Prepared for a Signficant Correction

I was not prepared for the magnitude of the 2008 - 2009 stock market decline.  I had significant amounts invested in equities, still owned significant amounts of company stock and was projecting 7% annual growth in our investments assets.   It would be an understatement to say I was shocked by the ensuing 40% drop in our investment assets during the 08/09 market decline.   My early retirement was suddenly at risk for failing as our financial capability to continue retirement was not certain.

At that point, we hunkered down and made some significant changes:

Reduced living expenses significantly.  We paid off our mortgage which reduced expenses by 24%.  In addition, we cut back in other areas to reduce costs.  We have continued to follow frugal living principles.

Increased cash and cash equivalents to 3-5 years living expenses.   We consciously created an "emergency fund" equal to 3-5 years of our living expenses.  The fund can currently cover over 5 years. 

Reduced withdrawal rate.  Through part time jobs, I was able to cover 20-40% of our living expenses from 2008 to 2011.  This helped preserve the funds in our retirement and savings accounts.

Reduced exposure to company stock.  Our largest exposure to risk was my company stock.  Over the past 5 years, we reduced my company stock exposure by about a third.   At this time, my company stock is still the largest and higher risk exposure area.  Our plan is reduce our exposure another third, or about half of the remaining exposure over the next four years.

Now we are better prepared for a major correction. Although a significant market decline will still be painful, the actions will help us maintain our current standard of living while waiting for the market to recover.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC