Managing Sequence of Risk

original1

Heard about this recently, anyone been impacted by this in a negative way, but managed to get through it ?

Linton

You wont get much of a response to your question I am afraid as very few people in this country would have met an SORR.  The last event that could have represented a Sequence of Returns Risk was the 2008 crash, though in the event recovery was reasonably quick and was followed by a decade of unprecedented rises in the markets  Anyone taking retirement up to 2008 would probably have bought an annuity since annuity rates were much higher than now.  Drawdown was a niche option then only fully available to people who could show they had significant other ncome.

I retired prior to 2008 but as I was planning to buy annuities most of my investments were in low risk funds.  Looking at the graph of my wealth the 2008 crash had no noticeable effect.

ChesterDog

I have, although I can't recall much detail.

We retired early by selling our business in about 2005.

Started investing seriously in 2007... straight into the plunge! That certainly focused the mind.

A large proportion of our investments were externally managed. We took those back under our own control, stayed invested, came out the other side and lived to tell the tale.

JohnWinder

"I have been retired for 10 years. I am one who has said over and over again. Stay the course. Look for the long term. Yeah, sure. That's fine until today. Today did it. I am just starting to be scared so that I won't tell my wife what happened today...stocks down...bonds down...I'm down."

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=25126

This is a live, ball by ball account of what it felt like in 2008, and how it turned out over 13 years. You can almost smell the fear.

MaxiRobriguez

Unlikely to find many people who really timed it badly.

Realistically need to find someone that averaged in from 1998 through to 2001 or so, who won't have seen any positive returns (dividends excluded) for near 12 years.

Forecasting/planning around SORR is meant to be around those times, not a market sell off which recovers within 2-3 years or less, which can be managed with a reasonably small cash allocation.

FIREmenow

JohnWinder said:

"I have been retired for 10 years. I am one who has said over and over again. Stay the course. Look for the long term. Yeah, sure. That's fine until today. Today did it. I am just starting to be scared so that I won't tell my wife what happened today...stocks down...bonds down...I'm down."

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=25126

This is a live, ball by ball account of what it felt like in 2008, and how it turned out over 13 years. You can almost smell the fear.

Thanks @JohnWinder - read that whole thread and it was really interesting (and scary!).  Seems to have provided an important cautionary tale to some approaching retirement, and even helped some people hold on during the March 2020 drop.  Must remember to go back there during the next bear market.

bostonerimus

I was a few years from retirement in 2008 and I managed to rebalance and keep buying equities through the crash so that by my retirement in 2014 I had made everything back and was actually well set again. But it convinced me that I wanted to avoid sequence or return risk so I made plans to rely on my DB pension and rental income rather than my DC pension pot and other investments. Then the Covid crash came and I halved my tenants rent for a few months while she couldn't work. But the DB pension and cash kept things comfortable. My DC pot took a big hit, but, again, it's now back up and doing well. So have sources of income that are not directly lined to the markets and some cash and you can avoid SORR.

tacpot12

I think I have manage to avoid SORR during the dip caused by the pandemic duing 2020 by having my retirement portfolio mainly invested in income-producing Investment Trusts (ITs) and Funds. Because I am withdrawing the income and not reinvesting it, if the income is lower, it doesn't affect my future income, just my current income and I have a cash buffer in my SIPP that allowed me to continue to withdraw cash at the same rate for a couple of years. 

My dividend income is significantly up over the last 18 months, so there was a strong rebound in dividend payments, and I am on track to have two full years with above average levels of dividend income. (normally I expect about 4% pa, but in late 2020 & early 2021 I had 4.5% and late 2021 and early 2022 looks like it might be closer to 5%.   

It was my experience during the pandemic that most of the ITs that I hold used capital reserves to support their dividend payments to some degree. They did not maintain dividend levels at their previous rate, but neither did they drop in the way that the dividends did from a couple of EFTs that I hold. 

Aegis

bostonerimus said:

Then the Covid crash came and I halved my tenants rent for a few months while she couldn't work.

We don't always see eye to eye, but that was a really decent thing to do, so you have my respect for this action, for what it's worth.

coyrls

tacpot12 said:

I think I have manage to avoid SORR during the dip caused by the pandemic duing 2020 

But there was no "sequence" of poor returns, it was a temporary dip.  Sequence normally refers to multi-year poor returns.

Albermarle

Realistically need to find someone that averaged in from 1998 through to 2001 or so, who won't have seen any positive returns (dividends excluded) for near 12 years.

1998 to 2001 , is only three years , not 12 ?