20% stock market plunge

[W2R]

What CAN we do? In such a case I'd like to stamp my foot and insist that the market must immediately stop falling, but that wouldn't help. It makes no sense to sell when the market is low, so I couldn't sell. I suppose I could invest my emergency fund, but that is not in my plans so I wouldn't.

I'd probably come to this message board and write a bunch of freaked out posts, and do nothing, other than an occasional re-balance... doing nothing might be the best move of all.

I do plan to re-evaluate my retirement date just before giving notice. If the market has gone you-know-where in a handbasket, I would consider at that time whether or not to delay retiring. (sigh)

[Sam]

We have potential for a 20% drop now, in the REIT world. Change of -12% so far from Feb 7, 2007. A real test for "buy and hold".

[Moemg]

I would up my cash portion so I had enough for two years and just hold tight .

[SecondCor521]

No to all your questions, both now and in the future. I am aiming for 100% Firecalc safety and expect to be at an 80/20 allocation when I retire.

2Cor521

[Spanky]

Quote:

Originally Posted by bssc I remember October 1987. That happened in a day. I was buying stocks the next day.

Way to go!

[. . . Yrs to Go]

Hmmm. A 20% stock market drop on a 65/35 portfolio is only a 13% hit.

If I'm starting from a 3% WR, as planned, that 13% decline brings my prospective withdrawal rate all the way up to 3.45%!!!!

After I run the numbers carefully, I cheerfully board a plane to continue my world travel.

[Nords]

Quote:

Originally Posted by ferco Just curious to know how you'd deal with a 20% stock market drop that lasted 12 months. Would your lifestyle/spending change? Would you change your asset allocation or wait it out? Assuming you're ER/FI, would you go back to work PT/FT. Would you freak out and sell at the bottom and buy all MM and CD's.

We wouldn't change a thing. Dividends are being reinvested and it'd be interesting to watch Warren Buffett & his new protegés unleashed. In fact I think every Young Dreamer on the board should be praying nightly for a 20% drop that lasts at least until a couple years before their ER.

I'd be extremely tempted to go from two years' spending cash to about two month's worth. But I'm older now and I have the experience to resist that temptation.

Quote:

Originally Posted by bssc I remember October 1987. That happened in a day. I was buying stocks the next day.

Same here. We skipped school for a day looking for change under our sofa cushions to make sure we could throw every bit of cash into the market.

It helped a lot to have those DINK paychecks direct-deposited every two weeks, and back then we didn't appreciate the lessons of 1966-82.

[dmpi]

Quote:

Originally Posted by bssc I remember October 1987. That happened in a day. I was buying stocks the next day.

The good news: I too put all my extra money into the market after the crash.
The bad news: I didn't have any extra money because it WAS already in the market.

[mathjak107]

dont worry about it just plan right and allow for the bumps. my pre-retirement plan now is so different than i was years ago at 80% to even 100% at times. its now about having a goal in percent that matches the risk and daily swings that im comfortable with.

as my portfolio grew we had swings in a day with funds not even individual stocks of 20,000 dollars. im no longer interested in reaping big gains, im interested in meeting my goals which need a 7-8% average return. now the swings are managable and like i said i can go 14 years without selling a single fund. of course the plan is when im up ,every year to sell a little stock and re-fill my income buckets but a long streach dosnt alter not a single thing

[unclemick]

I think that it is decreed by the 'flying fickle finger of fate' that every ER's pucker be tested:

I believe(without going back to look it up) I was about 16.5% down one quarter in 2002/3 plus down in my individual stocks - ballpark a 1/4 mil - or more than I retired with in 93(mine not adding hers).

Truth told - I did check the supply of clean underwear.

I am increasingly 'heroic' with the passage of time. Able to - 'press on regardless', stay the course', 'hurry up just stand there'.

Now I have a few years extra supply of clean white underwear and can say Boglehead with a steely eye - sort of.

heh heh heh

[JPatrick]

I can see two possible senarios for a 20% plunge.
1. Almost all at once due to a 9/11 type event--There's no preparing for that one, just keep opportunity cash on hand and get ready to buy low and soon.
2. A massive bubble. In this situation I cannot believe that the warning signs would not be everywhere giving the dirty market timer prudent investor time to move into cash. Then--same deal, buy low. Biggest risk here is buying the first dip and not waiting it out.
Ain't life simple?

[SteveR]

I too bought a day or two after the Oct. 1987 "correction". Still have the stocks I bought then.

If the market were to turn for a year or more:

My portfolio is structured with a number of buckets for cash that we could draw on to avoid selling equities for a while.

We would also cut a bunch of "excessive" expense items and hunker down for a while to see if we needed to cut more. We could cut quite a bit from our current budget and stretch the cash. We have about 4 years of expenses at our projected budget level of spending. If we went into 'possium mode, we would stretch it to 10 years before we had to start selling off stocks or other equities. If it went longer than 10 years then we would be far from alone in the "bargin basement" market.

[mathjak107]

im good out 15 years since you would be hard pressed to ever find a 15 yr period where the s&p wasnt up. there may be 1 or so in history but statistically that happening today is so remote i wouldnt ever base a plan on it. but 14 years works well for me.

[megacorp-firee]

2000-2003 I kept on contributing full blast to my 401K... keep loading up on Large, mid-cap and int'l, gritted my teeth .... year after long year ... Now that I am 42 days and a wake up to FIRE I am glad I did.

shame on all of you fair weather AA buy and holders...

Although I do agree with the 'common sense' approach to this... I just am not smart enough to recognize (summer of 2002?, ...when?) when it is a real bad plunge.

You all have convinced me after reading all of your posts that AA buy and hold is the way to go ... then when we get to 'nose bleed' areas or worse, a real plunge you all start waffling ... this is humorous to say the least ...

[kumquat]

We hold 4 years spending in near cash. I might want to put a bit of that in the market assuming it would eventually turn positive.
In the ulimate senario, total society breakdown, I suppose we could move to DW's 300 acre (currently rented) farm, buy some guns and bullets, and maybe have enough to eat.
FWIW, I imagine if we stick to our AA plans, we'll survive as well as society as a whole. If society as a whole collapses, time to put gun to head.

[megacorp-firee]

Quote:

Originally Posted by kumquat We hold 4 years spending in near cash. I might want to put a bit of that in the market assuming it would eventually turn positive. In the ulimate senario, total society breakdown, I suppose we could move to DW's 300 acre (currently rented) farm, buy some guns and bullets, and maybe have enough to eat. FWIW, I imagine if we stick to our AA plans, we'll survive as well as society as a whole. If society as a whole collapses, time to put gun to head.

Was with you until the 'gun to head' part ... my philosphy is make the other guy pay 1st.... can we join you on DW 300 acre's? I can help with the chores ... and we don't eat much ...

[megacorp-firee]

Quote:

Originally Posted by kumquat We hold 4 years spending in near cash. I might want to put a bit of that in the market assuming it would eventually turn positive. In the ulimate senario, total society breakdown, I suppose we could move to DW's 300 acre (currently rented) farm, buy some guns and bullets, and maybe have enough to eat. FWIW, I imagine if we stick to our AA plans, we'll survive as well as society as a whole. If society as a whole collapses, time to put gun to head.

[Bikerdude]

With some of the concern I saw on this board when the market corrected less than 5% in February, I would say this will be a great place for entertainment come a 20% decline.

[unclemick]

Quote:

Originally Posted by Bikerdude With some of the concern I saw on this board when the market corrected less than 5% in February, I would say this will be a great place for entertainment come a 20% decline.

Or have an underwear sale.

:

[dmpi]

Quote:

Originally Posted by Bikerdude With some of the concern I saw on this board when the market corrected less than 5% in February, I would say this will be a great place for entertainment come a 20% decline.

I didn't want to say it... but I sure do agree with you on that one.