COVID-19 Sequence of returns risk

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thrifty++
Posts: 964
Joined: Sat May 23, 2015 3:46 pm

COVID-19 Sequence of returns risk

Post by thrifty++ »

In some ways I am pleased that we have a recession now so that anyone not yet retired is over that hump of sequence of returns risk. Well the biggest most likely part anyway. Im pleased I hadn't made plans to drop out already. Gives me an opportunity to keep working through this recession and pandemic. So, a silver lining in that sense.

I hope there aren't too many on here that have just early retired. But I don't think so, I haven't noticed anyone doing so.

IlliniDave
Posts: 2789
Joined: Wed Apr 02, 2014 7:46 pm

Re: COVID-19 Sequence of returns risk

Post by IlliniDave »

I was just thinking about this myself. One of my long-term colleagues, who is a few months younger than me retired earlier this month. Another who is a couple years older is scheduled to retire at the end of next week. A third, I'm not sure exactly when she becomes retired because she took a big bunch of accrued vacation and her retirement technically isn't effective until that runs/ran out. I was wondering last night what they are thinking. I might call the guy who hasn't retired yet next week (he works/lives in California).

Right now I'm not convinced the SOR risk is passed. I haven't been paying too much attention to ex-US markets, but US markets are only down about 20% from a very recent peak. If they don't fall too much further this year I won't consider that to have taken enough starch out.

People have occasionally given me good-natured grief for "over saving", which I deserve, but ending last year anticipating a sub 1% SWR (with room for belt-tightening) means even if stocks wind up 75% down from where they ended 2019 I'm still in sub 2% territory with room for belt-tightening. The way I figure my overall financial predictions falling stock markets now mean a reasonable expectation for more generous future returns (not compared to historic returns but to what I had been predicting prior which had a built-in assumption that PE would be a good bit lower 15 years down the road). That's what more/less what the first order math says.

I was eyeing the markets like a predator figuring that since I'm still a net buyer when it comes to my overall portfolio I could probably craft the tactics of maintaining my desired asset allocation strategy in such a way as to profit off the turmoil. But despite some opinions to the contrary, there is a real person behind iDave and as I thought about something besides how I could exploit the misery I felt bad.

I still think I'll take a voluntary severance package if it is offered (could be as early as a couple of months from now) but I'll certainly think about it more. Otherwise my plan is to go until the end of next March. It'll be like that scene in Animal House except instead of angel versus devil I'll have my inner Mr Spock on one shoulder and my inner Chicken Little on the other as that juncture approaches.

But overall I agree with you, thrifty++, that generally the more of this that happens immediately prior to a person retiring the more options they have navigating it, so long as they don't become a direct victim of a downturn. Unfortunately one thing that can happen is that a job loss during bad times can force a person into ER before they are 100% ready for it.

thedollar
Posts: 135
Joined: Tue Feb 21, 2017 4:07 am

Re: COVID-19 Sequence of returns risk

Post by thedollar »

4% rule is back. On the downside NW is now lower :mrgreen:

sky
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Re: COVID-19 Sequence of returns risk

Post by sky »

I predict that in six months, the living will believe they are immune and immortal, and the dead will be mostly forgotten. Back to business as usual.

ertyu
Posts: 585
Joined: Sun Nov 13, 2016 2:31 am

Re: COVID-19 Sequence of returns risk

Post by ertyu »

@sky, i'm taking the other side of this bet, I think this will not be v-shaped and will have a broad economic impact

i'm calling a recession, and a good one

sid3
Posts: 22
Joined: Sat Jan 25, 2020 1:40 pm

Re: COVID-19 Sequence of returns risk

Post by sid3 »

What about someone trying to enter the workforce? I am currently looking to start working as a mechanical engineer in 3 months, do you all see a future where my odds are severely impacted?

Lucky C
Posts: 493
Joined: Sat Apr 16, 2016 6:09 am

Re: COVID-19 Sequence of returns risk

Post by Lucky C »

@sid3 you should be fine if you're OK with working military contracts. Have you already submitted job applications? If not I would start immediately. If you prefer not to work for a big defense contractor but you're not 100% opposed to it, I would still apply there as a backup considering economic conditions.

sky
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Re: COVID-19 Sequence of returns risk

Post by sky »

@ertyu One should prepare based on the more negative prediction.

2Birds1Stone
Posts: 900
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Location: Earth

Re: COVID-19 Sequence of returns risk

Post by 2Birds1Stone »

thrifty++ wrote:
Sat Mar 14, 2020 1:37 am
I hope there aren't too many on here that have just early retired. But I don't think so, I haven't noticed anyone doing so.
*wave*

thrifty++
Posts: 964
Joined: Sat May 23, 2015 3:46 pm

Re: COVID-19 Sequence of returns risk

Post by thrifty++ »

2Birds1Stone wrote:
Sat Mar 14, 2020 10:21 pm
*wave*
Oh bummer. That's right. I forgot that you had done so. But I had a sense you had arranged things in a fairly anti fragile manner. Did you end up moving to Eastern Europe?

IlliniDave
Posts: 2789
Joined: Wed Apr 02, 2014 7:46 pm

Re: COVID-19 Sequence of returns risk

Post by IlliniDave »

sid3 wrote:
Sat Mar 14, 2020 10:07 am
What about someone trying to enter the workforce? I am currently looking to start working as a mechanical engineer in 3 months, do you all see a future where my odds are severely impacted?
Really hard to say. If the coming of the warmer seasons does not substantially dampen the outbreak it's possible that many companies may have suspended hiring, and possibly all operations, by then. I'm hopeful things will ease up a lot in the summer, but short of optimistic. Wouldn't hurt to make some contingency plans. However, I believe in the longer-term things will be okay. It could even lead to a small boom of sorts if we are smart and start to rebuild enough of our manufacturing infrastructure to maintain some critical supply chains should our overseas supply chains be choked for some reason.

2Birds1Stone
Posts: 900
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Location: Earth

Re: COVID-19 Sequence of returns risk

Post by 2Birds1Stone »

thrifty++ wrote:
Sat Mar 14, 2020 11:30 pm
But I had a sense you had arranged things in a fairly anti fragile manner. Did you end up moving to Eastern Europe?
I guess that remains to be seen :)

Only 30% of my NW is sitting in equities, so a pure stock market collapse wouldn't ruin me. If we get rampant inflation I could be in serious trouble. Unlikely that would happen if job market and economy is suppressed. Biggest thing I'm thankful for is a shift in mindset that one can't simply rely on paper assets to survive forever, so a PT/FT job may be in my future.

Landed in Portugal, trying to make it to Eastern Europe by summer.

thrifty++
Posts: 964
Joined: Sat May 23, 2015 3:46 pm

Re: COVID-19 Sequence of returns risk

Post by thrifty++ »

@2birds1stone - that doesn't sound too bad at all then, you wont have been too affected by this. Sounds like luckily you were underinvested. If there is inflation the stocks you do have should help to counterbalance that at least, even though they are deflated by cvid19

black_son_of_gray
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Joined: Fri Jan 02, 2015 7:39 pm

Re: COVID-19 Sequence of returns risk

Post by black_son_of_gray »

@ thrifty++/anyone - is there evidence behind the assertion that stocks do well in inflationary environments? I have a difficult time wrapping my head around that argument.

ertyu
Posts: 585
Joined: Sun Nov 13, 2016 2:31 am

Re: COVID-19 Sequence of returns risk

Post by ertyu »

What does well in inflationary environments is real assets. WHen you own a business, you own some real assets. In that way, stocks usually do better than bonds. Commodity trend does well, too.

thrifty++
Posts: 964
Joined: Sat May 23, 2015 3:46 pm

Re: COVID-19 Sequence of returns risk

Post by thrifty++ »

@BSOG - maybe I am making too swift an assumption here - my assumption is that since stocks are based on the value of underlying real assets, the prices of those assets goes up during inflation, and as such the stock price inflates upwards with them. As opposed to cash which is losing value and not based on any underlying tangible asset. But I am not completely sure

Fish
Posts: 537
Joined: Sun Jun 12, 2016 9:09 am

Re: COVID-19 Sequence of returns risk

Post by Fish »

@bsog - The argument goes that if prices of products rise due to inflation then corporate earnings should also increase. If equity prices are a multiple of earnings then stocks will also rise assuming a constant P/E.

This presumes that stocks are traded on fundamentals. Which might not be a reasonable assumption if market manipulation is the dominant factor influencing stock prices.

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