A sharp drawdown period like this one (so far)

[Lsbcal]

I was looking at periods that had sharp SP500 drawdowns like we have seen recently. One period was the onset of the Persian Gulf War when the SP500 went down about 17% in a few months in Aug - Oct 1990. There was plenty of angst back then. The "bottom" was hit well before the major peaks of that armed conflict.

Now we have economic problems in the developed world, not a war. The decline from May has been about 19% on the SP500 as of the Oct 3rd close. The problems seem intractable as several smart economic people have discussed. The bottom, where is it?

Just thought I'd point out that investors have had to go through some of this sort of decline before. Personally it drives me a bit crazy. Getting out here could be quite hazardous but staying in is a torture. Wonder how the retirees of 1990 handled it? Of course, they had those high real bond rates back then.

Maybe I should have a glass of wine tonight.

 

[mickeyd]

Settle on you best asset Allocation and stay the course.

 

[harley]

Just thought I'd point out that investors have had to go through some of this sort of decline before. Personally it drives me a bit crazy. Getting out here could be quite hazardous but staying in is a torture. Wonder how the retirees of 1990 handled it? Of course, they had those high real bond rates back then.

Why is it torture to stay in? Up, down, up, down, all around. The market does what the market does. If you can figure it out ahead of time, go ahead and get rich. Otherwise, pretty much ignore it. Unless you aren't comfortable with what you're invested in. IMO we're just coming down toward where we should be. I thought the market was pretty inflated, ignoring bad news and jumping at any semi-good news. It's just a correction. Unless, of course, it's not.

Maybe I should have a glass of wine tonight.

Hey, have the whole box!

 

[W2R]

The Dow is 428 points higher than it was on the day I retired (11/9/09). It helps me when I think of this within that frame of reference.

I agree with mickeyd and harley. Stay the course and wait it out. That seemed to work last time, right? Just don't sell low. Things will be looking up eventually.

 

[samclem]

Up, down, up, down, all around. The market does what the market does. If you can figure it out ahead of time, go ahead and get rich. Otherwise, pretty much ignore it.

My laziness really pays off here. I don't go to the trouble to set up any kind of automatic tracking of my accounts, so I have to go to Fido and VGD and then enter all the info manually into my spreadsheet to see how things have changed, and enter/adjust everything in Morningstar(for an X-ray) if I want to know if my AA is out of whack. So, I only do this about once a year. Other than that, I've got only a vague idea of how I'm probably doing, I don't see my balances climb and descend daily ("OMG! I lost a whole year of my hard-earned annual contributions in two weeks time!"). I think this general ignorance of price swings has probably saved me from a lot of angst and ill-advised selling.

 

[Ed_The_Gypsy]

Settle on you best asset Allocation and stay the course.

+1

And rebalance if it gets too far out of kilter. (Your judgement required.)

 

[Lsbcal]

I just like to analyze things and thought the 1990 comparison was reasonable for today -- right now, that is.

Also occasionally I like to admit that this stuff bothers me a lot. But you guys shouldn't focus too much on my angst. That's just me being sick over the yearly losses to date

I've been a stock investor for decades (since ~1980) but for me these declines are never going to be a cake walk. Did not sell in 2008-2009 so, yes, I have some staying power. I'm not a pure buy-hold type but do stick to my planning. I do have a (somewhat controversial) Plan B, just in case.

 

[REWahoo]

I do have a (somewhat controversial) Plan B, just in case.

(Be sure you don't use anything that could even vaguely considered a 'deadly weapon" when you hold up the bank...)

 

[urn2bfree]

I am in the accumulation phase and "unfortunately" had a bonus of cash earlier this year which I dutifully put in at the appropriate stock/ bond split... I think that was likely not the best course. I do Dollar cost avg and should have stayed with my monthly input at the same rate when things were up and only increased the monthly Amy after down months(like the last 4

 

[Coolius]

Also occasionally I like to admit that this stuff bothers me a lot. But you guys shouldn't focus too much on my angst. That's just me being sick over the yearly losses to date

You and me both. I was just lamenting on another thread that it appeared as if I was the only forum member bent, broken and bruised with the market this year.

When actively working, did not have the time to manage my investments - and lost a jaw-dropping amount in 2008-2009. Thought that after ER I would be monitoring the market and developments almost daily, and would avoid such downdrafts in future - I was wrong.

The only consolation I have is that my dividend income stays the same ( as long as they are not cut, and the underlying stock stays afloat ). Still hurts like heck to see principal get cut by several months dividends in one day.

If the DOW swings below 10,000 in the near future, as I feel it will, I may add more to my REIT and Utility Preferred stock.

 

[samclem]

I am in the accumulation phase and "unfortunately" had a bonus of cash earlier this year which I dutifully put in at the appropriate stock/ bond split... I think that was likely not the best course. I do Dollar cost avg and should have stayed with my monthly input at the same rate when things were up and only increased the monthly Amy after down months(like the last 4

There have been many studies on this. In most cases, the most productive thing to do with a lump sum is to invest it according to your desired asset allocation immediately, as soon as you get it. DCA is fine and provides some psychological comfort, but the cold, hard numbers show that, in most cases, any small advantage gained by "buying more shares when they are cheap" is outweighed by the loss of gains while your money sat in the sidelines. And the plans to only increase the amount after down months also won't work--if so, folks would have figured it out and would only invest after such months.

Nope, you did right. The lack of a favorable result in this case (or in any case involving investing) doesn't necessarily indicate the decision was incorrect. It's very easy to learn the wrong lesson from our mistakes.

 

[Moemg]

Also occasionally I like to admit that this stuff bothers me a lot. But you guys shouldn't focus too much on my angst. That's just me being sick over the yearly losses to date

Me too , The only thing that keeps me sane is that $100,000 is only $4,000 in spending money .

 

[Coolius]

Me too , The only thing that keeps me sane is that $100,000 is only $4,000 in spending money .

Sorry, I must be slow today. Can you further explain your statement?

 

[CyclingInvestor]

The only consolation I have is that my dividend income stays the same ( as long as they are not cut, and the underlying stock stays afloat ). Still hurts like heck to see principal get cut by several months dividends in one day.

I have found that focusing more on the (sustainable) dividends has a calming effect. While my 100% stock portfolio is also flopping up and down every day and week, the dividend growth (which I live on) is remarkably constant. So far this year all have raised them on schedule :

ABT +9%
ITW +6%
JNJ +6%
KO +7%
MMM +5%
MSFT +25%
PG +8%

with a few more to go, well above the inflation rate. Over the long run, the daily fluctuations turn into noise, while the increasing (quality) earnings and dividends reflect the true value of the stocks (IMO).

 

[Nords]

I do have a (somewhat controversial) Plan B, just in case.

(Be sure you don't use anything that could even vaguely considered a 'deadly weapon" when you hold up the bank...)

That's Plan B as in "Plan Baguette"...

 

[Moemg]

Sorry, I must be slow today. Can you further explain your statement?

If you use 4% of portfolio value for your budget . Each $100,000 only equals $4,000 dollars .

 

[easysurfer]

I did my quarterly totals to check my current asset allocations versus my targets. To my surprise, the allocations weren't off by more than 5% in any asset class.

Remember...only paper loss unless you sell. Also, when rebalancing time comes along, it'll be buying low and selling high.

 

[TromboneAl]

The market is down?

Haha, but seriously I don't pay as much attention to it these days as I used to.

Moemg, don't read this next sentence!

I hope this doesn't spoil the trick, but $100k isn't just 4k, it's 4k per year.

 

[Coolius]

If you use 4% of portfolio value for your budget . Each $100,000 only equals $4,000 dollars .

Thanks, I understand. You're looking at the loss of actual spending money assuming a 4% SWR. So losing $100K means the loss of $4K of spending money per year.

But that still means that your living budget must either be slashed by $4K, or made up for by drawing more than 4% from other sources, doesn't it?

This is still a loss from a purely money standpoint, and it does not take away the fact that your working capital has shrunk by $100K.

 

[KingB]

Putting it another way. If your budget is 50K/year and you lose 100K, you either have to make up for the 100k or leave this world 2 years earlier.

 

[easysurfer]

Putting it another way. If your budget is 50K/year and you lose 100K, you either have to make up for the 100k or leave this world 2 years earlier.

Hmmm..which is a better to lose. Your money or your life?

Like Jack Benny would say "I'm thinking it over."

 

[RockyMtn]

My plans between now and year end, for those interested.....

May do some tax loss harvesting as part of an effort to reduce some cap gains I took in Jan as a result of AA rebalance. Will sell some losers to offset the gains and then reinvest the cash as part of my Jan 2012 AA rebalance. Not a large percentage of my portfolio so not worrying that I will miss a bounce back by sitting with more cash than usual for a couple of months.

Converted a traditional IRA to a Roth last year and deferred taxes to 2011/12. It has taken a hit since it has been a Roth so will recharacterize back to a TIRA and either convert to a Roth at a later date or just leave it as a TIRA. I refuse to pay taxes on gains that are no longer there! This has to be done by October 15th I believe.

Other than that I just think like W2R...the market was a lot worse on my retirement date in July of 2009.

 

[rescueme]

But that still means that your living budget must either be slashed by $4K, or made up for by drawing more than 4% from other sources, doesn't it?

Of course.

That's why a retiree (such as myself) has more than several years in cash or cash equivalents to satisfy immediate retirement income needs.

You don't draw from your retirement portfolio just because the market is down for a period (for me, years).

OTOH, you don't wait when the market returns (as it had after the 2008-early 2009 period). You "reap your harvest" as I did earlier this year, to add to cash (e.g. my "silo").

Just call me farmer Brown...

 

[Hamlet]

My rebalancing is pretty simple.

Still 100% stocks outside of our emergency fund

+1

And rebalance if it gets too far out of kilter. (Your judgement required.)

 

[DallasGuy]

I sold 60% of my stock investments when the S&P was at 1300 and the rest of it when the S&P was at 1200 (late July/early August). The S&P closed yesterday at about 1100. A financial adviser I listen to on the radio advised his clients/listeners to get out of the market at that time to conserve their retirement savings because he felt the downside risk was much higher than the upside potential. I'm curious, are there any other people like me on this forum that don't subscribe to the "buy and hold/rebalance asset allocation" but instead try to preserve their retirement savings?