BiggerPockets Money Podcast: Can Your FIRE Portfolio Survive a Stock Market Crash?

Release Date: March 28, 2025
Hosts: Mindy Jensen & Scott Trench

Overview

In this episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench delve into the resilience of FIRE (Financial Independence, Retire Early) portfolios amid stock market downturns. Addressing both newcomers and seasoned retirees, the conversation navigates through strategies to manage investments during volatile times without succumbing to panic or making detrimental financial decisions.

Market Sentiment and Initial Reactions

Mindy Jensen opens the discussion by posing critical questions about the impact of a stock market crash on the journey to financial freedom or during retirement. Scott Trench shares his concerns regarding high price-to-earnings (P/E) valuations and the multitude of economic factors that could precipitate a market decline.

• Scott (00:55): "Sky high P/E valuations signaled that a lot of things had to go right... I didn't think that that could happen."

Despite his fears, Scott acknowledges a reduction in risk as the market stabilizes slightly, indicating a shift in his outlook. Mindy relates by mentioning the market's recent 10% downturn, which has erased the gains made in 2025, yet she remains steadfast in her investment strategy.

Personal Portfolio Adjustments

The hosts discuss their personal responses to the market downturn. Mindy emphasizes her commitment to staying the course, only liquidating specific investments like her VGT holdings for reasons unrelated to market performance, such as tax considerations.

• Mindy (03:35): "We made a sale based on where we were at the time, not because of what was going on in the market."

On the other hand, Scott has taken more proactive steps by reallocating a significant portion of his portfolio into real estate and money markets to mitigate risk.

• Scott (04:03): "I pulled out a good chunk and put it into real estate."

He underscores the importance of having a plan rather than simply holding cash, highlighting his strategic investments in hard money notes and rental properties as avenues for stabilizing his portfolio during uncertain times.

The 4% Rule and Portfolio Allocation

The conversation shifts to the widely recognized 4% Rule, a guideline for sustainable withdrawal rates during retirement. Scott clarifies misconceptions about portfolio allocations:

• Scott (05:55): "There's a range of stock bond portfolios, I think ranging from 50/50 to 70/30 stocks, bonds that the 4% rule actually technically addresses."

Mindy concurs, noting the importance of maintaining a diversified portfolio rather than being solely invested in stocks. This diversification is crucial for adhering to the 4% withdrawal strategy effectively.

Understanding Sequence of Returns Risk

Mindy introduces the concept of sequence of returns risk, which is the danger of experiencing market downturns early in retirement that can significantly erode the portfolio's value. She explains how immediate withdrawals during a market dip can lead to a faster depletion of funds.

• Mindy (34:58): "Sequence of returns risk is the risk that a portfolio experiences negative returns or a period of low returns early in retirement just as withdrawals are starting."

Scott elaborates on this, emphasizing that while the 4% Rule offers a safety net, it primarily considers a 30-year retirement horizon. However, retirees may need their funds to last longer, necessitating a more balanced and conservative approach to portfolio management.

• Scott (35:03): "Most people who fire with a 60/40 stock bond portfolio here typically also have an ace in the hole..."

Strategies for Different Stages of FIRE

The hosts differentiate strategies based on where individuals are in their FIRE journey:

1. Early in the Journey (Years 1-3):
   Scott suggests that market downturns can be advantageous for young investors, allowing them to purchase stocks at lower prices as they have ample time to recover and benefit from compound growth.

   • Scott (11:26): "That's wonderful news if you're 22 and starting out in your career..."

2. Near or In Retirement:
   For those approaching or already in retirement, the focus shifts to protecting accumulated wealth. Scott advises shifting from an all-stock portfolio to a more balanced allocation, typically 60/40 or 50/50 between stocks and bonds, to mitigate risks associated with market volatility.

   • Scott (15:36): "If you're nearing retirement and you see some sort of shocking stock market manipulation..."

3. Early Retirees (Within Last Five Years):
   Mindy shares her personal strategy of maintaining a 100% stock portfolio but diversifying across different accounts (e.g., Roth IRAs, after-tax funds) to manage risk without compromising on growth potential.

   • Mindy (15:36): "We are comfortable with the risk because our original fire number was so much lower than our current net worth."

Tax Considerations in Portfolio Management

A significant portion of the discussion revolves around tax implications when adjusting portfolios. Scott introduces the concept of tax drag, explaining how selling investments now versus later can impact net gains after taxes.

• Scott (25:14): "The money market is returning for a little over 4.4.1 ish."

Mindy suggests timing asset reallocations to optimize tax outcomes, such as waiting until the following year to convert stocks to bonds to potentially reduce taxable events.

• Mindy (29:38): "Maybe your tax obligation next year won't be as significant because you didn't sell all those stocks next year."

Scott counters by emphasizing the importance of locking in gains and the possibility of future tax rate increases, making it prudent to adjust portfolios proactively despite immediate tax implications.

• Scott (29:52): "There is a real cost from a tax perspective. It's not just like a wash on these. I still paid my taxes for three reasons..."

Long-Term Portfolio Vision

Mindy and Scott agree on the necessity of a long-term vision for retirement portfolios. Scott reiterates his commitment to a balanced approach, integrating real estate and bonds to serve as a buffer against market volatility.

• Scott (34:59): "My portfolio says I'm not trying to be smart, like I'm not trying to be smart. I'm just saying I won and I'm going to accept a lower overall long term rate of return."

Mindy emphasizes the importance of continuous learning and adaptation, encouraging listeners to utilize resources like BiggerPockets.com for education and community support in managing their investments.

• Mindy (27:12): "Bigger Pockets is a really, really great place to learn about real estate if that's something that interests you."

Conclusion and Key Takeaways

As the episode wraps up, both hosts underscore the importance of strategic portfolio management tailored to one's stage in the FIRE journey. They advocate for diversification, proactive risk management, and informed decision-making to navigate market downturns effectively. Mindy invites listeners to engage with the BiggerPockets community for further insights and support.

• Mindy (43:58): "I would love to hear from our listeners about this topic."
• Scott (44:20): "That's a good point."

Notable Quotes

• Scott (00:55): "Sky high P/E valuations signaled that a lot of things had to go right... I didn't think that that could happen."
• Mindy (03:35): "We made a sale based on where we were at the time, not because of what was going on in the market."
• Scott (05:55): "There's a range of stock bond portfolios, I think ranging from 50/50 to 70/30 stocks, bonds that the 4% rule actually technically addresses."
• Mindy (34:58): "Sequence of returns risk is the risk that a portfolio experiences negative returns or a period of low returns early in retirement just as withdrawals are starting."
• Scott (25:14): "The money market is returning for a little over 4.4.1 ish."
• Mindy (29:38): "Maybe your tax obligation next year won't be as significant because you didn't sell all those stocks next year."
• Scott (34:59): "My portfolio says I'm not trying to be smart, like I'm not trying to be smart. I'm just saying I won and I'm going to accept a lower overall long term rate of return."

Final Thoughts

This episode serves as a comprehensive guide for individuals pursuing financial independence, offering nuanced strategies to safeguard portfolios against market instability. By balancing growth with risk mitigation, Mindy and Scott provide actionable advice to help listeners navigate their financial journeys with confidence and resilience.

Join the Conversation:
Share your thoughts and experiences regarding market downturns and FIRE strategies by emailing mindy@biggerpockets.com or scott@biggerpockets.com. Additionally, engage with the community on Facebook.