Over the last 3 days, Dow Jones stock market drop has been sudden and severe, totaling more than a -11% drop from the end of last month . It includes two of the top ten stock market one-day declines of all time on an absolute basis. Some experts are saying this is the end of a six year bull market run as investor concerns rise with respect to slow growth in China and the potential impact to the world economy. The China concerns are becoming more worrisome as investors are also discussing whether the US Federal Reserve will begin to raise interest rates after a long time at 0%.
With our planned early retirement just 7 months away, should Mr. Fire Station call the whole thing off and work another year? The quick answer is “no” and “no”. First, markets go up and down, and proper retirement planning account for down markets more severe than this blip. Second, this correction is significant, but Mr. Fire Station’s investments remain up for the year.
Here’s where our nest egg is today versus the end of last month:
- Total 2015 YTD Return:
- End of July: +7.8%
- Today: -0.3%
While the S&P500 is down -9.7% YTD and International Stocks (EFEA) is -3.6%, our bond fund is flat for the year and our MegaCorp stock is up +2.8%. Our MegaCorp stock is in the form of options, so the growth there is mid single-digit, given the leverage. If the overall market continues to decline, MegaCorp is a stable defensive stock that has done well in downturns historically.
At the same time, we have saved about 3 years of our annual spending in cash. Even if the stock market continues to be challenged, the cash is designed to keep us from needing to sell investments that haven’t recovered. Is three years enough? In most cases historically, yes. That said, “past returns are no guarantee of future performance.”
I certainly won’t say that the big stock market drop isn’t something we are paying close attention to at the FIRE Station, but it will take a lot more significant long term decline to get us thinking differently about our early retirement plans.
How about you? Do you think that Friday kicks off a longer term down market?
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