2008 was a great year. A lot of incredible things happened, paving the way for a better and brighter future for all. SpaceX launched the first commercial spacecraft into orbit, leading the way to the future of space exploration. The Large Hadron Collider at CERN powered up, leading to the discovery of the Higgs boson. Doctors grew an organ from a patient’s own stem cells and sequenced the entire genome of a cancer patient, both early steps in the revolution of medicine. We lost nearly $400,000 in the stock market.
Indeed, 2008 was a great year, a year of breakthroughs and triumphs. The future looks bright
“Hey, wait! You lost $400k! How is that a great year?! You think that looks promising?”
Well, yeah. Just as twice as much money won’t make us twice as happy, having less money didn’t make us any less so. Maslow was a pretty smart guy. We still had our health and our friends and family. We still had a roof over our heads, food to eat, and clothes to wear. We still owned the exact same number of shares of stock in the best companies around, with smart and capable leaders and staff, building great products and services. We still had jobs, and best of all, stocks were ON SALE!
People line up overnight in the dark and cold on Thanksgiving to be first to buy some crappy consumer gadget for 50% off, and do so with excitement, but suddenly the best companies in the world are on sale and people freak out.
God help the man standing between a crazed shopper and a 50% off shoe sale or in the doorway to the brokers office when there is a market crash. A lot of people sold stock in 2008… We went shopping. This was our Black Friday.
2013 has been another great year. It was our first full year of retirement, our first full year living off the fruits of our portfolio, and our first full year of extended world travel. It was also a great year for stocks, with the S&P500 and Dow Jones Industrial Average both closing at record highs… Unfortunately
We started the year with a portfolio of 70% stock / 15% bonds / 15% REITs. I had imagined converting this to 100% stock early in the year, but elected to wait, to see how we adjusted mentally to living without a working income
We adjusted well. We realized that we could live incredibly rich and rewarding lives for less money than our portfolio could support, and that we could do so without paying a single penny in tax.
Retirees have bonds in their portfolio to provide short term income and to reduce volatility. We realized that we didn’t need the former and weren’t affected by the latter.
A quick simulation on cFIREsim shows that a 100% stock portfolio is practically guaranteed to leave a substantially greater endowment to posterity than a 70% stock portfolio, at least 60% more but in some cases more than 500% more.
Since those medical and scientific breakthroughs are going to help us live to be hundreds of years old, with the ability to explore the galaxy in our own private spaceship, we are going to need some extra spending money
Now we just need to convert our bond and REIT positions to stock… All I wanted for Christmas was a major stock market correction, a good year-end sale…. but No
Now, 2008. That was a good year
Hey! Just found your site from a link on Root of Good.
I totally agree about 2008. When everyone felt like the world was crumbling, there was only one thing I wanted to do with my bonus and every $1,000 I could find: Buy more stocks! I knew that this would be a once in a lifetime opportunity to own a piece of any company while it was on sale and well below market price. Over 5 years later I’m glad I did!
Welcome! 2008 was a great buying opportunity. Sounds like you took advantage of it, congratulations!
Oh man… I’m so gutted I missed out on all the fun back then! I’m sure there’ll be another one within five years. They seem to be coming around with increasing regularity these days.
I like your optimistic view on medical and space travel advancements :)
I would be surprised if we see stocks go on sale as much as they did in 2008 and 2009. Man, those were some awesome years. I remember using the phrase “the best buying opportunity of our lifetimes”.
I’m more optimistic about the medical and space travel opportunities than I am about another major market drop in the foreseeable future
That’s strange. You guys lost all that money in 2008 yet you were “lucky” enough to make it all back and then some?
What good times those were.
I’m glad to see you guys are comfortable enough with an almost 100% equities portfolio. I feel like I need a slice of bonds in my almost 100% portfolio, but I can’t pull the trigger on bonds that pay about what stocks do.
I know, right? What are the odds we could be lucky so many different times
Yeah, I don’t really see the purpose in owning bonds. They are good for deflationary environments, current income, and reduced volatility… none of which I expect or need
I like the Black Friday angle. A good read and well put. I wish you guys the best in moving to your new AA!
Thank you, donebyforty. I would never wait in line for Black Friday shopping, but I would happily purchase some stocks while hanging out at home in my boxers. I might even take the time to mock the talking heads on Fox News while I do so
I love these articles, you have great wisdom with regards to simple investing and tax planning. Quick questions: With regards to being 100% of your portfolio in vti, how do you manage your cash flow for everyday living? Do you sell a certain amount to cash each quarter or annually or something else? Also you must pull from your taxable investments for spending because of the huge benefit of tax free w/d from the roth conversions. Do you use mostly the dividends to live off of or sell at certain gains? Could make for an interesting post
Hi Andrew
Someday I may write a post, but here is the short version:
We have a few months expenses in cash. Regular dividends and interest replenish that bucket monthly and quarterly. Annually we harvest gains/losses… depending on cash level, we can either add to or reduce our stock holdings at this time. All of this happens in taxable accounts, we aren’t touching the ROTH or IRA accounts for many years
Hi GCC,
Thanks for the excellent blog and sharing your experience! I live in Switzerland and have just started to read through your lines. I am wondering how you did shopping when the market dropped? Were you not fully invested at that time? Obvioulsy not. What % of your money you keep in cash to be prepared for such an opportunity like 2008? Or did you sell other assets to invest in stocks? All the best, von AdB
Hi AdB. I had extra cash in 2008, just because I was lazy and didn’t invest the income I was continuing to receive from work. I prefer being 100% invested, and keeping cash at a minimum.
https://gocurrycracker.com/cash-flow-management-early-retirement/
I did exit most of my bond position in 2008 and converted to stock, but that was a small percentage of the total
I love articles that force you to look at events from a different perspective. Well done. One of the things that I like so much about the FIRE community is that it has such a disproportionate amount of very smart people who can offer unique perspectives because those people almost always walk to the beat of their own drum. Yes, that includes you Jeremy( and you too Justin RoG because I know you’ll probably see this :D) Keep up the good work.
It was only good because it quickly recovered. What if we’d still be sidaways or lower than 2008? It happened in the past and it sure can happen again and then my friend it won’t be so good, will it ?
Thanks Obama!
I second that 2008 was a great year for us especially as we were building our portfolio. But I don’t think I would feel the same if this would happen today and I am more interested in protecting my 7 digit portfolio, trying to find the right balance.
Hi GCC!
I am about 10 years away from an early retirement at age 38 and I have my asset allocation in 100/0 stocks to bonds. I rebalance once a year and rarely follow the stock market (for good reason), however this bear market recently which has been drawing ire all over the news has got me a little concerned.
Since you were able to early retire at the start of a bull market (you’re crowning achievement as I heard you say ;) ), this allowed you to spend a little bit more rather than saving more if you had retired during the beginning of a bear market. I would like to do the same thing!
With that said, since I am closer than most to early retirement, do you ever recommend changing one’s allocation from 100/0 or 90/10 to something less volatile like 80/20 or 70/30 at the “start” of a bear market? I know that it can take awhile for me to recoup my losses after a bear market, and inevitably I imagine that this will delay my early retirement a bit.
Granted, I understand that there is no “start” to the bear market which can be easily predicted :) However, if I was able to predict accurately at least a year (or less) in advance before the big losses started hitting, and then ride out an 80/20 or 70/30 split for a few years to preserve some gains before another bull, could this theoretically allow my early retirement to stay on track and not delay it?
Curious as to your thoughts! Definitely not in the market to sell or liquidate anytime soon lol, just curious if changing my allocation could be helpful (or a hindrance) before a possible bear market
Thanks!
Sean
The only things I could advise is to stop watching the news and stop trying to time the market. The best thing that could happen when 10 years away from retirement is a huge downturn in the markets so you could buy more at lower prices. Recent market activity should just be considered normal.
If you feel uncomfortable about this normal market behavior, you can either permanently change your asset allocation to something that does feel comfortable, or (in the immortal words of JL Collins) “toughen up cupcake.” There is no correct answer. Ourselves, we are at about 90/10 and have had a healthy amount of exposure therapy.
Awesome, thank you. You had mentioned though in your article on Upward spending trajectory that retiring at the beginning of a sustained bull market allowed you to spend a bit more…
So if I did retire at the start of a bear market, I might need to save a bit more ultimately in the beginning, although I should be OK in the long run you’re saying because I am getting so many stocks at major discounts?
https://www.gocurrycracker.com/upward-spending-trajectory/
The market will go up. The market will go down. Flip a coin on your retirement date for as good of a guess as you can get as to which you will experience.
I wouldn’t use the word ‘major.’ Today people are getting the same deal as if they bought stocks in January. Or paying 5% higher than if they bought 1 year ago.
The 4% Rule is a good guide. It worked for every time anybody retired at the start of a bear market. That is why it is the 4% rule and not the 5% rule or 6% rule. The only way to guarantee you can spend more later is to work longer / save more now.
Got it, Thanks!