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The crash of 2020 got me thinking about past bear markets and those who retired just before them.

Last year I looked at a model investor, who I’ll call Balanced Bob.

He retired at the peak in 2000 and by 2019 had already suffered from two big bear markets. His balanced portfolio was battered and bruised but it was still going.

This year brought Bob his third bear market. As it happens, the S&P/TSX Composite Index recently dipped below its peak from 2000. It wiped out nearly 20 years worth of gains in the process, not including dividends and not adjusting for inflation.

Let’s see how Bob is holding up these days by getting into the details.

Bob retired with a balanced index portfolio in August, 2000, at 65. He started with a $1-million nest egg and half was invested in the S&P/TSX Composite Index while the other half was invested in the S&P Canada Aggregate Bond Index. He also adopted the “4-per-cent rule," which suggests setting a 4-per-cent initial withdrawal rate and then adjusting it for inflation over the years. As a result, Bob took $3,333.33 out of the portfolio to live on at the end of each month and the payments were stepped up to adjust for inflation. (The figures herein include reinvested distributions and adjust for inflation – unless otherwise stated. They do not include fund fees, taxes or other trading frictions. The portfolios were rebalanced monthly and used monthly data.)

Looking at the portfolio’s components, the Canadian bond index climbed by an average of 3.2 per cent annually from the end of August, 2000, through to the end of March, 2020. The Canadian stock index climbed by an average of 1.6 per cent annually over the same period.

The pickings weren’t great for stock investors over the period. The gains were a far cry from the double-digit returns many dreamed of obtaining in 2000. Alas, their dreams were dashed.

Turning back to Bob, his portfolio shrank from $1-million at the end of August, 2000, to about $622,000 at the end of March, 2020. Bob will turn 85 this year and barring a complete disaster, his portfolio will likely make it through another decade. Financially speaking, he is in reasonable shape.

You can examine Bob’s experience in the accompanying graph, which also highlights results for those who opted for a more conservative 3-per-cent withdrawal rate along with more aggressive options.

The financial news isn’t as good for investors who opted for more aggressive withdrawal rates. An investor who stuck with a 6-per-cent rate is facing the prospect of bankruptcy within a couple of years.

Those using a 7-per-cent rate went bust in 2017 and a 10-per-cent rate failed back in 2011.

Similarly, investors who went with stock-heavy portfolios have been beaten up. An investment in the stock index would have been exhausted under the weight of a withdrawal rate north of 5.3 per cent.

I hasten to add that matters would be worse for indexers who didn’t stick to low-fee funds. Thankfully, there are many on offer these days.

For instance, the Vanguard FTSE Canada All Cap Index ETF (VCN) has an annual fee (or management expense ratio) of 0.06 per cent and the Vanguard Canadian Aggregate Bond Index ETF (VAB) has a fee of 0.09 per cent.

Bob’s experience should provide investors some solace in these hard times. A simple low-fee balanced portfolio survived despite being launched at the top of the 2000 bubble and suffering from three bear markets. While the current downturn is likely in its early stages, it would have to be truly epic in its size and duration to extinguish Bob’s portfolio over the next decade.

Investors like Bob might not have to tighten their belts, but a little extra thriftiness in hard times would help to extend their resources. It might also free up some money to donate to worthy causes, which are much in need these days. Lend a hand where you can.

Norman Rothery, PhD, CFA, is the founder of

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