Here’s what happens to my calculations with a 60% crash followed by a 3-year recovery, 5-year recover, and 10-year recovery.
These numbers don’t change with different recovery period lengths. What does change is the resulting annualized returns, which are:
- 3 years: 13.2%/year
- 5 years: 7.7%/year
- 10 years: 3.8%/year
As you can see, increasing the assumed depth of the crash actually makes my returns higher for a given length of recovery period (50% and 3 years resulted in 9%/year, while 60% and 3 years yielded 13.2%/year).
Assuming a longer time before the market recovers reduces the annualized returns, and also means I’d have to wait longer before starting to take money out (though I could start before the market recovers fully if I’m willing to accept a lower return than what I’d get by waiting).
However, as I said in a previous reply, I think increasing my cash allocation now even further than my current 30% increases the risk of inflation eating up most, all, or more than my returns to the point that it exceeds the risk of such a long recovery period.
