QUOTE(Hoshiyuu @ Feb 13 2022, 03:37 PM)
Assuming a portfolio of 1mil, and 80% equities loss 50%, you are down to 600k, with 400k equities and 200k bond (bonds usually drop some too but we'll neglect that for this example)
Now if you are unemployed and needed money,
if you sell equities you will be realizing the 50% loss on equities, and when the market recovers, you might significantly recover less if you had to sell quite an amount.
If you had 20% bond however, now you have 200k to survive on by liquidating only the bonds. And in the best case scenario, where you have enough emergency fund to survive this downturn, you can rebalance the bonds into equities to buy them at a huge discount.
That's the role of bond, so 20% surprisingly helps a lot.
QUOTE(MUM)
Also if the portfolio had increased at 10% pa rate for 6 yrs... It would have appreciated 60% and if crashed 50%....still hv alot left.... Just lost the accumulated gains n abit more
In a planned portfolio with not too much margin for error (would be the case for an average earner), having your portfolio rollback by 6 years would severely delay your early retirement, or easily reduce your yearly withdrawal amount in your retirement - at a 50% equity drop, its entirely possible to go from "just comfortable enough" to having to move into a shared apartment and
live on maggi for a few years until the market bounces back.
when one need to sell the balance of the 50% and to having to move into a shared apartment and to survive the on maggi....to tight over the 2~3 BAD years...
then he sure does not have enough for retirements...
for if the markets did not drops....it will just be enough to last him for another few years
on that,.." And in the best case scenario, where you have enough emergency fund to survive this downturn, you can rebalance the bonds into equities to buy them at a huge discount.
That's the role of bond, so 20% surprisingly helps a lot."
YES it helps,...but when one is at that situation,...one emotional and financial state of mind may be different....just like now,...miniature example....a number of well known ETFs had been down more that 50%,...and yet there are people still waiting.....while their overall port is still does not have -20% losses or are at retirement age.
btw,....the variance of value of a port with 20FI:80EQ of 1 mil, when ROI of FI is 4.5%, EQ is - 50% compared to a 100% EQ port with - 50% losses is RM 109k
This post has been edited by MUM: Feb 13 2022, 06:04 PM Attached thumbnail(s)
Feb 13 2022, 10:30 AM
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