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Fear and Greed - What to do now.
Old 11-20-2008, 03:00 AM   #1
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Fear and Greed - What to do now.

In 2006 we were 97/3 stock/cash... the only fixed was an emergency fund. In late 2006 we diversified into more fixed to prep for ER in 5 years. I rebalanced to 70/30. With an overall target of 60/40 that I would ease into over the next couple of years. I was doing it as a precaution to stay on track for ER thinking that the market would eventually drop. At the time, I was struggling with Greed as I watched the stock market and commodities go higher and higher. Of course my 70% stock allocation was doing well... but it was difficult to watch the other 30% get paltry returns. I stuck with the plan.


Now that move is looking pretty smart. Some of the bond funds have lost a little due to interest rates... but for the most part they have held up well. Now I sit at about 52/48.

Now I am looking at rebalancing to my 60/40 target which would mean moving some money into stocks. I am going to do it because my judgment and expereince tells me that it is the thing to do (buy low/sell high)... However, I am suffering from Fear of further stock market deterioration.


I tell myself that my rebalance only puts 8% of the current portfolio into the stock market... But that money is part of my ER fixed intended for income when I ER in (planned 3 years). It is difficult to do...


I am sure many are in a similar situation and having the same struggle? Share your stories and thoughts.
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Old 11-20-2008, 03:35 AM   #2
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read jason zweigs book, your money your brain. you will understand exactley why we react to money events the way we do.

human nature according to zweigs book and the loads of brain scans of people while making decisions about money in it is the following:

we hate loosing money more than we like making it. we panic at the thought of loosing money and make irational decisions like bail out at times like now. the fact is the fear of money is many times worse than if we loose the money and are actually at that loss point ,like now

human nature according to the brain scans is we freeze and exacly at the times we should do nothing or buy we ecome paralyed or do the wrong thing.


human scans showed a very definate likeness when thinking about making money to a druggie awaiting a fix , however thoughts about loosing money created more powerful scans similiar to stepping in dog crap or vomiting.. they were always much more motivating on the downside then the upside.

point to the book is as long as your aware your brain will paralyze you under certain conditions your more apt to be able to deal around it
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Old 11-20-2008, 03:40 AM   #3
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Originally Posted by mathjak107 View Post
read jason zweigs book, your money your brain. you will understand exactley why we react to money events the way we do.

human nature according to zweigs book and the loads of brain scans of people while making decisions about money in it is the following:

we hate loosing money more than we like making it. we panic at the thought of loosing money and make irational decisions like bail out at times like now. the fact is the fear of money is many times worse than if we loose the money and are actually at that loss point ,like now

human nature according to the brain scans is we freeze and exacly at the times we should do nothing or buy we ecome paralyed or do the wrong thing.


human scans showed a very definate likeness when thinking about making money to a druggie awaiting a fix , however thoughts about loosing money created more powerful scans similiar to stepping in dog crap or vomiting.. they were always much more motivating on the downside then the upside.

point to the book is as long as your aware your brain will paralyze you under certain conditions your more apt to be able to deal around it
Nice background info.

What are you intending to do in this situation?
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Old 11-20-2008, 03:48 AM   #4
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biting the bullet, rebalanced and tuning out the noise until the smoke clears and its fun counting our money again ha ha ha

seriously the best thing i ever did was go to a ray lucia seminar by accident, not even knowing who he was. it sounded like a good idea at the time to scale back and go to his bucket system of organization. although we had no time frame to retire yet although sometime over the next 5 years was our goal we structured our buckets like we are retiring tomorrow

in the beginning when new highs were breaking last year i was kind of not sure whether i wanted to be that conservative , being somewhere around 45-50 stock but we had 15 years worth of withdrawls sitting in bonds, untraded reits and cash . now its the best thing we ever did,


the fact is we can go 15 years from the st day of retiring without selling any stock. while yes we feel poorer the loss on paper effects us no more than a gain on paper
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Old 11-20-2008, 07:50 AM   #5
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I gradually started shifting our portfolio from a 80/20 AA to 65/35 in 2006-2007 because of a changing comfort level as possible retirement approaches. While this limited the losses somewhat during this downturn crisis, I'm still uncertain of when to rebalance. A one time rebalance move almost feels like market timing. Incremental rebalancing feels more like DCA.

I guess we just have to decide if 65/35 is still our comfort AA. I still have 7 to 12 years (hopefully no longer) of w*rk left until ER. Also have a non COLA pension (so far) to consider. Present AA is approaching 50/50, which has been the intended AA at time of ER. Think I'm starting to fall victim to analysis paralysis :confused:
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Old 11-20-2008, 07:52 AM   #6
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Originally Posted by chinaco View Post
Now I am looking at rebalancing to my 60/40 target which would mean moving some money into stocks. I am going to do it because my judgment and expereince tells me that it is the thing to do (buy low/sell high)... However, I am suffering from Fear of further stock market deterioration.
You don't say what stock classes you are looking at.
I would suggest you take a look at;
Vanguard Convertibles - paying high interest rates
Vanguard High Yield Corp - paying high interest rates
Vang Emerging Market or World Market
All have been beat up - the dollar is high now - so when it falls the foreign markets should do even better.

Yes, I am fearful also - I have about 13% of the money I intended for the the stock market remaining. I look at it this way - I'm reducing my cost basis.

Also - don't forget to average in - don't do it all in one shot.
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Old 11-20-2008, 07:58 AM   #7
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AA historically

65/35 pre-FIRE, DCA to stocks more than bonds, all MFs
50/50 right after at FIRE in spring 2007, DCA to only bond MFs continued
47/53 migration without any action from me, DCA to bond MFs still ongoing

once i FIREd, i chose to be a fence straddling balanced investor at 50/50. chicken feathers look good on me!
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Old 11-20-2008, 08:10 AM   #8
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AA historically


once i FIREd, i chose to be a fence straddling balanced investor at 50/50. chicken feathers look good on me!
That's basically me in a nutshell, but my future chicken feather portfolio will be 0/100. Screw stocks. Got to ride it out for now.

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Old 11-20-2008, 08:40 AM   #9
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I'm thinking of myself as a newbie investor just as I was 35 years ago; there is some truth in that as none of us know where the market will be next year or in 5, 10, or 30 years. So I'm investing in stock funds gradually and not obsessing on the fact that all of my 2008 investments are significantly down. I'm doing some re-balancing from bonds to stock funds and wouldn't be a bit surprised if they continue the pattern of buy, then lose value for a few years.

I'm thinking long term and would be delighted at another shock like when I noticed that the DOW was over 12,000; I was busy with other things that year and wasn't watching the market every day.

OMG, I logged on this morning and haven't checked where it opened today. This looks like a good day, I have other things to do.
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Old 11-20-2008, 11:43 AM   #10
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It's a great time to buy stocks now. The only problem is that it might be a better time in the near future. But maybe you'll never see prices this low again.

I feel great to be buying equities at this level. I'm kicking myself for not adding to my VNQ this morning when it went below my target. I was waiting for it to go lower, but it got too high instead. Now I have to hope for another chance (which still seems a good bet these days).

You might want to rebalance slowly, DCA'ing back into equities over 6 months or so. It might be better or worse than going all in today, but it may be easier for you.
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Old 11-21-2008, 03:18 AM   #11
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After the melt down yesterday.... the market made my portfolio even more conservative... now I am at about 50/50.

I am going to sit tight for now. This is an environment where one can get burned with almost any move.

I will DCA the money into the stock market once I start making the shift.


Dex - I was thinking about putting some of that money to work in international markets (long-term investment). I am a bit heavy in domestic large cap (or I was).
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