Life Goal: To Lose a Million Dollars

I had been maxing out a SEP-IRA and setting aside a bit of cash, but that was about it. The backdoor Roth didn’t exist, I didn’t have an HSA, and I wouldn’t start a taxable account until after the market had started to rebound in 2010.

About a decade after the Great Recession, in the fall and early winter of 2018, the U.S. stock market lost about 20% of its value. It would rebound over the subsequent six months, but that outcome was far from guaranteed.

While the downturn wasn’t nearly as substantial in terms of percentages or effects on the national and global economies, my financials were impacted quite a bit more in terms of total dollar value.

Instead of dropping tens of thousands like my portfolio did back in 2008, we “lost” hundreds of thousands of dollars. I use the quotes because we didn’t actually sell anything, locking in a loss.

Knowing drops of 20% or more are not at all uncommon and can happen in a flash (see Black Monday), we held tight. I did some tax loss harvesting near the bottom, but otherwise rode it out and once again, we’re back near all-time-highs.

It was interesting, having already decided on a retirement date at the end of August, 2019, to watch those portfolio values dwindle. I’ve argued that a bear market cannot take away your financial independence, but would I be about to pull the trigger on this early retirement thing if the market were down another 20% this year rather than up by that much?

Maybe not. I’d probably take a break, but I might be looking for locums work before too long.

Nevertheless, I have now had the experience of losing tens of thousands of dollars and then hundreds of thousands of dollars. Where do we go from here?

Life Goal: To Lose a Million Dollars

 

 

🎶If I lost a million dollars [if I lost a million dollars],

I would sell off my K-car. Goodbye, Reliant automobile.🎶

 

 

The Forum Freakout

 

I’ll be the first to admit I spend too much time on forums and in Facebook groups. Many of them, particularly the larger ones and the ones that attract a younger generation, have quite a few beginning investors.

That’s great that they’re there and asking questions; we were all beginners once. Whenever the market has a hiccup — maybe a 5% or 10% drop, the questions start to come.

“I just invested $2,000 in VTSAX last month and now I only have $1,868. What am I doing wrong? What should I do now?”

The answer, of course, is nothing and nothing. Maybe invest again since it’s been a month. Consider tax loss harvesting when you’re dealing with higher dollar amounts.

I can totally identify, though, as I remember calling the advisor I used to invest in a Roth IRA as an intern when my $2,000 contribution was worth about $100 less the next day. That’s when I learned about front-end loads. That was normal or so I was told.

It didn’t matter that the market was actually up a tiny bit; I was paying 5% for the privilege of investing in that fund with him. I don’t want to name names, but I no longer work with him or would ever work with anyone affiliated with that company that rhymes with “seedy bones.”

Eventually, I moved my business to T. Rowe Price and now Vanguard.

Now that I’m a more well-seasoned investor, I don’t pay front-end loads nor do I freak out when I see my portfolio drop by $100, $1,000, or $100,000. If you’re going to be invested heavily in equities and reap the rewards that long-term investors tend to get with them, you’ve got to be able to stomach the volatility.

When You Have an Insanely Safe Withdrawal Rate

 

Our initial withdrawal rate if all active income streams were to cease tomorrow would be between 2% and 2.5%, assuming we continue to spend a similar amount in the upcoming years as we have in recent years (and add the cost of health insurance).

That’s not exactly what’s happening, though. When I leave medicine behind, I’ll still have active earned income from this site. Retired not Retired.

With the charitable mission we’ve got here, I’ll be donating more than we spend in 2019, and we’ll continue to have a negative withdrawal rate, as we have since I started working. I don’t anticipate adding nearly as much to our accounts as I did in my full-time anesthesia years, but I won’t be implementing my drawdown strategy just yet, either.

Even if we ignore the online income and plug our numbers into FIRECalc simulator, we get an average balance 50 years later in the tens of millions and nine figures is not impossible by my 100th birthday. Compounding is simply incredible.

FIRECalc

just look at all of those million dollar drops

 

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The $10 Million Dream

 

Early in my career, I was daydreaming while mowing the lawn. Playing with the Rule of 72 and knowing how much we were setting aside annually, I realized we had a good shot at reaching a net worth of $10 Million if I continued to earn and save at that pace to age 60.

It was quite the revelation. I had no specific plans for that money, but a nice round number with an 8th digit seemed like an awesome target.

In recent years, I’ve realized we likely would not live much differently with a fraction of that. Just 1/3 of that grand sum would give us a $100,000 annual budget with a very low 3% initial withdrawal rate. With no mortgage to service, we’re spending less than that, anyway.

When I say we wouldn’t live much differently, that’s not entirely true. Our spending habits and desire for material goods may not change much, but we are making a huge, intentional lifestyle change. I’m trading a demanding job that requires me to be in one place and accept huge responsibilities for location independence and no alarm clock, pager, and none of that life-and-death stuff.

It’s a massive lifestyle shift, but it’s not lifestyle inflation in the way we usually talk about it. It’s a lifestyle that I’ve dreamed of for years.

I haven’t stopped chasing my dreams, but I no longer have that $10 Million dream. However, when I did the math, I realized that our ability to reach that figure will be based more on market returns than whether or not I’m working.

Playing with House Money

 

Looking back at my 13 years of post-residency work, I probably set enough money aside to make us financially independent without even relying on investment returns. The returns have been quite good — thank you, record bull market — and that has put is in better shape than expected.

When you’re playing with house money, to use casino parlance, you can afford to take bigger risks with that money. With that mindset, I’ve remained invested aggressively in my own portfolio, allocating just 10% to bonds with the rest in stocks and real estate.

The lower your withdrawal rate, the more volatility you can withstand, and the more aggressive your portfolio can be.

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Some choose to stop playing once they’ve won the game, taking chips off the table and de-risking once they’ve got Enough. Sell stocks, buy bonds, play it safe.

I prefer to leave most of my chips on the table. In this game, the investor has the advantage. The house may share in our earnings, but the long-term payout of remaining invested in stocks and bonds has been stellar.

Do I need more money? No, but I no longer think about just what I need or want. This world is much larger than me and my family.

Every dollar I have and don’t need is a dollar that can be used for something greater than my own indulgence. If The Giving Pledge accepted lowly 7-figure people like me, I’d sign on in a heartbeat.

Back to Losing a Million Dollars

 

What I’ve been getting at, in a very roundabout way, is the truth that I hope to continue growing our wealth, even after retirement. How will that happen?

It starts with a very low withdrawal rate. Average market returns are 3 to 4 times what we plan to draw from our retirement accounts. A terrible sequence of returns have us losing a million dollars in the near future, but I’d rather see it happen at a later date.

There’s also the continued earned income. We’re now at a point where we can donate a six-figure sum annually and still not touch the money we’ve set aside for retirement. I believe there is room to grow this online income, as well.

Finally, I could always consider another career someday. We’ve got a decade or so until we become empty-nesters. Once our little birdies have flown the coop, I may be interested in doing something completely different with my time.

Ultimately, I’d like to be in a position where losing a million dollars represents a small enough percentage of our net worth that it would be considered usual and customary to suffer such a drop.

I know what it’s like to shrug off a loss of ten thousand dollars or a hundred thousand dollars. One day, I’d like to shrug off the loss of a million.

 

 

 

What counterintuitive aspirations do you have?

30 comments

  • Being at the other end of the spectrum (just starting to save two years ago or so), I’d love to see a bear market so I could continue to pile money in. While I might not be able to lose a million now, I’d surely get paid handsomely later for enduring a bear market.

    You’ve done an incredible job saving over the last thirteen years! Thanks for setting a good example!

    TPP

    • Lordosis

      Oh yeah Mr. Market. Bring on the bear!
      Us young guys will thank you later.
      This last one was just a teaser. Too short to really take advantage of.

      Another great post. I imagine if you have more time after you hang up the stethoscope your site will only grow. Benefiting you and the charities you support. Thanks!

    • I finished residency in 2006, and we all know what happened over the subsequent few years.

      Fortunately, I held the faith, continued to invest, and that big bear helped jumpstart my path to FI.

      I’m not saying I want it to happen again, but like I said, it won’t be the end of my world.

      Cheers!
      -My News List

    • Lynne

      I credit the prolonged bear market for helping me to grow my assets exponentially and become FI, as I contributed large sums of money to retirement accounts over that time. I’ve always loved buying things on sale!

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  • Like you the amount of money I “lost” at the end of 2018 dwarfed what I lost in 2009 even though the market % drop was much smaller it was due to the significantly larger amount of money I had in play.

    I stayed the course despite also having a paper loss well into the six figures.

    It is interesting that you too remain aggressive in equity percentage. Having a very very safe withdrawal rate does allow you to press on. For me it is the passive income streams I have built that make me feel comfortable with a similar approach. When you don’t have to “lock in losses” by being forced to sell equities during a drop, you can ride it out while relying on your other income streams.

    • Good point. Any type of fixed income, whether from bonds, real estate, small business, etc… can allow you to remain invested aggressively with the remainder of your portfolio.

      If and when I cease having earned income, my tentative plan is to have at least 5 years worth of expenses in bonds that I could spend down in a prolonged downturn. There will also be some forced selling of taxable assets (aka dividends) that will provide spending money, as well.

      Cheers!
      -My News List

      • Danny P

        Great article. Just to clarify your comment above, though, dividends don’t result from the forced selling of assets. Rather, if an individual has actively managed mutual funds in a taxable account, they will obtain capital distributions each year, which, in essence, are forced sells triggered by the fund managers.

  • Zac

    Another thoughtful post as always. In a related yet unrelated topic, I admire your ability to work in links to other thoughtful articles by you and others into your blog posts, especially your Sunday round-ups. It’s a level of creativity I desire myself one day when I devote more time to writing blog posts. Keep it up!

    • Thank you, Zac.

      I enjoy putting those Sunday Best posts together. And I know the featured bloggers appreciate it, too. It’s a great way to pay it forward.

      Cheers!
      -My News List

  • We “lost” more in 2008 than in 2018. It was a huge drop back then. 2018 wasn’t that bad in comparison.
    I think the net worth slope for high income earners is really steep in the beginning. So the last 10 years were huge for you, Xrayvsn, and other physicians.
    I’m not sure I can stomach losing a million. That sounds like too much money. At that point, I’d be a lot more conservative.

    • So you subscribe to the Bill Bernstein theory of taking your chips off the table. There’s nothing wrong with that. If a million dollar loss would put you into dangerous territory or cause you to make irrational investing decisions, you don’t want to be in a position to lose a million dollars!

  • bill

    EZ for me to stay in equities. Difficult to convince wife. Unsure who has best judgement.
    Haiku follows…
    Meandering thoughts
    An individual, stocks
    on the equities

    🙂

  • ol1970

    You haven’t been kicked in the teeth until you have lost 25 years of living expenses in my opinion. I was a already a multimillionaire and small business owner the last go around in 08. Lost way more than $1M, thankfully never panicked and it all worked out nicely for me. Losing a $1M isn’t the real thing you need to gage your investing intestinal fortitude, it is when you’ve made it, dialed things back, and you lose 50% and all signs are things are getting worse and then they do for a couple years. I think most everyone that takes the time to read your writings and educate themselves will be fine and not panic, but I’m telling you, until you experience it firsthand you don’t really know how you’ll react to the exact circumstances that will bring on the next mega-crash. You might be like me and change your asset allocation after you have beyond more than made it, I am a self admitted wimp though!

    • That would be the next huge milestone… that would be tough as we’re talking about a loss twice as big as the one I described. Maybe not as tough if you already had 50x to 100x but we’re not quite there yet!

      From a behavioral perspective, I completely understand why people like to have some combination of passive and active income streams that will support their expenses rather than relying on a defined multiple to carry them through the tough times.

      Cheers!
      -My News List

      • ol1970

        Yep, I think you’ll find when you get into the 100X multiple range your thoughts on the subject will evolve a bit. The math says you’ll get there which is the great thing, even if you have a few market hiccups along the way! I know probably over 20 people/families that have in the neighborhood of $10M to $100M in investable assets, not one is invested in a 90/10 index fund type strategy. I’m not saying that doesn’t work and would not in the long run out perform a more diversified investment portfolio, but the vast majority of high net worth households have lots of different buckets they spread things over. Maybe they are 30-40% correlated to the markets.

  • Mr. 75/25

    At 90/10 in retirement (retired not retired), how do you rebalance in a large downturn when you don’t have income to help with the rebalancing? Maybe the blog income will be enough? Or is 10% bonds still enough to rebalance with? Thanks.

    • If things get really bad, I’ll start spending down the bond allocation if need be. I plan to have at least 5 years worth (and have pretty close to that now), which should be long enough to get through an extended bear market and recovery.

      There will also be some cash flow from dividends, real estate investments, etc… so it’s not like my bond allocation would be depleted in 5 years, either.

      Great question!
      -My News List

  • Jason

    I track our invested assets quarterly. We lost just over $100K in the fourth quarter of 2018. Got it all back plus double in first half of 2019 but it can be interesting how perspective changes as the total number grows.

    • It was a few hundred thousand for us. But like I said, it feels like we’re playing with house money. It’s less bothersome when you look at it that way, and very true.

      Cheers!
      -My News List

  • An inspiring post, thank you!

    It is fun to see the day to day fluctuations in our net worth with the vibrations of the stock markets.

    I have yet to live through a real recession in which I have a lot of money at stake. I bet it won’t be as fun, but at least now I have the knowledge to keep on investing through the pain.

    I have an informal rule to shovel any available cash into the market when it drops by at least 20%. I did this in December and partially drained the emergency fund to do it. Now my emergency fund is still lower than I’d like, and I’m considering taking some money back out to pad it slightly.

    Hopefully I can resist, and just let it sit pretty.

    — TDD

  • My gains and losses are still in the four figure range, though for the time being they keep bringing us above/below $100k which is 😀 or 😢 depending on the day. Still though, that means I can make or lose more in a day than I make from my W2, even if it’s not yet the norm.

  • I’ve lost 1M twice (on paper anyway) in 2000 and 2008. 2000 included real losses (but not 1M worth) because the .com bubble caused such destruction. Those companies and mutual funds did not come back, neither did GE. I remember the days of front end loads and the days of $200 per trade brokerage costs. No matter how you cut it loosing 1M paper or not is sobering. Since my portfolio was not open, SORR was not operative. I just kept on keeping on with investing. During the 2000 crash era I got an account aggragator so I could readily track all of my accounts at once and I discovered modern portfolio theory. The aggregator allowed me to fashion my portfolio into a single balanced entity across 12 or more accounts and modern portfolio theory taught me how to use the efficient frontier. My investing style became super disciplined with very little trading. In the 90’s I spent some time day trading options. These days it’s dead bang simple to use an aggregator and modern portfolio theory, just start a Personal Capital account and follow their portfolio recommendations. Funds are now dirt cheap to buy and dirt cheap to own and dirt cheap to sell and re-balance. Personal Capital is built on the tenets of MPT and PC uses Efficient Frontier and Monte Carlo to analyze the results and can track your account owning expenses. PC is an incredible gift to the FIRE community and DIY investing if you learn how to use it.

    Will I loose another 1M? Likely so I lost about 500K in Dec, fortunately I have more millions so 1M is a smaller percentage loss. All in all though I’ve spent 2 years retired spending down the nest egg and Roth converting including paying a lot of extra taxes on the conversions (pushing me over my WR) and I’m even to a little bit ahead with the amount I had the day I retired. I have yet to claim SS. Like Walsh says, life’s been good to me so far, however my Honda Accord does not do 185.

    I’m one of those who de-risked. No way in hell I’m carrying 90/10, but then I no longer have a business to take up the slack. The best antidote to SORR is a job. I’m 67 so no good reason to carry all that risk. The calculus changed for me from focusing on return in accumulation phase, where my personal risk was covered by the W2, to strict risk management since I now own all of my risk. That extra risk plus the extra risk of something like a 90/10 is too much risk for Homey to stomach.

    • Lynne

      Gasem, I’m with you at this point. I’ve seriously dialed back my risk as I’m nearly 61 and on the cusp of full retirement (I dropped to part time 2 years ago).

      I do still have skin in the game, just nothing close to 90/10. I also don’t have nearly the amount of balances that MyNewsList has in his portfolio. For me, I have enough, but half of enough isn’t enough, so I keep my risk lower.

    • I’ve also dialed back the risk recently. Partially it’s because I have more to lose, and want the option to retire or change careers in a few years.
      The other part is US equities seem expensive right now, foreign equities have underwhelmed, and bonds aren’t a bargain either.
      While reminding myself not to time the market I struggle to ignore market trends.

  • We had about 3 years cushion in our savings when I retired 3 years ago. At one point we lost all of it (MegaCorp stock drop) and more, now we have gained it all back. It’s all on paper – we carry 3 years cash to smooth the market out. No worries.

    • Danny P

      When indicating 3 years of “savings” most people think of cash savings. It’s not really savings if it’s somehow invested in the market and you can lose it, right?

  • saildawg

    In essence what we are talking about here is human capital and how it relates to your asset allocation. You still have a ton of human capital left so it is reasonable to have an aggressive allocation.

    MyNewsList your journey over the last few years has been a huge influence on my life, and your ability to step away from medicine inspired me to achieve FI ASAP. Along that same journey I realized I don’t want to RE from medicine, but practice in an amount of my liking. Even though I am not at FI yet, the confidence in my finances has allowed me to already start making positive changes. Look forward to reading about your last month.

  • Well, if you reach a point where losing $1 million might just be another day, then on the flip side, making $1 million a day is possible.

    But does that mean by that time, making $1 million in a day is no longer an event as well?

  • Good thing I wasn’t around back in the great recession. To have a million in $ gUaP $ back then was like being today’s billionaire.

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