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Old 08-25-2015, 10:18 PM   #21
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Actually the crash of 1987 is the one that really helped me (20+% loss in one day!). I had just started investing a few years earlier and I was so paralyzed by panic and fear that I did nothing. Well, a few months latter I realized that nothing much had really happened and that my paralysis had actually saved me. When the rolling crash of 2000-2002 came along I just rebalanced along the way and ER'd at the end of 2002, when things looked the darkest.

The rise in the market meant that my stock allocation made it to the top of my wide rebalance band in 2007 so I sold then and was already at my ideal AA when the 2008 shenanigans took place so no harm done but I must admit it really looked dicey for a while there and I could see that a much different result could have ensued if the powers that be had taken a different approach .

The 1987 crash taught me a lot. The 2008/2009 gave me plenty of time to practice the lessons.

In 1987, I decided after listening to Bob Brinker that Saturday that I should sell stocks in my taxable account. I decided to leave my 401K alone.
Unfortunately lots of other people made the same decision, and the market crashed bad in the morning and continued to go down 22%

About an hour before the close I decide screw it I'll just ride this out. But I couldn't reach Fidelity by phones, so I ended up selling at the bottom. Fortunately I got most of money back in by the end of the week so the damage wasn't horrendous.

I am sympathetic to the poor mutual funds owners today. The heard the market was up today, decide to sell on the strength only to find out that millions of others did the same thing.

One of the big reasons I prefer ETFs to mutual funds is exactly this problem.
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Old 08-26-2015, 05:10 AM   #22
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A few short years ago I was investing the maximum in my 403b, my wife's 403b and both of our Roth IRAs (including the catch-up). I was doing this since about 2000 and did not slow down until we retired. Reading posts here helped keep me calm during 2008-09. The result is that our retirement investments are much better off than what we expected. This time I haven't considered making any changes. We have a good size chunk of extra cash from after tax investment dividends that we don't have any plans for that might go for a few shares of something (or not).

I did, however, sell all my shares in CVX for 2 years of tax loss harvesting. If it continues to go down substantially after a month I will entertain buying it back.

I have other more pressing concerns to deal with at the moment than to spend time worrying about a little blip in the market.

Cheers!
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Old 08-26-2015, 07:25 AM   #23
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Our portfolio is a lot higher now than it was at the peak in 2007, before the 2008/2009 drop.

A few years ago I started modeling my portfolio asset allocation to answer "what if" questions about various levels of market selloffs and how they might affect me. I had the drops in 2007, 2008 and 2009, and some data of how my asset classes and retirement fund performed overall during that period. As the markets and my portfolio reached new highs over the past few years I used that to model various corrections and bear market scenarios, including the worst of the 2008/2009 period.

This just let me guesstimate what the portfolio value might be after various scenarios, which then translated to what I might expect to withdraw after such an event.

One of the scenarios I had modeled was the S&P500 down 12% from its peak, and I had estimated that my portfolio would drop about 7.33% from its peak.

Well - we had a real world version of that today. The S&P500 is down 12.3% from its peak, and my portfolio dropped 6.76% from its peak.

So - my portfolio did a little better than the model, but my models weren't off that much either.

I can also see how much I would have to "tighten my belt" if we had a repeat of 2008.
When I established my asset allocation a few years before retirement I considered the S&P 500 loss from 10/2008 to 3/2009 of 54% and decided on a 50/40/10. I figured that if the equity market drops to the same levels I would not be devastated if my portfolio drops by 27%.

With the recent S&P drop of 12.3% from its high I'm down 5.4% which is slightly better than my forecast.
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Old 08-26-2015, 08:41 AM   #24
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What helps me stay the course is an AA that fits my current situation. My risk is well below where my tolerance tests say it could be, but I'm taking the risk I have calculated I need to take and no more. That was tested a bit this week and worked well. I slept well even though I'm only 4-6 months from RE.

I handled 2008/2009 OK, but I'm not assuming such a quick recovery. If that happens, great. If not I'm prepared.
Willers - I'm out about 4 months from retirement too. I'm wondering what you did to prepare? I moved my 401k from my big employer to my IRA, invested 8% in laddered CD's and the rest in 4 Index funds all within my tIRA. I have enough in cash and CD's for about 2.75 years expenses. I'm hoping that will be enough to get me through this dip. Not planning to do anything else.
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Old 08-26-2015, 09:42 AM   #25
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Yes it did. That, coupled to a fairly good set of dividend payments make a downturn easy to take..."hey, we're still getting paid the same amount each month".

What also helps is what I've mentioned on a few other threads: that my "smarter than everybody else" neighbor sold her entire portfolio on Feb 15, 2009, and then a few weeks later....

I keep reminding myself of that whenver some crazy idea comes niggling into my brain.

I do find myself reviewing and re-reviewing my dividend/CG payments a lot more during these times though. Some sort of comfort.
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Old 08-26-2015, 10:14 AM   #26
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Willers - I'm out about 4 months from retirement too. I'm wondering what you did to prepare? I moved my 401k from my big employer to my IRA, invested 8% in laddered CD's and the rest in 4 Index funds all within my tIRA. I have enough in cash and CD's for about 2.75 years expenses. I'm hoping that will be enough to get me through this dip. Not planning to do anything else.
Congrats! I'm sure you will have a great retirement!

The major things we've done over the last couple of years to prepare:
- Dialed down my stock allocation from about 70/20/10 to 50/40/10. We feel that for our standard of living we've won the game so there was no need to live with that amount of volatility. There are endless debates about this, but it is right for us.
- We had a real estate sale that we've used to build a CD ladder. I plan to keep 3-4 years in either CD's or other liquid assets. Again conservative, but it works for us.
- I've started to simplify our portfolio. I had a pretty complicated portfolio and have a spouse that isn't interested in managing it all so I've cut the number of funds in 1/2.
- I created a "death" file with all of the info DW would need if I had a sudden demise. It lays out instructions for our Vanguard rep.
- I ran every model I could get my hands on and processed endless what-ifs. I also took advantage of a number of complimentary consultations from CFP's as a final review. Right now it appears that our biggest risk is a LTC black swan. We're continuing to look at LTC options, but so far nothing seems worth buying.
- I made sure that I had 10% more than I thought I needed so if we had a 20% market drop we'd be OK. That really helped this week.

Finally, I put together a PowerPoint for DW to walk her through it and answer any questions or concerns she still had. That may sound crazy, but it worked great for us.

Going forward I plan to review everything at the end of each year and stay flexible. Good luck!!!
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Old 08-26-2015, 01:55 PM   #27
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I learned that it's good to have an allocation to bonds. Otherwise there's no money available buy on the dips. I was 90/10 going into 08/09 and went as high as 95/5. I'm now 80/20 and thinking of going to 85/15 if the market drops some more.

Keep in mind that I'm still accumulating, so I'm willing to take more risk than if I was living off my portfolio.
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Old 08-26-2015, 03:37 PM   #28
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...
I am sympathetic to the poor mutual funds owners today. The heard the market was up today, decide to sell on the strength only to find out that millions of others did the same thing.

One of the big reasons I prefer ETFs to mutual funds is exactly this problem.
The mutual fund managers, having to sell because the weak decided they've had enough? That sounds like it would hurt more than ETF. But last night I did a price check between a Vanguard ETF and a Vanguard mutual fund. They tracked very, very closely. Did I do that analysis right?
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Old 08-26-2015, 03:49 PM   #29
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Yes, going through the 2008 recovery helped, and going through the 1987 disaster as well. Did not sell anything either time.

But more importantly, I learned from the dot-com crash of 2000. I suspected a y2k issue, and put 100% of my 401k into cash just before 1/1/2000. At the time, my boss and I had about the same amount in our 401k's, and we made a game of it trying to outdo one another.

As it turned out, I got out before the crash, but failed to get back in at the right time. When the dust settled, my boss (who remained all in equities) had me beat by $100k. From that point forward, i stayed the course through corrections.
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Old 08-26-2015, 04:06 PM   #30
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I learned that it's good to have an allocation to bonds. Otherwise there's no money available buy on the dips. I was 90/10 going into 08/09 and went as high as 95/5. I'm now 80/20 and thinking of going to 85/15 if the market drops some more.
For the bond allocation, I substitute our plan's stable value fund.

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Unequivocally.

2008 taught me:

1). My risk tolerance was a little less than I thought, particularly with my kids college savings. I've adjusted my AA accordingly which is making me far more zen about this correction

2). My balance sheet assessment was too generous. I became far more thoughtful about liabilities (future college costs, deferred taxes) and far more conservative about assets (unvested stock)

3). The value of having cash on the sidelines
Yes, exactly.

For my age, I've actually got way too much in the stable value fund relative to the total portfolio but that's because I'm earmarking some of it as my 2nd tier emergency fund (at least until I start earning enough to both max out 457 contributions and build up after-tax accounts). A fixed amount from the stable value funds don't get counted as part of the retirement portfolio for the purpose of rebalancing to AA.

Sure, I could've saved the emergency funds in after tax accounts but with practically 0% interest and 34.3% marginal tax hit (25% federal, 9.3% state), it just felt better to put it in the 457 account. This choice was made easier by the fact that there's no early withdrawal penalty on our 457 plan in case I ever get laid off. For all other emergencies, I can always take out a loan.
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Old 08-26-2015, 04:09 PM   #31
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But more importantly, I learned from the dot-com crash of 2000. I suspected a y2k issue, and put 100% of my 401k into cash just before 1/1/2000.
did the same thing in early 2000 after a trip to DC when a cabbie told me that coca cola was a great stock - moved all 401k money to stable value and cashed out all my mutual funds put them in money market - bought two new cars with cash and gold/silver and metal funds

I was laughed at, ridiculed and called an idiot - guess who got the last laugh?

started putting my new 401k money in 80/20 around 2004. Worked out so far.
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Old 10-26-2015, 12:10 PM   #32
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I was still working during the 2008 downturn, I couldn't bear looking at my monthly statements, I was contributing the max every 2 weeks from my paycheck into my retirement accounts so in the long run it helped me buy low. I also lived through the 1987 crash and didn't sell then either, however I had a whole lot less of a paper loss in 87 than I did in 08-09. When I did my taxes in 2009 I brought the year end statement for my taxable account and opened it in the office, I almost fainted. It's funny now but it was not then. I had just retired and took a lump sum I decided to dollar cost average it into the market over a 2 year period, I just felt it was safer than dumping all at once.
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Old 10-26-2015, 12:48 PM   #33
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2008 was a gift (disguised as a hand grenade). I had just dipped my toe in the water of semi-retirement, dropping down to part time at age 45 with about 20 years expenses saved up and hoping to get out at 50. Then 2008 happened a year or two later and, in reducing my NW by 1/3rd, it refocused my efforts - back to full time, saving aggressively, and slowly as the recovery progressed, shifting my AA from 80/20 to around 55/45. While this all took a while and 50 came and went, at 55 I am MUCH better positioned to make the jump - in about 7 weeks - with a pension that will cover 70% of my expenses, a paid off mortgage and ~35 years of expenses saved. (I know, I know, I probably stuck around too long, but a nice extra thick security blanket is a good thing).
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Old 10-26-2015, 01:02 PM   #34
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(I know, I know, I probably stuck around too long, but a nice extra thick security blanket is a good thing).
Yes. In situations involving decisions and time, it's always best to take a "the glass is half full" outlook since there's no way to turn back the clock for a re-do. The time has passed and the situation is what it is so assume your timing decision was perfect, smile and enjoy FIRE.
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Old 10-26-2015, 01:16 PM   #35
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In 2008, I was still pretty young (34), I had a good income, and seemingly many years of work left in front of me. So I did not have much to lose and I tried to take advantage of the downturn by doubling down on riskier assets. It worked great for us when the market came roaring back and we were able to reach FI many years ahead of schedule.

Seven years later, the situation is very different so the lessons of 2008 don't apply anymore. Our portfolio is much higher (so we have much more to lose) yet our financial situation is in many ways more precarious too (gone is the good income and our expenses are higher too). Next time the market goes haywire, we'll take a direct hit. So we have to be more balanced in our approach to risk. I think we'll be fine if we don't do anything stupid, so my strategy now is is all about balance and diversification.
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Old 10-26-2015, 01:28 PM   #36
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I FIRE'd in mid-2006, just in time to take the downturn right in the teeth. It was very educational. Living primarily on DW's pension and portfolio withdrawals, we juggled portfolio positions (successfully) to avoid having to sell any downtrodden holdings until I could start my SS at 62 in 2009. Our portfolio was close to 50/49/1 going in and we learned that that configuration makes it unnecessary to hold large amounts of cash "to avoid selling equities low" as many here seem to irrationally fear.

We also learned that the Great Recession was not as painful as what the folks experienced who retired into the prolonged high inflation of the late 70's and early 80's. Those folks experienced permanent higher costs than they planned and which never,to this day, have recovered. With the market crash, we had to juggle a bit for 3 - 4 years, but things are substantially back to where we were and we never reduced spending a bit the whole time.

And that was our final lesson. We kept our spending plans intact and that turned out to be a winning decision. Travel, a few minor home improvements, new kayaks, a camper and other discretionary spending went on as planned and therefore we're not sitting here today regretting that we're older and the time to do those things has passed without them being enjoyed.
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Old 10-26-2015, 01:53 PM   #37
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I am almost 100% pre-tax equities at age 62. Don't expect any need for those investments until 2033 if SS gets a haircut. Should rebound from any potential drops in the next 5-10 years.
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Old 10-26-2015, 02:35 PM   #38
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I decided that if the trend continued, we would die as paupers, but was pretty sure that would not be the case. Turns out I was right!
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Old 10-26-2015, 03:05 PM   #39
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I decided that if the trend continued, we would die as paupers, but was pretty sure that would not be the case. Turns out I was right!
Yes, me too. Had just retired in 2006. Wasn't much I could do anyways. A lot of my net worth was tied up in employee options which all submerged at one point. From spring of 2008 till Feb of 2009, my portfolio, including options declined by about 70%. All back by end of 2009. My retirement would have looked very different if the market hadn't recovered. I figure if I could get through that, I can get through anything.
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Did 2008-09 Results Help You Now?
Old 10-26-2015, 03:37 PM   #40
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Did 2008-09 Results Help You Now?

My portfolio was in cash pre 2008-2009 due to being laid off. But too scared to pull the trigger to buy, only got back slowly in stock market in 2010 and a lot more in 2011-2013. I left the small Roth IRA accounts alone because it was not worth the hassle to move in and out. The Roth IRA accounts have since recovered and more. In fact I bought them at the peak of 2008. So lesson learned is to leave them alone when the market is down.
For 1987, I bought a put on the market before the Monday, made some money but not handsomely.
But I lost boat load in 2000 bust by buying individual stocks. Got panic and liquidated all my accounts to cash.
I think that was a harder lesson than 2008. Except in 2008, we had a large cash position in two banks that almost were bank run. I remember the panic I had to find different bank that I could move this cash to. This was not retirement money. It was college fund and down payment for real estate.


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