Hi Cath,But, Dave, the decline could be more or it could be less. True... all we know for *sure* is that the S&P has frequently peeled off 40-45%, and as deep as 53%. Prior to the 53% selloff, it had no history of ever dropping that far. Today it has no history of ever dropping 60% also (just like its previous lack of proof at 53%.) You have to pick *some* level of realistic volatility expectation though. If you personally want to fade the S&P history & call it 45% of risk, I think that's aggressive but within reason. If you want to call it 25%, I'd say you're better off going to Vegas, at least you'd get free drinks for your risks.And money is money, whether you call it "principal" or "reserves." So I don't see how having reserves of $50,000 makes putting your principal at risk more tolerable.If you can't handle any risk of loss on any of your money... your choices are obvious & narrow. A naked S&P B&H isn't even in the vocabulary for a person like that.To me, it's a matter of how much risk can one tolerate. Assuming the point of financial management is to arrive at the point where your safe passive income completely displaces your personal employment income for the expenses of your chosen lifestyle... and you are hoping to achieve this point as many years as possible before you die.... Then you would have a zero tolerance for *relative* risk.To put it another way;Assume you have 3 accounts to choose from... all with longterm historical net returns of 10%Account A has a historical drawdon of 50%Account B has a historical drawdon of 20%Account C has a historical drawdon of 0%Which is preferrable?Why?How do you determine the *COST* difference between them?(Because if you can't see that there is a difference in cost, you'll suffer.)One strategy (S&P B&H) may allow you to end up with more money than the other strategy (insured account) but then again, maybe not. Not. At least not over the averaging effects of time & laws of large numbers (meaning we're not only comparing various market periods for a single person... but various market periods for a significant population of similar persons, all with their own unique living vagaries.)The older I get, the less risk I'm willing to bear. Knowing this about myself, I'd rather end up with less, but have it guaranteed, than bear the risk of a 50% (+/-) loss when I can least tolerate it.Yes, this is a logical place to begin your understanding of risk management... from the point where you are not enticed to "cheat" by assuming you can recover by earning more money to make of for the costs of volatility.By my calculations--which I still don't know how to post to this board--one would end up with more money with a S&P B&H, but not without a lot of risk of loss at an inopportune time that I'm unwilling to bear. Nope... not in the current tax environment anyway.Dave DonhoffLeverage Planner
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