite significant drop. But more importantly, it sounds like your networth might be higher than some of the expense reports make it sound like sometimes – congrats for that!
Unlike some of the more frugal bloggers, I like to see your expenses with a less budget-oriented lifestyle with plenty of travel. Hope you keep that up and continue sharing your expenses, gives me an idea of where I need to be one day :-).
I’m lucky to have a pension and I’m able to stay and have stayed 100%, VTSAX.
Was down $500k, and didn’t really care, hoping to create millions
Did blog income dry up with less readers or less ads? It just seems to me that it should go up as readers look for answers.
Mostly the latter – lots of companies slashed ad spending… some have nothing to sell (e.g. airlines/hotels/restaurants) and others don’t even need to advertise and can’t meet demand (food delivery, grocery store, TP, etc.) A lot of affiliate programs have been paused or cut as well.
I felt bad losing 5 figures this year, but it did come back. I say, it always will or the last thing you should worry about is your balance.
Thanks for sharing! I lost 15% of my portfolio but interestingly did not worry a bit… I know it’s gonna go up anyway in near future. Or may be I have job that pays all bills. I guess if I were dependent on that portfolio for bills, then would worry.
I early retired in January fully expecting a market drop/correction/recession – call it what you will – coming up either in 2020 or soon after and had no real fear when the market dropped. I slept/sleep at night. I checked the market here and there but less than when I was still working. I did manage to buy some stocks near the bottom despite a paper loss of >$300k at the bottom.
What I didn’t predict or model for was the reason! I’d modeled and projected all sorts of financial reasons for a drop but not a pandemic (or a war – hopefully that doesn’t happen but the current riots make some places look like a war zone!!)
So how will this pandemic play out? Financial dips usually have a *reasonably* well know curve down and up. What sort of up/down/wobbles will the market have over the next 8 years? What is the current USA/World unemployment rate – is this going to be the bottom? How much deeper in debt will the US go with the double whammy of loss of tax income and stimulus payouts etc?
Beats me! I’ve hopefully set my self up to be OK for 5 or so years…. but… a pandemic! Really? Who would have thunk it!
“Who would have thunk it!”
The Taiwanese did.
The Mainland Chinese to, if you please,
The Japanese kept one-eye squinting.
In Singapore they bolted the door,
To which Aussies woke in fright.
But Americanos and Europans would hear of it.
Would you say as the market sits if you had an extra $20k sitting in your checking account would your dump it all into your taxable account and go all in an index fund say VTSAX? Or wait to see if there will be another drop in the market? Thanks! just listened to ChooseFI episode with you and still trying to grasp the concept of capital gain harvesting.
I have no idea what the market is going to do. Nobody else does either.
I would say a stronger approach is to pick an asset allocation, invest periodically and automatically, and then leave it alone for years. Time in market is more important than timing the market.
“Time in market is more important than timing the market.”:
So long as interest rates are repressively manipulated by government(s).
Should they cease and desist then market set interest rates will increase to match total equity returns but with less volatility.
You should consider video/vlog as an alternative source of income to blog.
Video has a broader audience. With your content and humor, I think you will get a much larger following than just blogging.
Lost 9 pounds in three days. Couldn’t sleep. We only “lost” about $160,000 but our K1s went to zero. Yes, zero. Thank God I spoke to my husband and mom when I thought about selling a year’s worth of income. They both said no. Now I look at the 52 week high and low price per share. That is soothing. Realized we’re still above where we were in 2017, at least in the market.
I am glad I got to experience this now, before I retire. It has got me asking myself a lot of good questions about my AA. I handled things well, considering, but the quick recovery made it much easier to handle. I was 90/10 and bought stock with my 10% bonds that I had, so now I sit at 100% equities.
My plan, as I get closer to FIRE (5 years out), is to have more bonds. I would not want to be 100 or even 90% stock during FIRE if we were to lose 35-40%+ again without a paycheck to fall back on.
The hard part now, is buying bonds, I know I have to start at some point, but the run up on stocks makes me keep holding on, I don’t want to sell at a loss. :)
thanks for the read.
Are you going to do an article on the cares act
The CARES Act
Meh. I didn’t even login to vanguard except once to plop in my tIRA contribution. What’s the point? I’m not yet retired and don’t see any reason to change my AA. I had plenty of stress just “watching” corona unfold.
Covid-19 has been a good learning experience for people like me who are still in the earlier stages of FIRE.
I secretly wished the stock market would go even lower than it did so that I could scoop up a few more ETFs at a discounted price.
Did you buy any precious metals in March? Silver from 12 to 30$? What are your thoughts about the US$? Some predict they will loose all value since they are printing 1800T$?
People predict lots of things. I didn’t buy silver, and don’t see the dollar going to zero. Printing $ is cheaper than not printing it.