Good afternoon everyone.
How I learned to stop worrying and love the 4% rule
Last week, I asked if you believe in the 4% rule. I must admit to you that I had my own motivations when I asked the question. It is no exaggeration to say that I think about the 4% rule every single day (my brain is not normal). Like most of you, I was unsure of it. However, all of your great answers caused me to think about the 4% rule even more than I normally do and I now have come to a solution. My thoughts would take way too much time to lay out here, so I’m going to save it for another day. Sorry, I know that cliff-hangars can be a drag. Really though, you people are all great. Your answers are why I blog. Now, on to today’s question.
The Sky is Falling
While I don’t really trust and I definitely don’t act on information spouted out by the mainstream financial media, I fully admit that I enjoy reading** some of the silly articles and also listening to a variety of podcasts that they produce.
Lately, the only thing I read or hear about is how a terrible drop in the markets is imminent. Everyone is saying that we’re due. Since I started this blog 19 months ago, there hasn’t been a major correction. In days of old, I would have freaked out if the market dropped 15%. Now, I like to think that I’m above that. I really have no way of knowing until it actually happens, but I admit that the strange side of me is hoping for it just a little bit. Some mild drama keeps life interesting and I’d welcome a chance to pick up some investments at a discount.
It’s all just big talk for now though. The proof is in the bear market pudding. Until it actually happens, I can’t be 100% sure how I’ll react. I think my brain is adequately prepared though. I think.
I’m blabbing on now. What do you think about these prognostications? Does it keep you awake at night, do you not care or do you see it as an opportunity to swoop in and pick up some investments at a discount? Thoughts please.
*The tank is a favorite childhood toy that managed to survive one of my mother’s purges. The bull: I was playing in the yard a couple months ago with the children and this bull was half buried in the dirt. An omen? Who knows. Better than finding a little plastic bear or a real bear though.
**If I was a perfect investor, I’d tune this nonsense out altogether. Alas, we all have our faults.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.
As a proud member of Handwringing Nation…I do care….but only a little. I don’t care as much as I used to…that’s for certain. Back in 2008-2009… I was a gut-shot soldier of misfortune…paralyzed by “paper losses” and fear. Having come out the other side of that crisis, however, has taught me to stay the course as the fine folks at Vanguard always say. In fact, another market dip followed by a recovery might just push many of us into the rarified air of financial freedom. 🙂
I now almost look forward to it. When I hear those prognostications, my brain now thinks, “Cool…stocks are about to go on sale! I’m gonna be able to pick up a whole bunch of them at a discount.”
Thinking like this has changed everything for me. 99% of my fear has evaporated as a result.
That is great. Your mind is in the right place.
As a long term investor in index funds and a boglehead, I don’t care about the ups and downs of the stock market as I just stay the course. Although as a human being, yea…I can’t help but stress over it sometimes. But, don’t worry, I won’t be making any crazy moves with my portfolio…did that in the past and it did not turn out well.
Andrew recently posted…Our “Throw it Away” Society
Hard to argue with the wisdom of Bogle.
It is hard not to stress. If we had another 50% drop, I’d be freaking out a bit. However, it would also depend on what caused the drop.
You captured my thoughts perfectly. I think I’m mentally prepared for a dive, and am educated enough to look at it from the perspective of, “oh great, stocks are on sale! I LOVE sales!” Of course, I won’t know until it happens and I think it’d be unrealistic to say I’d be happy about it.. but I don’t think I’d freak or lose any sleep whatsoever. I’m already in the habit of rarely looking at the exact value of investments, so I think that’d be key to holding it together during a rough time in the markets: just stay the course and don’t rubberneck to check out the damage along the way!
Kali @ Common Sense Millennial recently posted…Millennials, Stop Putting Your Money in the Mattress
Very wise you are young CSM! Your Common Sense is not so common…
Mrs. 1500 recently posted…Performance Update 19/50: Flying High in July
In a crazy Mr. Burns type of way, I’m hoping that we see a correction in the next couple years while I’m stock piling Buy orders, but like a foreclosure I’m ok with finding a diamond in the rough as well.
Even Steven recently posted…What I Learned on Vacation in Nicaragua
Ha ha, we think alike!
I don’t care when the market drops. I know it drops all of the time and based on the fact that we were just at all time highs, just shows me that the market will come back in time. For me, that is what I have plenty of, time.
If I were retired and living off my investments, I don’t think I would care either because my portfolio would be structured differently (less risk).
In the end, all these stories are just trying to get you emotionally involved so you click on the link/listen to the news stories so they can make money on ads.
Jon @ Money Smart Guides recently posted…Advantages Of Mutual Funds
I don’t care about drops now. Actually, I can’t wait so I can scoop up shares on “sale!”
Eh, I’m pretty ambivalent toward stuff like this. When the poop really hits the fan with a big market contraction, I hope I won’t really worry about it. I didn’t much worry about it 2008-2009, even doubling down and buying a double-sum in my Roth IRA in January 2009 (for both 2008 and 2009 at once). But then again, our total net worth and amount in the market back then was significantly smaller than it is these days.
Mrs. Pop @ Planting Our Pennies recently posted…PoP Balance Sheet – July 2014
Love it! You guys have your stuff together and have the history to back it up. I hope I follow in your foot steps next time the excrement hits the air circulator.
Mr. 1500 recently posted…Performance Update 19/50: Flying High in July
Thanks for the movie trailer……..do I sense a major career change, coupled with semi retirement?!
As for market drops, I knew I finally became a value investor when I started getting truly excited about market declines. The little one back in January was wonderful, and we invested a ton of money……..which has made us a fair amount. So no, I don’t worry about the headlines……although I do laugh when a “Market Plunges” headline comes out and the given index is only 3.5% off it’s all time high 🙂
-Bryan
Income Surfer recently posted………So I Laid Myself Off…..
A movie, probably not. The book is on its way though!
“…although I do laugh when a “Market Plunges” headline comes out and the given index is only 3.5% off it’s all time high…”
I know! So everything is back where it was 3 months or so ago. Yawn…
Mr. 1500 recently posted…Performance Update 19/50: Flying High in July
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch
“Now no one seems to know when they are gonna happen. At least if they know about ‘em, they’re not telling anybody about ‘em. I don’t remember anybody predicting the market right more than once, and they predict a lot. So they’re gonna happen. If you’re in the market, you have to know there’s going to be declines. And they’re going to cap and every couple of years you’re going to get a 10 percent correction. That’s a euphemism for losing a lot of money rapidly. That’s what a “correction” is called. And a bear market is 20-25-30 percent decline.
They’re gonna happen. When they’re gonna start, no one knows. If you’re not ready for that, you shouldn’t be in the stock market. I mean the stomach is the key organ here. It’s not the brain. Do you have the stomach for these kinds of declines? And what’s your timing like? Is your horizon one year? Is your horizon ten years or 20 years?
What the market’s going to do in one or two years, you don’t know. Time is on your side in the stock market.” – Peter Lynch
“Worse than this, far worse, is that we brace for impact way more often than impact actually occurs.[…] All the clenching and imagining and playacting and anxiety—our culture has fooled us into thinking that this is a good thing, that it’s a form of preparation.
It’s not. It’s merely experiencing failure in advance, failure that rarely happens.
When you walk around braced for impact, you’re dramatically decreasing your chances. Your chances to avoid the outcome you fear, your chances to make a difference, and your chances to breathe and connect.” – Seth Godin
(Haha sorry for the huge quote blocks 1500, it’s just that others have said it better than I could ever have said it myself :D)
Kapitalust recently posted…The Investment Policy Statement
Love those quotes!
I’m so shallow into the markets I would love a correction right now so I can get into it at a good price! Bit mean on the rest of you though 🙂 and not sure how I would react if I was losing 100’s or even 10’s of thousands to be honest. Probably not very well!
theFIREstarter recently posted…A Year Down The Tracks
I know, those quotes are awesome! That Godin one is just killer.
So Kapitalust (love the name by the way), if I ever need a shrink of financial advisor, I’m hiring you.
Mr. 1500 recently posted…Performance Update 19/50: Flying High in July
I’ve convinced myself either way that it’s all good. If the market is up, I’m pumped that our holdings are up. If the market is down, I’m pumped because we’re buying on sale.
So far, so good. I also track daily trying to desensitize myself to the swings. We’ll see if that continues during the next correction.
Big Guy Money recently posted…Investing Case Study Update 2: Dividends!
In the end, is the statement “It doesn’t really matter” appropriate for the 4% rule? If we save up a good sized nest egg and start withdrawing ~4%, what if I get to 87 and my nest egg is slightly smaller or larger than anticipated? What if it is much smaller or much larger? Hell, I’m 87 and still kickin. What if you make it to 94? My grandma is 104 and is still completely with it. She lives in a nursing home, but is still quite content and happy. What if I make it to 104 and my nest egg is small or large? It really doesn’t matter that much. Most of what we worry about doesn’t really matter that much. I quit my job of 18 years last fall. I didn’t work for 3+ months. I got another job. It really didn’t matter much in the grand scheme. Save, simplify, live.
Wade recently posted…You are here
“Save, simplify, live.”
I worry too much. One day, I hope I learn to stop.
In my opinion, the risk for savings goes both ways. If I run out of money, I’ll have failed. If I die with $10,000,000, I’ll have failed as well. More on this later.
Mr. 1500 recently posted…Performance Update 19/50: Flying High in July
There’s a handy saying out there, ‘don’t fight the last battle’. I’m hearing the usual ‘go to cash and wait for the next buying opportunity’ comments, which is what everyone is gearing up for. Personally, I think this is just going to be a long sideways slog with relatively low volatility, so there’s not much to be done about it. And if things do go south, people have overpaid so much for yield, it’ll be really nasty – like municipalities, pensions, and banks all going insolvent all over again, and maybe bailout fatigue will finally kick in. In order to get yield, people are buying lower and lower rated bonds. So, no big moves for me, lots of Index equity exposure in my retirement funds (25 year horizon) munis and TIPS, more cash than usual, and a Norwegian savings account for the doomsday scenario :). Other than that, I’m not going to drive myself crazy watching day to day movements, you’ll start to see patterns in the tea leaves that aren’t really there :). Enjoy the Summer!
EscapeVelocity2020 recently posted…Lifestyle Inflation – Part 1
“Personally, I think this is just going to be a long sideways slog with relatively low volatility, so there’s not much to be done about it.”
Hmmmm. Unless a big geopolitical event kicks things down, I think the market will still do well in the near future. The recession is long over, but only now are we seeing jobs and the real estate market broadly recover. I think we have some room to run.
Again though, it doesn’t matter if your mind is in the right place. Long term all the time.
Mr. 1500 recently posted…Performance Update 19/50: Flying High in July
I care, but I try to ignore it. Let me explain: I hate it when the stock market drops, but I know that it is bound to happen. Also, I really believe the whole thing is going to come crashing down before it goes back up – and its ok! I have YEARS, and it is eventually going to go back up. I just have to wait it out and take a Xanax.
Retired by 40 recently posted…Jen Glantz of Bridesmaid for Hire and thethingsilearnedfrom.com Interviewed me….
Ha, I don’t have any Xanax or even any of the stuff that was just legalized here in Colorado. Can I have a beer instead?
Mr. 1500 recently posted…Performance Update 19/50: Flying High in July
My favorite thing about the media right now is the fact that some of these talking heads have been callng for a correction for years. If anyone would have listened to them and liquidated they would have lost out on some great gains. And of course when a bear market finally comes everyone will say they correctly predicted it, even though it happens every 4-6 years. At least we have learned that staying the course and buying on discount is the real way to get yo financial independence!
Thias @WealthHike recently posted…401k vs IRA: What’s the Difference?
Ha, yes! Very wise points.
I’m also amused at the people who claim they predicted the last one. Riiiiiiight. If you throw 1000 darts, at least one of them will hit dead center.
I generally don’t like to read the mass media garbage about the market, not even PBS’s Nightly Business Review. It is news because it is an anomaly, right? And because they have to make money. (I also don’t believe in Inflation with a capital “I” because THAT inflation has little to do with my personal buying choices. I have far more control over my personal inflation % than some highly generalized number. Another pet peeve of mine.) I just retired. I think that a major market correction will indeed scare the hell out of me because I know what it means to have to sell during a low market. BUT I have skills! Such as breathing deeply, thinking, not having to panic, choosing to cut expenses, choosing whether to take a part time or even a full time job again, deciding when to use cash instead of selling. I will indeed stress about it but I will not panic. I can also ensure my portfolio is set up the way I want it to be (and document the reasons for my decisions now), and then when the correction happens, I can look at whether those decisions served me, and make more decisions based on LEARNING.
“It is news because it is an anomaly, right?”
Wow, brilliant. I never thought of it that way. Can I hire you? 🙂
I also love what you say about inflation. I have tons of relatives to will bitch for hours about the price of fuel. Here’s a solution for you, walk or ride your bike more often!
Here’s the thing that I don’t get. People say they don’t mind if the stock market falls because they can get things on sale. How are you going to buy things if all your money is invested in stocks that have just taken a hit? The reason I say this is because my broker was keeping about 18K in cash to buy stuff (mind you he had it for over a year), and he recently bought some pref shares. However, when I blogged about this, people said oh he shouldn’t have kept that cash there for so long. So where are you supposed to get the money to buy the stock from when prices fall? Sorry, may be a stupid question, but I’m just trying to understand all the rhetoric in practical terms.
debt debs recently posted…Sticky Business: A busy bee ‘s work is never done
Hmmmm, this is a tough question. I do think that most of us have some cash on hand that we’d throw into the fire if the market bombed.
I have no idea what percentage of your portfolio was cash, but I don’t think anyone would argue with having 10%. When the market takes a big hit, put that 10% to work and build it up again.
Of course, this whole conversation is dangerously close to market timing which is a very bad idea.
Thanks, Mr 1500. It was approximately 7.5% of my portfolio that I had in cash, built up from previous dividend payments. It’s now invested in the following preferred shares. ENB.PR.D 400 24.620 $ 9,848, BAM.PF.B 400 25.080 $10,032 but this means I have not much cash available until it builds up again.
debt debs recently posted…Sticky Business: A busy bee ‘s work is never done
I’m not worried. My fav quote is from mr Buffett: “Be fearful when others are greedy and greedy when others are fearful.” So as soon as more people start to panic, I’ll sit up and be ready to move.
That is an awesome quote and maybe my favorite of all time.