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It’s an interesting thought. The growth is so extreme that if the S&P 500 fell 50% today it would reach levels last seen in 2022. Given that the timespan is so

by tyleo 2mo ago

It’s an interesting thought. The growth is so extreme that if the S&P 500 fell 50% today it would reach levels last seen in 2022. Given that the timespan is so short, I’m honestly not sure it would be as bad for 401ks as people expect unless all of your investment was concentrated in the last 4 years. I suppose it’s worse if your calculation is, “I’ll retire when my 401k hits $X absolute value,” but I think most people just retire at a certain age instead with risk spread across decades.

Imustaskforhelp 2mo ago
During the dot-com crisis. Nasdaq fell around 78% from its peak and S&P by around 49% so it isn't unprecedented (ironically has both aspects of being both tech and are within the same time-era) It created an actual recession albeit thankfully short one for the case of dotcom (sadly not for 2007) and a really recessionary environment which causes unemployment and just straight up fear and panic. I do understand what you are talking about and overall in long term, perhaps things flatten out but atleast speaking financially so, its better to be on a smooth sailing road rather than insane ups and downs with retirement money if preferable. > I think most people just retire at a certain age instead with risk spread across decades. The issue in my opinion is with people near that certain age you mention and who retire in the time during boom just before bust. They would then get the 50% hit on their savings instantly with an recession/inflation/unemployment environment which in my opinion might be genuinely devastating. (supposing that they had their investments in stocks, I wouldn't consider that any retiree would have all their money in stocks but there have been some other comments which show a sizable amount, @kipchak's comment shows 50% stock for retirement. so a 50% shock on top of that could lead to a wipe out of 25% of your retirement fund which is honestly still pretty crazy.)
- toomuchtodo 2mo ago
  > (supposing that they had their investments in stocks, I wouldn't consider that any retiree would have all their money in stocks but there have been some other comments which show a sizable amount, @kipchak's comment shows 50% stock for retirement. so a 50% shock on top of that could lead to a wipe out of 25% of your retirement fund which is honestly still pretty crazy.) What do you think the cost would be for protective puts per $1M of equity exposure of a portfolio on a monthly basis? "Bubble Insurance" if you will. Going 100% bonds is simply intolerable for the time window for most retirees, but an equity wipeout of this magnitude is equally intolerable.
  - Marsymars 2mo ago
    > What do you think the cost would be for protective puts per $1M of equity exposure of a portfolio on a monthly basis? "Bubble Insurance" if you will. I expect that would not be a cost-effective way of attaining the risk profile you'd be looking for. I expect there won't be a more cost-effective way of managing your portfolio risk than by simply adjusting your split of broadly-diversified equities vs bonds.
    - intrasight 2mo ago
      My homeowners insurance isn't "cost-effective" either but I still do it. I think the reason that investors don't is because they are greedy or irrational or both. That was the message that I got from a financial podcast I listened to a couple weeks ago anyway.
      - duzer65657 2mo ago
        investors are irrational but actually tend to go the other way - too risk adverse. I'm not sure what a "greedy" investor is, TBH.
        intrasight 2mo ago
        Yeah "greedy" is not really the right word. What I meant was not properly managing.
      - Marsymars 2mo ago
        I'd content that homeowners' insurance is quite cost-effective, because there isn't a cheaper alternative to hedge your risk. I'm saying that for the cost of buying puts to hedge against equity downside in a retirement portfolio, for any given level of risk, you'd probably be better off just selling some of the equities and buying bonds instead. e.g. try and find any equity-focused ETF with downside protection that generally outperforms a bog-standard stock/bond split total-market ETF for whatever measure of volatility/downside protection that you want.
- Karrot_Kream 2mo ago
  This kind of metric is always used to shock and awe in pop media when talking about the GFC, but it's not how actual investment works. In practice most investments are DCAed. No person puts all of their retirement savings into QQQ or SPY at the peak and sell it off at the trough. Instead folks drip their savings into their weighted portfolio and withdraw money from their weighted portfolio as expenses accrue. Now obviously the GFC was a huge deal, but this sort of facile understanding of stock markets always leads to big misunderstandings. There's a reason Monte Carlo analyses of these events are used to model these scenarios. (Though I imagine there were many people who tried to re-balance their portfolio into a less equity-heavy model abruptly during the GFC and based on equities performance at the time, it was probably the right move as long as taxes were taken into account.)
MattGrommes 2mo ago
One of the big issues with this is sequence of returns risk. If you retire and rely on your portfolio but the market dives for a year or two right after you leave the workforce, your total portfolio value is screwed because you were selling at a low point.
- rwmj 2mo ago
  Which is why you keep 3-5 years of spending money in cash (or a bond ladder if you want to be fancy).
  - duzer65657 2mo ago
    most don't even have 3-5 years "spending money" (whatever that is) in total savings; if you're keeping that in cash you're getting 2-3% annually while the market has doubled.
    - hdgvhicv 2mo ago
      People return with less than 4 years expenses in retirement funds Surely you need about 20 years?
      - budman1 2mo ago
        Social Security, my friend. And there are still some pensions out there.
    - rwmj 2mo ago
      Sure, but we're not talking about people who have no savings. FIRE people have huge investment portfolios while being frugal with their spending, and understand the risk of keeping 5-10% of their total net worth in cash equivalents (not dissimilar to having insurance).
      - deleted 2mo ago
        [deleted]
zer00eyz 2mo ago
Inherited IRA's, if you aren't the spouse, have some pretty strict draw down rules. As the boomers die off - if they have these accounts - their kids are quickly going to be forced to liquidate them over the course of 10 years. With some of them having to sell a chunk annually.

by tyleo 2mo ago

Imustaskforhelp 2mo ago

During the dot-com crisis. Nasdaq fell around 78% from its peak and S&P by around 49% so it isn't unprecedented (ironically has both aspects of being both tech and are within the same time-era) It created an actual recession albeit thankfully short one for the case of dotcom (sadly not for 2007) and a really recessionary environment which causes unemployment and just straight up fear and panic. I do understand what you are talking about and overall in long term, perhaps things flatten out but atleast speaking financially so, its better to be on a smooth sailing road rather than insane ups and downs with retirement money if preferable. > I think most people just retire at a certain age instead with risk spread across decades. The issue in my opinion is with people near that certain age you mention and who retire in the time during boom just before bust. They would then get the 50% hit on their savings instantly with an recession/inflation/unemployment environment which in my opinion might be genuinely devastating. (supposing that they had their investments in stocks, I wouldn't consider that any retiree would have all their money in stocks but there have been some other comments which show a sizable amount, @kipchak's comment shows 50% stock for retirement. so a 50% shock on top of that could lead to a wipe out of 25% of your retirement fund which is honestly still pretty crazy.)

toomuchtodo 2mo ago
> (supposing that they had their investments in stocks, I wouldn't consider that any retiree would have all their money in stocks but there have been some other comments which show a sizable amount, @kipchak's comment shows 50% stock for retirement. so a 50% shock on top of that could lead to a wipe out of 25% of your retirement fund which is honestly still pretty crazy.) What do you think the cost would be for protective puts per $1M of equity exposure of a portfolio on a monthly basis? "Bubble Insurance" if you will. Going 100% bonds is simply intolerable for the time window for most retirees, but an equity wipeout of this magnitude is equally intolerable.
- Marsymars 2mo ago
  > What do you think the cost would be for protective puts per $1M of equity exposure of a portfolio on a monthly basis? "Bubble Insurance" if you will. I expect that would not be a cost-effective way of attaining the risk profile you'd be looking for. I expect there won't be a more cost-effective way of managing your portfolio risk than by simply adjusting your split of broadly-diversified equities vs bonds.
  - intrasight 2mo ago
    My homeowners insurance isn't "cost-effective" either but I still do it. I think the reason that investors don't is because they are greedy or irrational or both. That was the message that I got from a financial podcast I listened to a couple weeks ago anyway.
    - duzer65657 2mo ago
      investors are irrational but actually tend to go the other way - too risk adverse. I'm not sure what a "greedy" investor is, TBH.
      - intrasight 2mo ago
        Yeah "greedy" is not really the right word. What I meant was not properly managing.
    - Marsymars 2mo ago
      I'd content that homeowners' insurance is quite cost-effective, because there isn't a cheaper alternative to hedge your risk. I'm saying that for the cost of buying puts to hedge against equity downside in a retirement portfolio, for any given level of risk, you'd probably be better off just selling some of the equities and buying bonds instead. e.g. try and find any equity-focused ETF with downside protection that generally outperforms a bog-standard stock/bond split total-market ETF for whatever measure of volatility/downside protection that you want.
Karrot_Kream 2mo ago
This kind of metric is always used to shock and awe in pop media when talking about the GFC, but it's not how actual investment works. In practice most investments are DCAed. No person puts all of their retirement savings into QQQ or SPY at the peak and sell it off at the trough. Instead folks drip their savings into their weighted portfolio and withdraw money from their weighted portfolio as expenses accrue. Now obviously the GFC was a huge deal, but this sort of facile understanding of stock markets always leads to big misunderstandings. There's a reason Monte Carlo analyses of these events are used to model these scenarios. (Though I imagine there were many people who tried to re-balance their portfolio into a less equity-heavy model abruptly during the GFC and based on equities performance at the time, it was probably the right move as long as taxes were taken into account.)

MattGrommes 2mo ago

One of the big issues with this is sequence of returns risk. If you retire and rely on your portfolio but the market dives for a year or two right after you leave the workforce, your total portfolio value is screwed because you were selling at a low point.

rwmj 2mo ago
Which is why you keep 3-5 years of spending money in cash (or a bond ladder if you want to be fancy).
- duzer65657 2mo ago
  most don't even have 3-5 years "spending money" (whatever that is) in total savings; if you're keeping that in cash you're getting 2-3% annually while the market has doubled.
  - hdgvhicv 2mo ago
    People return with less than 4 years expenses in retirement funds Surely you need about 20 years?
    - budman1 2mo ago
      Social Security, my friend. And there are still some pensions out there.
  - rwmj 2mo ago
    Sure, but we're not talking about people who have no savings. FIRE people have huge investment portfolios while being frugal with their spending, and understand the risk of keeping 5-10% of their total net worth in cash equivalents (not dissimilar to having insurance).
    - deleted 2mo ago
      [deleted]

zer00eyz 2mo ago

Inherited IRA's, if you aren't the spouse, have some pretty strict draw down rules. As the boomers die off - if they have these accounts - their kids are quickly going to be forced to liquidate them over the course of 10 years. With some of them having to sell a chunk annually.