The Road To Early Retirement – Part 2

Long Road 1

As I noted in the previous post, the road to retirement is one of financial self discipline.

The earlier you get on it, the earlier you’ll get to financial freedom nirvana!

Let’s continue with more excerpts from:

Millennial Revolution – How We Got Here Part 2: PANIC”

In the depths of the 2008 Financial Crisis, the Dow would regularly dive 500+ points, and I vividly remembered the TSX dropping over 1000 points in multiple trading sessions.

Here’s the tricky thing about investing: When stock markets are going up, it’s really easy to convince yourself you’re a genius. “Oh, I came up with this system and I picked these stocks and I’ve already made $10000!” people say. Well, that’s because everything’s going up and you just got pulled along for the ride. You have no idea if a particular investing strategy is any good until you’re see how it performs when everything’s on fire.

And in 2008, everything was on FIRE.

We had invested nearly all our assets on the eve of the worst financial crisis in modern history. Within a single trading session, we had given back all the gains we had made investing. And in the trading session after that, we were in the red. And in the trading session after that, we were DEEP in the red.

“So, how was your day?” Wanderer would say after returning home from work.

“ShitshitshitshitSHIT!” Was my reply as I hunched over our laptop watching our portfolio get pounded.

I understood, intellectually, the strategy of Index Investing, and how it was impossible for your portfolio to go to zero. But there was always the caveat that it was impossible for your portfolio to go to zero unless the world ended.

And on September 15, 2008, when Lehman Brothers filed for Chapter 11, the single biggest Chapter 11 filing in US history, causing the Dow Jones Industrial average to drop a cataclysmic 1000 points, it kinda sorta seemed like the world might actually end.

People were losing their homes left and right with entire neighbourhoods getting flooded with foreclosure signs. Newspapers were running stories about the impending collapse of the global financial system (with black-and-white pictures of 1929-style bread lines, just in case we weren’t already scared enough). People were hoarding gold and canned goods. Even Derek Foster, Investment guru and self professed “Youngest Retiree in Canada” (a title that I think belongs to me now) famously panicked and sold every stock he owned.

Losses to our portfolio kept building, and it just wouldn’t seem to stop.

By the time the end of the year rolled around, the stock markets had dropped almost 50%. Our personal losses were at 30%. The difference here is because we had 40% of our holdings in bonds, which didn’t drop (in fact, they went up), but that’s cold comfort when we logged into our brokerage account at the end of the year and the screen basically said “Hey, you know all that work you did, and all that money you saved? Well, almost a third of it is gone now. Oh, and it’s probably going to get worse. Merry Fucking Christmas.”


Category Cost / month Comments
Rent $800 We move in together because of the “frying pan” incident documented in Part 1 and our rent halved.”
Food/entertainment $2200
Bus pass/utilities/misc $300
Vacation $583.33 $7000 in total for Cruise documented in Part 1
Savings $7033

Screen Shot 2016-07-13 at 2.55.17 PM

At the end of the year, this is what our balance sheet looked like.

Category Amount Comments
Combined income (after tax) $131,000
Total Spend $46,600
Savings $84,400
Savings Rate 64%
Investment Gains/Loss -$58,000  FUUUUUUUUUUUUUUUCCCCCKKKKK
Total Net Worth $134,900



Our first foray into stock market investing was not going well. Within a few months, we were swimming in losses with no end in sight.

Now here’s the thing. A critical part of Index Investing is to create a portfolio that balances your holdings between stocks and bonds, and then to rebalance your holdings periodically back to your target allocation. If your target allocation is 50/50 stocks/bonds, and stocks do well to the point that it’s 60/40, you’re supposed to sell enough stocks and put that amount into bonds to restore your 50/50 target. If stocks do poorly and you’re now 40/60, you’re supposed to sell bonds and buy stocks. This causes you to buy low and sell high.

We knew that rebalancing was what we were supposed to do, intellectually. And in normal markets, selling off your winners to pick up more of your losers feels counter-intuitive. But in an end-of-the-world stock market crash, it feels downright insane.

In this situation, “rebalancing” meant not only selling off our bonds, also known as the only part of our portfolio that wasn’t currently on fire, it also meant taking every last dime of our paychecks that we could spare, and throw it into a stock market that was in free-fall, all while the media screamed “the sky is falling!” at us.

This was not fun, and I remember viscerally the feeling of putting $1000 into the stock market, only to have the stock market immediately plunge and my portfolio to go down $1000.

“Where the fuck did my money just go?!?” I would scream at the screen.

But we continued doing it, because we had faith in the underlying strategy. Buy the Index, and rebalance. No matter what.

Around mid-March 2009, the S & P 500 had found its bottom. From a pre-crisis high of 1550, it had crashed and burned all the way down to 683. But then it started climbing back up. And throughout it all, we continued to buy.

Here’s an interesting thing about this strategy. By buying into a storm, with the faith that the index would never collapse completely, as the price per unit dropped we were naturally picking up more units for the same amount of money. As a result, when the recovery happened we were able to participate in the upside more strongly than the downside. The actual value of the S & P 500 didn’t recover to its original number until 2013, but because we had picked up so many units when everyone was running the other way, we hit our break-even point, taking into account interest and dividends received along the way, by December of 2009.

So in December of 2009, we made the single biggest mistake of our investing career: we exited the stock market completely.

It wasn’t because we lost faith in the stock market, or in Index Investing as a strategy. Quite the opposite, actually. That year had given me a rock-solid faith in Index Investing that we carry to this day. While everyone was losing their shit and jumping off buildings, we, lowly unsophisticated retail investors, had managed to do something most Wall Street traders and even financial behemoths like Lehman Brothers couldn’t pull off.

We didn’t lose any money in the Great Financial Crisis of 2008.

So why did we sell? It’s actually quite simple. Talk of marriage and settling down had been happening more and more, and we figured we would probably need that money in cash for the inevitable house purchase (Spoiler: HA!). So in December 2009, we exited our positions and moved completely into cash. History would prove our move a mistake, as the index would rampage higher over the next 2 years, but as far as financial blunders go, I very much consider myself lucky that this was the biggest one.


Category Cost / month Comments
Rent $800
Food/entertainment $2200
Bus pass/utilities/misc $300
Vacation $750 $9000 for the year. Yes, we love our vacations.
Savings $7283

Screen Shot 2016-07-13 at 3.16.53 PM

At the end of the year, this is what our balance sheet looked like.

Category Amount Comments
Combined income (after tax) $136,000
Total Spend $48,600
Savings $87,400
Savings Rate 64%
Investment Gains/Loss +$58,000 Holy Shit, Money. Welcome back. I took you for granted. Let’s never fight again.
Total Net Worth $280,300

Coming up next: How We Got Here – Part 3.

Yin-Yang-symbol copyHarley 1

Retired Buddah

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