In the graph below, the burgundy line represents the fluctuation in the account balance, while taking out systematic annual withdrawals of $50K, compounded by a 2% annual inflation rate.
While usually stated in percentage terms, here we see gains and losses stated in terms that most people care about: the account balance over time. In other words, will my money last?!
Source: Zephyr StyleADVISOR & Swan Global Investments. Indices are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. The charts and graphs contained herein should not serve as the sole determining factor for making investment decisions.
When someone says the S&P 500 lost 37% in 2008, what does that really mean?
In the context of this scenario, the $312,352 losses in the account in 2008 represents over four years of spending. The three-year bear market of 2000-02 was arguably worse since it lasted longer and the market took longer to recover. The unrealized losses were $485,097 and withdrawals of $191,042 were taken out over those three years.
Although markets did rally between 2003 and 2007, the portfolio had been seriously impaired by those severe and lengthy bear markets.
Is a bull market enough to cover these losses?
The above analysis is sobering. Please keep in mind that the bull market in U.S. stocks was the second longest on record, and the S&P 500 was up over 400%, from March 2009 to February 2020. However, through this amazing bull market, the portfolio account balance was slightly higher.