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June 29, 2010

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deegee

The economic downturn which begun in the middle of 2008 was a tremendously good break for me when I retired in November of that year.

This was because my company's stock had not yet tanked when I cashed it out but the big bond fund I used its proceds to buy had already tanked by 20%. This enabled me to buy 20% more shares than I expected to buy, causing my monthly dividends to be about 20% higher than I expected them to be when I was planning my budget. While I had a decent amount of breathing room in my original early retirement plan, this big dip in bond fund prices was a most pleasant surprise. Sell high, buy low (and vice versa), the first rule of investing!

Yes, the stock mutual funds in my retirement and non-retirement portfolios took a hit, but I have nearly 15 years to recover their losses, some of which they have recovered already.

jacqjolie

I have to admit that, like deegee, I was happy at the downturn because I had a big wad of cash stuffed away waiting to put some $ into O&G. The high price / bbl made me so nervous that summer, I figured there was only one way for it to go - down. I managed to hit the bottom on that one fortunately.

I was thinking that my basic retirement would be about $30k/year (with a paid off house). Currently my expenses are about $2,000/month if I'm not having the expenses related to working and not counting the house so I'm hoping it's sustainable. I kind of figured my fixed / variable costs would be about 50/50 - probably less on the fixed so there's some room to cut there temporarily if need be. If I decide to do any big travel or buy something pricey, I'll pick up a short term work contract rather than cut my fun money down too much for too long. I sure hope the plan works as well as yours has! Reaping the benefits of being a dirty market timer may only occur once in this lifetime. Here's hoping 2010-11 goes better...

Retired Syd

@jacqjolie: Boy, weren't you smart (or lucky or both!) I'm with you, I've thought from time to time about perhaps picking up some part-time seasonal tax work to finance a little luxury travel. But yes, if 2010-11 went a little better, perhaps that would take care of that too!

Janette

We have no intension of touching our stocks while they are low. We put a year's living expenses in cash. Makes more sense than worrying about the market for paying our bills.

Retired Syd

@Janette: Absolutely! We're actually a bit more conservative than you are, keeping 3 years of cash handy. I certainly hope it's too much . . .

Kath

But syd what happens after the 3 years when the cash is used up and you have to "sell low" cos you need the money?

Retired Syd

@Kath: Good question! At retirement, your nest egg should be allocated between a diverse basket of stock funds and bond funds. Let's use the example of 50%/50%. (In a low-interest environment as we have been having, there's no real compelling reason to have the bonds in long-term funds, I would stick to shorter terms in duration.) Each year (or each quarter, as I do), a retiree should be making sure that allocation is still intact and shifting assets to keep the allocation that they are comfortable with.

So in a year like 2008, the bonds would have held pretty steady, but your stocks would have dropped a lot. Now you need to take some of the bonds and move them to stocks (while the share values are low) to keep the allocation 50/50. Then the following year, 2009, when the stocks in your portfolio would have risen a lot, your allocation is out of whack again, so you need to sell some stock (thereby scraping off some of the gain from that year) and move it back to bonds. You can always keep 3 years of cash aside by taking out a little to replenish your stash when you rebalance.

Does this help or do you think I should write a more detailed post on the subject?

Kath

I see thanks Syd! Though I suppose its a bit like playing cat and mouse with the stock market every year, do you ever get tempted to sell everything on a high and place in bonds for peace of mind, I have to be honest I find the stock market too scary for peaceful sleep at night. I suppose you've just got to have tunnel vision that the market always rises? A detailed post on the subject would be great if you wouldnt mind. Thanks again.

Retired Syd

@Kath: I suppose it would be tempting to sell everything at the high if, indeed I knew the high when we were there. (And wouldn't it have been great to have put it all back in again on March 6, 2009? But who knew that was going to actually be the bottom?) I'm pretty confident that the highs we hit in 2007 will be lower than values in, say 2030 (and I'm going to need the money to last to the 2060's possibly!) Anyway, I'm just trying to take the emotion out of it. In any case, a portfolio of all bonds would would not have kept me afloat for that remaining 50 years after inflation. Keep your eye out for my U.S. News post on Tuesday on exactly that topic!

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