martincmartin wrote: ↑Wed Oct 27, 2021 8:56 am
Let's agree that:
- You shouldn't have 100% stocks. Maybe 2/3 stocks, maybe 60/40, maybe even 50/50. So between 1/3 and 1/2 bonds.
- You rebalance annually.
- You're not taking out more than 4% of your initial balance every year for living expenses. In other words, even when the stock market is down, you're still keeping > 90% of your funds invested. Call this investing for the long term.
Then during a recession, where stocks later recover to their original value, you may actually do
better than if the market were flat the entire time. That's because of rebalancing: you were able to buy stocks when they were down. So a V shaped recession, with rebalancing and without any withdrawals for living expenses, you'll
make more money than if there was no recession and stocks had the same beginning and ending values. Withdrawals complicate things, and perhaps you're down a little. But the point is, rebalancing + keeping almost all of your money in the market means recessions are "paper losses", and as long as they recover (a big IF, see Japan), they don't hurt and may even help.
The real threat is inflation, and in particular inflation combined with something else bad, like WWI or a stagnant economy (1970s stagflation).
Recessions are like airplane crashes: rare, dramatic events that grab headlines. Inflation is like car crashes: an ongoing background level that doesn't grab headlines or mind share. More people die in car crashes than plane crashes.
As another analogy: as long as you're staying in the market, recessions are when stocks go on sale. As long as you're not
selling at the sale price, but
buying, they actually boost your returns.
Some people love fear. Some people love Schadenfreude. Some people love to only bring up the negatives.
• You buy a puppy and some family member immediately points out that in 12 years you are going to have to put it down.
• On average, we know that every 18 years there is a bear market which people love to point out.
• The business cycle is part of our investing both during the accumulation years as well as the decumulation years. People love to point out the low point of the cycle.
• People love to point out Japan.
• People love to point out 1929/Depression/WWII.
• Cheech and Chong loved to point out dog poop.
Hey, "it happens" is what they said.
The good news is, that throughout one's 30-40+ years of working you have invested and created income streams that will fund your retirement no matter where we are in the business cycle (pension, Social Security, risk portfolio, royalties, real estate, etc...).
Odds are that if you retire at age 65 and a bear market due to recession occurs - on average - once every 18 years, that somewhere between age 65 and age 83 each retiree will live through one, or part of one during their retirement years. Some may even get to experience more than one.
Regarding a recession in retirement. "It happens" in the words of Cheech and Chong is going to be a given...
Bull and Bear markets happen. They will in retirement just as they have during the working/accumulation years. It happened to all of our parents. It happened to all of our grandparents. And it will happen to all of us. Correct preparation with your income streams, asset allocation, and decades of saving has the potential to make a recession during retirement more of a non-event than all those who love to talk about it might want to admit.
1 out of every 3 investors age 65 and older sold
100% of their equities during the Covid 2020 sell off. 18% of all investors did the same.
https://reversemortgagedaily.com/2020/0 ... s-in-2020/
That is the type of capitulation these forums and exchange of ideas hopefully could help prevent. I guess I would be in the camp of trying to prepare both in one's planning as well as preparing to avoid behavioral mistakes with one's finance's during a recession in retirement.
That and enjoying our household companions for the 12 years we have them before the day comes to put them down (according to our one family member who continually points that out).
CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel |
"Pick a bushel, save a peck!" - Grandpa