I was still in my first long career and just months away from my FIRE date in 2008 when it became obvious it was all going to hell. I learned valuable personal finance lessons regarding once in a lifetime economic dumps when everything is unprecedented with no signs of stability in sight. But back then I was still employed and had options. Retiring early and living off of a portfolio presents different challenges when that “just enough” portfolio can be severely stressed. I took the recession lessons learned and applied them to my early retirement portfolio strategy. Here’s a quick rundown on how it has held up during this pandemic crisis and its related market drop.

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Year To Date Numbers Look Rotten

Pulling some numbers for use as an example from the first of the year (1/2/20) to (3/19/20) before the market stimulus bump shows substantial investment market damage.

• DJI, Dow Jones: -33.6% 
• GSP, S&P 500: -29.2%
• IXIC, Nasdaq: -24.3%
• VTSMX, Vanguard Total Market Index Fund: -30.0%
• Leisure Freak Tommy’s retirement portfolio: -17.4%

Fortunately the stimulus market bump occurred and the end of quarter numbers did improve from the week before but still the worst quarter since 1987. 

• DJI, Dow Jones: -23.2% 
• GSP, S&P 500: -20.0%
• IXIC, Nasdaq: -14.2%
• VTSMX, Vanguard Total Market Index Fund: -20.3%
• VTI, Vanguard Total Market Index Fund -22.4%
• VTSMX, Vanguard Total Stock Market Index Fund -20.3%
• Leisure Freak Tommy’s retirement portfolio: -12.2%

2008 Recession Lessons Learned – Portfolio Diversification Matters 

My being somewhere between leanFIRE and FIRE had me a bit more conservative to reduce risk. I used the recession lessons learned to attempt lowering financial pain from another extended market dump during my early retirement. Although I have no problem working in retirement when I want to, I never want to NEED to work for survival. I’m sure that post pandemic there will also be plenty of new lessons learned from this crisis to carry forward. 

I know plenty of people who are all in with stocks, mostly through Index and ETF funds. I would watch the market go gangbusters of late and think, what if I had only been all in stocks or stock funds too? One of the recession lessons learned was that diversified portfolios recovered much quicker than those all in stocks. 

Great Recession Diversified Portfolio Recovery Details

Another 2008 recession lesson learned was that sometimes bonds will track with stocks instead of going the opposite direction as in past history. That may be the case this time too. Diversification can lessen portfolio decline but not stop it. As listed above, my portfolio is down 12.2% for the first quarter of 2020 with this COVID-19 pandemic. But that’s much less than the sampled stock indexes.

The numbers look bad and may get much worse. 

If I was fatFIRE I might be able to stomach large losses and continue on. I wondered if being all in stocks over the past few years meant the excessive gains they have enjoyed are far greater than what has trimmed thus far during this pandemic market dump. So I took a quick look at the numbers on 3/20/20 prior to the stimulus market bump when things were at their recent worst.

• DOW closed 3/20/20 at 28,869. That takes it back to what it was 11/1/16
• S&P 500 closed 3/20/20 at 3,258. That takes it back to what it was 1/1/17
• Nasdaq closed 3/20/20 at 6,880. That takes it back to what it was 11/1/17
• VTSMX Vanguard Total Market Index Fund closed 3/20/20 at $56.01. That takes it back to what it was 12/1/16

I used the Vanguard date of 12/1/16 because it went the farthest back and I looked at my portfolio amount. I haven’t added any money to my portfolio during this timeframe and on top of that it has been paying out to me monthly since then. Comparing my 12/1/16 portfolio amount to 3/20/20 it was down -16.4%, which was 1% better than it was when looking at the first of the year to 3/20/20. That’s even after paying out to fund my and my wife’s early retirement lifestyle since that time. There were also associated CFP wrap fees on 90% of the portfolio since then. So unless I am missing something, being all in stocks appears to be a lot riskier when a major market dump occurs. That would account for a longer post recession portfolio recovery time frame.  

My FIRE Portfolio Allocation

I do keep a diversified allocation of stocks and bond funds like many people do. But I do something else. I use a bucket strategy where I keep two years expenses in cash and short-term bonds along with another year in a savings account. It was 2 years ago (3/2018) when I set this asset allocation.

• 18.5% Cash/Cash Investments
• 29.5% Bonds Fixed Income
• 48% Equities
• 4% Alternatives

I did not see the astronomical portfolio growth over the past couple of years that I would have with a larger stock allocation. But I also didn’t experience the higher level of losses now. I hope things come back to some version of normal sooner rather than later. With all the unknowns I now really appreciate having the cash as my FIRE portfolio survival insurance. It’s calming to know it’s there to  support our retirement lifestyle without resorting to depressed priced asset sales for a couple of years. 

If post pandemic recovery goes like that of the great recession then I hope to see similar favorable recession portfolio recovery timeframes for a portfolio with a diversified stock/bond/cash allocation. A leanFIRE to FIRE early retirement means I don’t have a lot to cut from our lifestyle to reduce spending during a sustained market dump. That’s why I took the 2008 recession lessons learned to heart to help ensure my early retirement portfolio survival during once in a lifetime or never before seen world and market events. 

I’m not trying to tell anyone what they should have done before the pandemic hit. 

If I could go back in time I would have gone to all cash last month. But that’s not how things work. I have no idea how the recession lessons learned or my portfolio will hold up with the next market close or even my own personal survival. I am only sharing this to support FIRE as a worthy goal. When some are saying this pandemic market dump means the end of FIRE or the end of early retirement, I feel it’s times like this that reinforces the need for the good personal finance habits of FIRE. I believe that FIRE is still a worthy goal. These are the times that really test our financial strategies and offer lessons to use going forward. 

Update 4/30/20: Anyone who experiences job loss due to the pandemic can check a new estimated stimulus unemployment benefit calculator. Zippia analyzed each state’s unemployment policies to determine how much unemployed workers can expect to receive under the coronavirus stimulus by state and salary. Remember, in addition to state level benefits, unemployed workers now receive an additional $600 a week for the next 4 months regardless of income. (The calculator is not a paid or sponsored link)