Considering that I started to work late (at 32, after obtaining my PhD degree), and was not eligible to participate in the measly University retirement plan until age of 36, building retirement funds has required perseverance and mindfulness (instead of frugality). This period is mostly limited to the past four years, when we, as a family, finally found ourselves free of debt and mortgage-free.
These four years have been a mad rush/frantic attempt to compensate at least in a minuscule way for all the lost decades of low stipends or fellowships. The pitiful financial situation has been compounded by the fact that both, my husband and I, are PhDs (OK, I know it is hilarious, but do not laugh too much).
Obviously, by starting to invest late in life, we do not have too much time for capital growth. Also, we cannot observe the traditional financial advice. For example, I am not sure whether to keep up with the advice on asset allocation that the years till retirement (i.e., the years of investing) should determine the equities:bonds ratio in the portfolio.
Currently, my best paid years and my increased ability to invest suddenly coincide with a time that I consider "close to retirement" for many reasons (in addition to our age, continuous employment is never guaranteed). So, according to the commonly dispensed wisdom, at this time my asset allocation should include a healthy portion of bonds.
If I oblige to this wisdom, I would entirely skip the aggressive stage of building a portfolio (i.e., the time when one invests 100% in stocks). The question is, considering the specifics of my retirement investment saga, should I consider bonds or not? Obviously, my return will go down by investing a percent of the funds in bonds, but would not a cushion of 20-30% bonds in the portfolio improve the situation in any financial downturn in the future?
Plagued by thoughts of my profound financial ignorance, I have been trying to read more on who weathered the largest stock market crashes and how. In this process I found a summary of the 10 biggest market crashes in the U.S.: Stock Market Crashes of 1930, 1937, 1906, 1929, 1919, 1901, 1973, 1939, 1916, 2000.
The largest crash was between 1930 and 1932, and during this time the stock market loss exceeded 86%. The estimate was that to recover $10,000 invested prior to this crash would have taken 22 years.
On the other hand, according to this webpage, if one had continued investing $1,000/year in the stock market even after the Great Depression, the recovery time would have been 7 years.
I am aware that everyone in retirement should maintain enough cash to cover approximately three years of a stock market downturn (i.e., leave the stock and investments to heal), but how about having enough savings to cover seven years, plus additional funds to invest each year? This seems onerous to impossible to achieve.
There are already too many bugaboos in our lives, and a life without hope is not worth living. Therefore, I hope that the current built-in U.S. financial mechanisms would prevent a prolonged downfall of the stock market in the future.
I also hope that by doing my best now (i.e., by investing as much as I can, and by building healthy lifestyle habits), no matter what happens in the future, I would be able to look back without regrets.
Actionable
Keep reading J Collins and his stock series and maintain your health. In short, fight for your freedom.
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