A friend called me in March 2020 - three weeks into the COVID crash - and said something I hear in some version almost every year: “I thought I was fine with risk.
This is an awesome deep dive into this topic. My mother called me in 2008 and told me “the DOW will never go above 10k again.” She had recently retired, was drawing down income, and thought she was cooked. She didn’t have any significant cash or bonds so every time she drew money she locked in losses. I am in the withdrawal phase at age 44 and especially during these first 5 years I am more risk averse, so keeping 3 years of expenses in bonds and having flexibility in my expenses feels important. I learned from her experience how important it is to take a long view of investing and to have enough cash and bond cushion to not have to lock in losses.
Thank you for the thoughtful comment Jessica - your mom's story is sequence of returns risk in real life. No buffer, forced to sell at the bottom, locked in every loss.
What you're doing at 44 is exactly right. The bond cushion isn't a drag - it's permission to not sell when everything is down 30%. And the spending flexibility is underrated. Most people don't build that optionality until it's too late.
I leave two years of spending crash-proof. It earns enough to stave off inflation, but it’s not rising the stock market. That liquidity is meant to ride out a down market and sits there happily underwriting my monthly expenses here in early retirement.
I didn’t plan to dump any into the market. Ever. But COVID in 2020 was such an obvious temporary dip that I couldn’t resist. I put half into the market at the trough. I still had one full year of spending sitting in liquid reserves, though.
This is an awesome deep dive into this topic. My mother called me in 2008 and told me “the DOW will never go above 10k again.” She had recently retired, was drawing down income, and thought she was cooked. She didn’t have any significant cash or bonds so every time she drew money she locked in losses. I am in the withdrawal phase at age 44 and especially during these first 5 years I am more risk averse, so keeping 3 years of expenses in bonds and having flexibility in my expenses feels important. I learned from her experience how important it is to take a long view of investing and to have enough cash and bond cushion to not have to lock in losses.
Thank you for the thoughtful comment Jessica - your mom's story is sequence of returns risk in real life. No buffer, forced to sell at the bottom, locked in every loss.
What you're doing at 44 is exactly right. The bond cushion isn't a drag - it's permission to not sell when everything is down 30%. And the spending flexibility is underrated. Most people don't build that optionality until it's too late.
You learned the right lesson from a hard story.
I leave two years of spending crash-proof. It earns enough to stave off inflation, but it’s not rising the stock market. That liquidity is meant to ride out a down market and sits there happily underwriting my monthly expenses here in early retirement.
I didn’t plan to dump any into the market. Ever. But COVID in 2020 was such an obvious temporary dip that I couldn’t resist. I put half into the market at the trough. I still had one full year of spending sitting in liquid reserves, though.