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FIRE and market variation
Old 08-18-2009, 10:21 AM   #1
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FIRE and market variation

VTSMX fell 2.47% yesterday (Vanguard total stock market index fund for the non-Bogleheads). VBFMX (Vanguard total bond market fund) was up 0.29%. That means that a 50/50 portfolio fell by 1.09%. For retirees living on 4% SWR, that is 3 months living expenses in one day. It is not at all uncommon to have your new worth change by more than a month's living expenses before lunch.

In the 2420 trading days since Jan. 1, 2000, the value of a 50/50 VTSMX/VBMFX portfolio would have changed by more than a month's living expenses (4%/12) about half the time. It would have changed by more than 3 month's expenses about a tenth of the time, or twice a month.

One of the hard things for me to get accustomed to in retirement is the frequent and large swings in net worth. It is very different from when you were young, had a salary, and your portfolio was small. Somebody once said that a man who know how much he has doesn' t have much (or something like that), and it is true.
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Old 08-18-2009, 10:29 AM   #2
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It took me a couple of years to get used to not having a salary and know that I was no longer accumulating and building my net worth. I am used to it now and have been for years.

I am able to ignore the daily swings and noise, because I have a good cash buffer (1 to 3 years of expenses). After that I have a large bond allocation which is also much less volatile than equities. So in general I don't need to really think about my more volatile investments until at least a year out, and even then I have less volatile investments to draw on if I really need to. That really helps smooth things out for me because I don't really need to tap into my equities until many years out.

So I never think in terms of how many months living expenses I might have lost (or gained) on any given day. Now that 40% drop I experienced from peak last March - that got my attention! Still, I didn't need to cash in my portfolio right then, so it didn't really matter.

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Old 08-18-2009, 10:41 AM   #3
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This is why you have to look at your portfolio every day. After a while, you will get used to your portfolio going up and down by a $100K a day and it won't bother you anymore.

Nevertheless, yesterday was one of those rare "worst days" in the market and a buy-on-the-dip opportunity at 3:45 pm ET. Some foreign funds were down 4% which surely meant you should have rebalanced into them. Right?
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Old 08-18-2009, 12:05 PM   #4
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I look at the dividends as my salary (retired 3 years) and don't really care what the market value of my 100% individual stock portfolio is, as the dividends are more than enough to live on. Regular increases in earnings, annual dividend increases, and good capital decisions are much more important to me. Daily/monthly noise is just that.
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Old 08-18-2009, 01:02 PM   #5
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Audrey's reply pretty much sums up what I would have said.
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Old 08-18-2009, 01:34 PM   #6
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With stocks options representing a good chunk of our portfolio, on a day like yesterday we can easily lose 6+ months worth of living expenses in one day! But there are also times when we can gain several years worth of living expenses in a single day. We are getting used to it now.
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Old 08-18-2009, 03:23 PM   #7
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The volatility is always a concern. Looking at recent stock/bond data this is the first time since about 1991 when the PE10 (Schiller smoothed PE measure) was below 18. That and the fact that bonds are not much competition has given me more confidence in equities. Nominal Treasury bond rates are very low and (real) TIPS rates are low unless you go out to about 20 years.
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Old 08-18-2009, 03:26 PM   #8
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This is why you have to look at your portfolio every day. After a while, you will get used to your portfolio going up and down by a $100K a day and it won't bother you anymore.
Hmmm. well....I'll be the first to admit this does not happen in my portfolio.

Yeah, living off your assets and not saving anymore can make you swallow hard from time to time. However, I learned from this forum (thanks guys ) that having a few years of cash and bonds helps calm the nerves.

I'm diversified, keep up with my expenses and investments...then when I start to get twitchy...I just read my sig....
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Old 08-18-2009, 06:11 PM   #9
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I look at the dividends as my salary (retired 3 years) and don't really care what the market value of my 100% individual stock portfolio is, as the dividends are more than enough to live on. Regular increases in earnings, annual dividend increases, and good capital decisions are much more important to me. Daily/monthly noise is just that.
I used to think this way, but the past year has made me realize just how volatile a dividend income stream can be. Evidently you are a much better investor than I am if you have avoided the very large dividend cuts in many blue chip companies (think GE, PFE, JPM, WFC, etc.) Even a well-diversified portfolio such as an S&P 500 index fund is on its way to a 20-25% cut in its dividend this year.
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Old 08-18-2009, 07:08 PM   #10
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Suck it up, baby. This is the world we live in. Or you could just go back to work... Or buy an annuity...
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Old 08-18-2009, 07:13 PM   #11
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I used to think this way, but the past year has made me realize just how volatile a dividend income stream can be. Evidently you are a much better investor than I am if you have avoided the very large dividend cuts in many blue chip companies (think GE, PFE, JPM, WFC, etc.) Even a well-diversified portfolio such as an S&P 500 index fund is on its way to a 20-25% cut in its dividend this year.
Probably just more conservative in stockpicking, as befits a 100% stock portfolio. I follow my world of stocks closely (in a financial sense, not a CNBC sense), and leave those I cannot analyze. This practice got me out of all financials and REITs before the debt freese, and out of GE halfway thru it. Currently my largest holdings are PG, JNJ, KO, ADP, SYY, none of which are likely candidates for dividend cuts. I like steady financial ratios, consistent management who do not need to 'shake things up' or make random investments outside their areas of competence, long histories of dividend and earning increases, etc.
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Old 08-18-2009, 08:58 PM   #12
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I like steady financial ratios, consistent management who do not need to 'shake things up' or make random investments outside their areas of competence, long histories of dividend and earning increases, etc.
Ouch, hope you didn't have Dow:

Katje's Stock World: Dow Chemical has first dividend cut in copmany's history.

Since 1912, Dow Chemical has paid a dividend every quarter. The dividend had increased every year until today. The dividend is being cut however and not eliminated. The dividend goes from $0.42 to $0.15.
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Old 08-18-2009, 09:02 PM   #13
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Is there any way to look up the dividend history of say, Vanguard funds? How have the dividends of VBMFX and VTSMX changed over the last decade or so?
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Old 08-18-2009, 09:15 PM   #14
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Suck it up, baby. This is the world we live in. Or you could just go back to work... Or buy an annuity...

Hey you know its been so long since the boards have had a fantastic talk about annuities...
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Old 08-18-2009, 09:18 PM   #15
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Ouch, hope you didn't have Dow:

Katje's Stock World: Dow Chemical has first dividend cut in copmany's history.

Since 1912, Dow Chemical has paid a dividend every quarter. The dividend had increased every year until today. The dividend is being cut however and not eliminated. The dividend goes from $0.42 to $0.15.
No, DOW is way too cyclical for me. Did not raise the dividend from 2001-2005, earnings barely covered the dividend last year, wouldn't have this year or next. One of the types of company I stay far away from.
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Dividends
Old 08-20-2009, 10:53 AM   #16
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Dividends

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Is there any way to look up the dividend history of say, Vanguard funds? How have the dividends of VBMFX and VTSMX changed over the last decade or so?
You can go to finance.yahoo.com and look up the fund by symbol. Then click "historical prices" on the left. Click "dividends only" and then click "get prices". It will show you the dividends' history and when they were paid.
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Old 08-20-2009, 10:54 AM   #17
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I'm new here - what does FIRE mean?
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Old 08-20-2009, 10:57 AM   #18
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I'm new here - what does FIRE mean?
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Old 08-20-2009, 10:59 AM   #19
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Thank you for the hint.

FIRE means financially independent retired early. A list of acronyms commonly used on this forum is here
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FIRE/Acronyms
Old 08-20-2009, 08:51 PM   #20
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FIRE/Acronyms

Thanks!
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