Market Drops, Biological Age, and FIRE any Time (EP.88)

Episode Summary

Executive Summary: Episode 88 combines market commentary with long-horizon planning. The hosts discuss the COVID-driven selloff, show that recent drawdowns were historically normal, and argue against market timing based on volatility, CAPE, or yield curves. The planning half focuses on life expectancy, biological age, FIRE, working longer, and why retirement assumptions should adapt to longevity and lifestyle changes.

Main Topics: Market volatility and the COVID selloff: The hosts frame the sharp early-2020 market drop as scary but not unusual in historical context, emphasizing that stories amplify fear more than the numbers themselves. Drawdown analysis and market timing: Using a simple indexed portfolio, they compare current drawdowns with historical intra-year drawdowns and show that timing contributions around drawdowns has limited effect versus long-run compounding. Why popular timing signals fail: They review evidence that the Shiller CAPE and inverted yield curve may forecast valuation or recessions, but do not reliably improve equity returns when used to time stock exposure. Longevity, life expectancy, and biological age: The planning section argues that retirement planning should account for longer lives, and possibly biological age differences, rather than assuming retirement at 65 or using a single chronological-age heuristic. Working longer, FIRE, and retirement meaning: They connect the FIRE movement and Rob Carrick’s commentary to the idea that retirement age is changing, and that continuing to work can support meaning, purpose, and financial flexibility. Deferred sales charges as bad advice: They criticize the Ontario Securities Commission’s partial restrictions on DSC mutual funds as insufficient and outdated, arguing the structure still creates poor incentives and product-driven selling.

Key Arguments: Market drawdowns like the one seen in early 2020 are historically normal for equity investors and should not by themselves trigger asset-allocation changes. A portfolio’s long-run outcome is driven far more by staying invested than by the timing of annual contributions around drawdowns. Missing even a small number of the best return months materially lowers long-term returns, which is why market timing remains unreliable. The Shiller CAPE and yield curve may have predictive power for valuations or recessions, but evidence shows they do not reliably forecast stock returns well enough to time investments. Life expectancy has improved dramatically, so planning to die at or shortly after 65 is often unrealistic and can lead to underspending or under-saving. Biological age may diverge from chronological age and could, in theory, affect annuity pricing, CPP timing, asset allocation, and retirement timing. Working longer can improve retirement outcomes and fits many people’s values better than a hard stop at age 65. DSC funds persist because they support sales incentives, but the hosts argue that the industry should not rely on product structures to fund advisor entry.

Data Points: Weekly U.S. stock drawdown: -11% to -12% - Early-March 2020 market decline discussed as the catalyst for investor fear 2020 portfolio drawdown: 6.8% - Maximum month-end drawdown for the model 1/3 Canada, 1/3 U.S., 1/3 international equity portfolio in 2020 to date Historical average intra-year drawdown: 8.65% - Average peak-to-trough drawdown within each calendar year since the 1970s for the model portfolio Historical drawdown standard deviation: 7.26% - Spread around average annual intra-year drawdowns Years with drawdown >= 6.8%: Average annual return 2.38%; 50% negative years - Historical years resembling the current drawdown magnitude Years with drawdown >= 10%: Average annual return -2.4%; 67% negative years - Deeper drawdowns were more likely to coincide with negative calendar-year returns Years with drawdown >= 20%: Average annual return about -15%; 83% negative years - Severe drawdowns had a much worse average yearly outcome Baseline investing scenario: $1.33 million - Result from investing $1,000 at the beginning of each year from 1970 onward Worst-timing scenario: $1.15 million - Result from investing at the worst point within each calendar year Best-timing scenario: $1.39 million - Result from investing at the best point within each calendar year Annualized return of model portfolio: 9.5% - Long-run annualized return over the full sample period Return after removing best 10 months: 7.7% - Illustrates how missing a handful of strong months significantly reduces long-term returns Lifetime return sample period: 602 months - Approximate number of monthly observations used in the timing illustration AQR timing study period: 1900 to 2015 - Used to discuss CAPE-based timing and how it works differently in early vs late subperiods Herbalife FTC fine: $200 million - FTC action discussed in the context of the Ackman-Icahn Herbalife battle Bob Iger transition: Immediate resignation/step-down timing - Disney leadership change mentioned as a news item Dow weekly move: -12% - Referenced as the Dow’s weekly decline during the selloff S&P 500 weekly move: -11% - Referenced as the S&P 500’s weekly decline during the selloff U.S. 10-year Treasury yield: About 1.2%-1.3% - Mentioned in the context of yield-curve inversion and recession signals Average retirement age in Canada: 64.3 years - StatsCan figure cited as evidence that retirement is happening later than in the past Average retirement age 20 years earlier: 61 years - Historical comparison for Canadian retirement age 50/50 life expectancy at age 60: Male 89, female 91 - Used to show how much longer expected lifespans are now 25% survival horizon at age 60: Male 94, female 96 - FP Canada projection standard discussed for retirement planning 1971 50/50 life expectancy at age 60: Male 77, female 81 - Illustrates the dramatic increase in longevity over less than 50 years Asian flu deaths: Estimated 2 million - Pandemic example used to note that markets can still perform well during major health crises 1968 flu deaths: About 1 million - Second pandemic example paired with positive U.S. market returns 1968 S&P 500 annual return: 11.08% - Observed during the 1968 flu pandemic 1956-1958 S&P 500 annualized return: 10.87% - Observed during the Asian flu pandemic Biological age difference: 13 years younger - One host’s online calculator result, used illustratively to discuss biological vs chronological age DSC restrictions threshold: Age 60 - OSC proposal would ban DSC sales to investors over 60 DSC account cap: $50,000 - OSC proposal would limit DSC use to smaller accounts DSC redemption schedule limit: 3 years - Proposed shortening of redemption schedules from typical 5-7 years Annual DSC free redemption: 10% - Proposal to allow 10% annual redemption without charges

Pivotal Quotes: "once your values are clear, the decisions are easy." — Scott Ricken: Referenced while discussing FIRE, purpose, and what a satisfying working/retirement life can look like "The results should disappoint investors hoping to use inverted yield curves to improve their expected portfolio return." — Fama and French: Quoted while explaining that yield curves may predict recessions but not equity returns "it's time to stop acting like retirement past age 65 is a failure." — Rob Carrick: Used to support the argument that later retirement can be healthy and rational

Implications: Listeners should avoid panic-selling or re-optimizing portfolios based on scary headlines, and instead build plans around long life, flexibility, and purpose. For advisers, longevity and product incentives matter more than short-term market noise.