Is the start of 2016’s down market crushing early retirement dreams? I am seeing a shortage of upbeat early retirement posts lately. In fact I can even see from the hits on the Leisure Freak site that the number of people searching for early retirement information has trailed off since Friday January 15th’s big market selloff and resulting 2.39% drop in the DOW.
Obviously it is a total bummer seeing portfolios hit so hard in the historically damaging start to a new year. But investing is for the long haul and if we had a plan it should have been one to get through market bumps.
Oh no. Not Again
This certainly reminds us of what it felt like at the start of the 2007 market fall. A lot of us held on to the hope that the real estate bubble couldn’t really destroy the world’s investment markets. Many financial professionals were saying just that, telling us that there is nothing to worry about at that time. Saying that the mortgage and real estate market represented only a small percentage of the economy. Little did they know. If my memory serves me right the markets did continue to drop into the toilet through Feb 2009. This is different this time. At least the job numbers look good and other than the oil sector corporate profits have been mostly up.
Sometimes when a long and happy rapid recovery takes us back to record market highs like we experienced in the past few years we forget that what goes up eventually has to come down.
The New Fear – Oil and China. Its always Something
Just as now where it is the fear of oil’s drop and China’s slow-down causing concern, those who are on the edge of portfolio panic have forgotten just the opposite. Forgetting that this recent drop will eventually find a floor and begin to rise again. As long as you have planned your portfolio and investment strategy to be aligned with your risk tolerance and your early retirement goals there is a way to reverse this down market crushing early retirement dreams funk-feeling.
Fighting the Feeling of the Down Market Crushing Early Retirement Dreams
I do get it. My portfolio has taken a beating. I just spent a few hours analyzing all the various funds my financial planner has me in and some were real stinkers. One in particular was aligned with the oil and gas industry for diversity reasons a couple of years ago. That one is down 52% from the first of 2015. Because my portfolio was set up to provide income there were a number of funds paying a decent dividend or interest rate but they seem to have had some big downside in this recent market drop. Sadly my Overall portfolio is down 9.3% after considering my 72t payments and wrap fee from the first of Jan 2015 to Jan 15, 2016.
I should be feeling the down market crushing early retirement dreams funk but I know there is more to this than looking at the portfolio balance numbers from a year ago and comparing to now after the ugly market conditions.
Still Getting Dividends and Interest.
If anything, getting income from my investments is a psychological boost and buffer against feeling the sting of the down market and portfolio decrease. Some of these fund dividends and the interest is harvested to replenish the cash bucket of which pays my 72t payment each month. Other fund’s dividends are reinvested. Those reinvested dividends are buying in at a lower cost now and will generate even more dividend income.
Cash Bucket Cushion.
My early retirement lifestyle is funded from my portfolio. I have enough cash along with the dividend and interest earned to continue sending me my 72t monthly check for all of 2016 without having to sell any assets. That is another important buffer against feeling the down market sting. I also keep additional cash in my credit union savings account to use for any additional needs if they arise. Cash isn’t making much income but it isn’t at risk of taking a 10% to 40% hit either during spooked market conditions.
Don’t Let the Down Market Crush Your Early Retirement Dreams
I was set to retire early in 2008 and the down market at that time delayed my early retirement dreams by another year. When I retired early in December 2009 the market wasn’t much better and jobs were still being eliminated. The unemployment numbers were very high. Eventually I decided that it was time to begin the retirement dream. If you are feeling like your dream is being crushed then by all means delay things until you feel the time is right. Whether you delay or not here are a few things you can do to get over the down market crushing early retirement dreams funk.
Run the Numbers:
I don’t know if the market has found its bottom and we can rebuild from here. It could just as well be a false bottom and we are in for more downside. Take your portfolio numbers and run them against a good retirement calculator. I like to use FireCalc with its Monte Carlo approach. Run the numbers again with a reduced portfolio amount. You can play with this and see what would happen if the market did drop another 10% right after you retired. Get comfortable with your situation. If all looks good then relax. No crushed retirement dreams. If they don’t look good then consider a slight delay as I did. Just don’t panic and do anything harmful to your portfolio. It may be a good time to seek financial advice from a CFP.
Look at Your Portfolio as Buckets:
In preparation of your early retirement you should have a strategy for funding your new retirement lifestyle. Look at the different phases of your retirement and how you will fund them as buckets. The first years are bucket one. Then there is the intermediate years and finally the many years out bucket. If you have no idea what I am talking about I have a page with a very simple bucket strategy example.
If you have the first years funding figured out and have cash set aside then stop worrying. You can retire and let the other buckets ride until you need them and hopefully the markets have returned to sanity by them. If you haven’t done this then start setting a funding strategy now and once you feel it is safe move forward. Again, if you have concerns It may be a good time to seek financial advice from a CFP.
Reassess your Investment Risk Tolerance:
If you can’t sleep at night or have thoughts of financial dread you may be too aggressively invested for your risk tolerance. Everyone is different. There is always risk in investing but there are ways to dial it back a little. Less risk of loss means less gains but don’t let your fear of missing out on big gains overshadow your risk tolerance. Make necessary adjustments and if you have any questions seek the advice of a trusted CFP.
The Last Word
Don’t allow the down market to crush your early retirement dreams. Think at worst there is a slight delay to retiring early. It’s best to get your investments and comfort level aligned before you retire.
Are you feeling the down market crushing early retirement dreams funk?