Buy, Hold, and Sell!

Chapter 5A Buy-Hold Disaster Story

Miss Kitty worked hard her whole life, saved her money, and invested wisely. After selling the Long Branch Saloon in 2000, she retired with a million dollars in investments—a nice amount of money.

Kitty intended to enjoy retirement, travel a bit, maybe take a cruise with her beau Matt once a year. She would be careful, taking out just the prescribed 4 percent for living expenses, which in her case was $40,000. She planned her post-retirement lifestyle based on having this money available to her. With $1 million, she figured she was all set. And she might have been, if she hadn't believed the buy-hold myth.

In 2000, the first year of her retirement, Miss Kitty withdrew $40,000 as planned. Unfortunately, the market also took a chunk of her money. The S&P 500 lost 10.4 percent. Miss Kitty took out $40,000 and the market took out $101,400, leaving her with $858,600. Not a very good start to her retirement. (See Table 5.1.).

Table 5.1 Miss Kitty's Buy-Hold Disaster

Year	Beginning Nest Egg	Amount Withdrawn	Market Return	Market Loss/Gain	Ending Nest Egg	Draw %
2000	1,000,000	40,000	–10.14	–101,400	858,600	4%
2001	858,600	41,400	–13.04	–111,961	705,239	5%
2002	705,239	42,849	–23.37	–164,814	497,575	6%
2003	497,575	44,349	26.38	131,260	584,487	9%
2004	584,487	45,901	8.99	52,545	591,131	8%
2005	591,131	47,507	3.00	17,734	561,358	8%
2006	561,358	49,170	13.62	76,457	588,645	9%
2007	588,645	50,891	3.53	20,779	558,533	9%
2008	558,533 ...