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So at my age of 55, should leave it invested 100% in SPY for another decade? Is that too long? thank you
Not surprisingly, "it depends". If you had a mix of stocks and bonds in 2022, likely your bonds would have done even worse than your stocks. Such supposed diversification or leavening, would have been of zero assistance. Longer, term, again it depends... on whether you're withdrawing from your portfolio to replace erstwhile W2 income as a retiree, and how large are these withdrawals. On this forum we keep mentioning a 4% annual withdrawal rate... but what if instead you're only withdrawing 0.4%? Then likely it's as if you... never retired.
Given the stretch in modern longevity, a 55-year-old today, can easily expect 30 more years... hence the need for supporting a long period of withdrawals from the portfolio, or alternatively, a long period during which to abide bear-markets.
Quote:
Originally Posted by txfriend
Imagine your investments dropping a million twice during your investing lifetime. It happened to me.
Only $1M?
Numbers aside, we should distinguish between feelings and actions. In every bear market, I feel abjectly awful; 2022 was no exception. But my actions were... zero. I never rebalance and never sell, instead adding more, whenever possible. That doesn't mean sleeping-well, or being stoic about it. One could spend all night moaning and shuddering... then "awake" in the morning and scrupulously avoid any desperate action.
This disparity between feelings and actions, is one reason why happiness doesn't rise with wealth, but nevertheless, the imperative to keep building wealth, persists.
Not surprisingly, "it depends". If you had a mix of stocks and bonds in 2022, likely your bonds would have done even worse than your stocks. Such supposed diversification or leavening, would have been of zero assistance. Longer, term, again it depends... on whether you're withdrawing from your portfolio to replace erstwhile W2 income as a retiree, and how large are these withdrawals. On this forum we keep mentioning a 4% annual withdrawal rate... but what if instead you're only withdrawing 0.4%? Then likely it's as if you... never retired.
Given the stretch in modern longevity, a 55-year-old today, can easily expect 30 more years... hence the need for supporting a long period of withdrawals from the portfolio, or alternatively, a long period during which to abide bear-markets.
Only $1M?
Numbers aside, we should distinguish between feelings and actions. In every bear market, I feel abjectly awful; 2022 was no exception. But my actions were... zero. I never rebalance and never sell, instead adding more, whenever possible. That doesn't mean sleeping-well, or being stoic about it. One could spend all night moaning and shuddering... then "awake" in the morning and scrupulously avoid any desperate action.
This disparity between feelings and actions, is one reason why happiness doesn't rise with wealth, but nevertheless, the imperative to keep building wealth, persists.
I've been retired for 32 years now and am as happy as a 82-year-old pig in a puddle of mud. I may have not
been the best investor all the time and I made many mistakes and we never inherent a dime. I started by
reading Money Magazine and learned the basics. We earn more in retirement than we did working, and
we have been longer in retirement than working. We never lose sleep over a down market because we have
enough cash investments set aside to last many years or possibly a lifetime.
I've been retired for 32 years now and am as happy as a 82-year-old pig in a puddle of mud. I may have not
been the best investor all the time and I made many mistakes and we never inherent a dime. I started by
reading Money Magazine and learned the basics. We earn more in retirement than we did working, and
we have been longer in retirement than working. We never lose sleep over a down market because we have
enough cash investments set aside to last many years or possibly a lifetime.
You should be commended for your tenacity and success... and I mean that wholeheartedly! But you see, whether we lose sleep or not, is more predicated on our personality, than on the literal numbers of our income and expenses. A neurotic billionaire living in a refrigerator-carton would lose more sleep, than a single mom earning $18/hour with no savings - who isn't so neurotic.
You were (and are) happy because your mental constitution predisposes you to be happy. Sure, a bit of prudence and planning give you more cause for sustained happiness; it would be silly to rejoice if facing bankruptcy. But in the opposite scenario, one never ceases to tremble and fidget, even as one rises to some ludicrously high ratio of assets to expenses. Think of it as anorexia, applied to money.
I've been retired for 32 years now and am as happy as a 82-year-old pig in a puddle of mud. I may have not
been the best investor all the time and I made many mistakes and we never inherent a dime. I started by
reading Money Magazine and learned the basics. We earn more in retirement than we did working, and
we have been longer in retirement than working. We never lose sleep over a down market because we have
enough cash investments set aside to last many years or possibly a lifetime.
even setting aside cash can be irrelevant since spending from 100% equities directly has about the same success rate as 50/50 and 60/40 .
the bigger up years without the drag of cash and bonds results in a bigger cushion for the down years .
100% equities failed one additional time compared to 50/50 and 60/40 out to 30 years .
it did better then 50/50 or 60/40 for longer retirements.
so a cash bucket is only for our own mental masturbation but it brings nothing extra to the party.
personally i don’t want 100% equities for reasons of volatility and i like using buckets since my brain like compartmentalization, even if it adds nothing
there is so much to consider as you get older and older .
when i first started out a mere 7% drop was at best a couple of months contributions to my 401k. today a 7% drop is more then a decade of contributions at max .
so the more we have the more those dips take in money and the more that dip represents.
so the older and closer to retirement you get the more damaging hits will be when fuel tanks are full which is usually the 5 years or so pre retirement and the first 5-8 years in retirement.
because what you initially draw s based on your balance any big hit right before can effect that initial income .
if you had 1 million in 2007 and retired , your income would be 40k .
but if you waited until 2008 and fell 50% because you kept a very high equity level ,your initial income is 20k .
that is a big deal .
while if markets recover you can take a raise , the fact is you already started a lifestyle based on 20k and any raise can be 3 years out since you don’t know if we are falling farther yet.
so not only is your own investor behavior have to be considered, but how full those fuel tanks are matters .
plus who are you investing for ? if you have a pension and ss that supports you and this is fun money , then you can be 100% equities forever.
but if it will be supporting you then you need to give it more thought.
but 55 is approaching that red zone soon if one is retiring at 62 so a lot of factors need to be considered , including a dip when you are ready to retire.
if you don’t have much saved then the dip isnt as much a problem then if you did
Great post that makes a lot of sense. Wish I could rep you, but I got the spread it around message. The biggest problem with the 2022 dip was the only safe haven was cash as stocks and bonds did not do well. Not until the fed raised interest rates, did money market and CD rates become attractive. I read something somewhere that is food for thought. Keep 2 or 3 years of what you normally take from retirement accounts in a cash type instrument to weather the dip and not be drawing other monies in a down market. Need that time for market recovery.
does nothing …the weight of that cash in up years wipes out more in gains then it protects .
kitces has lots of articles on the mirage of having cash buckets for down markets ..you would need to be a great market timer to come out a head. most are not
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