Posted by Tim Stobbs on January 13, 2009
Welcome to my three part series on modifications to my retirement plan. If you haven’t previous read them I suggest you read my series “How Much Do I Need to Retire” for some of the background of the numbers.
Ok, today’s post is all about the market crash and the secondary affects on my plans to retire early. So overall most people would think a plan like mine would be more or less killed off by a setback like a 20% loss to my investments. The reality is my plan could have been killed off if this event had happened much later in the savings cycle before I stabilized my funds to be more conservative. But that isn’t what happened.
The reality was my investment net worth peaked at just over $60,000 during the summer of 2008 and during my last net worth update it was about $51,000. I’m only off 15%. So how is that possible? Well recall my overall amount is small and my contributions do make up a fair percentage of my increases. So they help buffer the drop, but it also means I should recover back to $60,000 by the middle of this year provided the market doesn’t drop further. So currently at most it’s cost my plan about 18 months to 24 months currently, which if you compare that to my earning potential just before I retire I might need to work another 6 to 12 months.
Actually overall I would have to consider they crash has done me a favour. It’s reduced the over valued stocks back down to a more reasonable range and pushed up yields. So my short term plan is to pour money into my investments so when the recovery does finally take off in 2010 or later I will be in a great position to make up some losses and hopefully get in some good growth. I haven’t done a detailed double check on my calculations yet, but given I only need a 7% average rate of return I’m in a fairly good shape to still retire at 45.
In the long run depending how this exactly plays out I can actually see this crash combined with my new job being the events that take my plan from ‘possible’ to ‘damn likely’. It’s also provided a wealth of insights into my own investing personality and the risks I can take. For example, I still think index investing is a good plan for most people for the core of their investments and I’ve learned to actually love some bonds in my portfolio.
So in the end, I’m not sure, but I suspect that the crash was actually a good thing to my plans to retire early. So to all you dreamers out there don’t lose hope yet. Keep to the plan and push forward, depending on how much time you have left you might be alright after all.
Well tomorrow’s post is about TFSA’s and where they fall in my plans and a few modifications to my overall plan that have fallen out of this crash and little soul searching.