Has your nest egg fully recovered yet?

[Meadbh]

Quote:

Originally Posted by audreyh1 The S&P500 is a small number of stocks compared to total number of stocks available to the average investor through mutual funds. And then there is the weighting of the S&P500 which also makes a big difference in terms of behavior and makes it much more concentrated in an even smaller number of stocks.

Agreed. The S&P500, being defined on market capitalization, is biased towards large corporations, which are less likely to be growth stocks. Some of them, like GM, are shrinkage stocks.

[Maurice]

Quote:

Originally Posted by NW-Bound I therefore conclude that we as a group hold stocks with a higher beta than the S&P500. Either that, or our "rebalance" hurt us during the downdraft but helped during the upswing somehow. Comments?

In my case the furthest I was ever down off my peak was 29%. My peak was later than the markets peak, because I had a significant contribution in Feb 08. I also paid off my mortgage in July of 2008, using proceeds from stock sales, so there was some fortuitous (if unintentional) market timing there.



But in general I do think rebalancing is a huge factor. The 08-09 market proved its wisdom as far as I'm concerned, it actually forced me to buy low.

So I'm not surprised that people who rebalance formulaically beat the market. The losers would have been those poor folks who got scared last winter and sold to 'stop the losses'.


Having said all that, I agree the thread would naturally show some selection bias. Those who have recovered, or almost recovered, are far more likely to tell others about it than those who haven't.

[audreyh1]

Quote:

Originally Posted by NW-Bound Actually, one does not have to go outside the S&P500 to beat it. She can choose the "good" sectors inside it. Either way, she beats the "majority" of the money. And that, according to the market efficiency theorists, is very hard to do consistently.

Yes, that's true too. You can own plenty of the stocks in the S&P500, but if you have a different weighting/allocation of them and/or you buy some and sell others you will have a different performance during any given year.

Lots of mutual funds behave differently than the S&P500.

It was fairly easy to beat the S&P500 during the 2000s simply by being more diversified. The S&P500 is dominated by large-cap growth stocks. Large-cap growth stocks performed poorly during most of the 2000s, beaten by mid-cap, small-cap, value and REIT asset classes most years. If you had an allocation that gave a larger weighting to those asset classes than the S&P500 did, you probably outperformed the S&P500.

During the 90s, the large-cap growth stock asset class was the major outperformer, so a more diversified portfolio tended to underperform the S&P500 during that decade - sometimes by a wide margin.

It's been pretty well established that the asset class choices/weightings determine most of the performance of a given portfolio. This theory said nothing about where most of the $$$ in the total market were invested, so I don't see how that has anything to do with predicting performance of a given portfolio, and I have read no theory that says it does.

I don't know what believing in market efficiency theory or not has to do with anything. Different asset classes go through different cycles and you can't predict which asset class will outperform in any given year which is why people who use AA usually rebalance versus using some market timing method.

Audrey

[audreyh1]

Also, many posters have stated they were making contributions to their portfolios during this time period and it seems the folks closest to matching their Oct 2007 (or whenever) prior peak value are the ones who added during the period.

Adding money to your portfolio would also cause a difference in outcome compared to the S&P500.

Audrey

[audreyh1]

Quote:

Originally Posted by NW-Bound Look at the S&P500, which peaked in Oct 07 at around 1550. The bottom was in March 09, at 735. It is now at 1145. Now, suppose a person has 50% in SP500, and 50% in low yielding bond or cash at the top of the market. Suppose further that she did nothing and held on without adding money nor withdrawing. At the bottom of 09, she would be down 26% relative to the top in 07. At this point, she would still be down 13%.

BTW, the S&P bottomed (closed) on March 9 2009 at 677.

And since both bonds and the S&P500 paid dividends over this entire period (bonds weren't super low yielding until recently), I'm not sure that you reasonably accurately compare the gains and losses over those periods without including the dividends.

Audrey

[rescueme]

Quote:

Originally Posted by Maurice Those who have recovered, or almost recovered, are far more likely to tell others about it than those who haven't.

I would agree. I don't have a problem with admitting that I'm still down -12.24% (when measured from 1/1/08 through Friday), but I also know that I did not adjust my returns based upon new/added money (since I'm retired). I also did not include the value of my MM (e.g. retirement cash bucket) accounts, used for current retirement income. My return for the period only reflects the return on the equity/bond portion of my retirement portfolio. BTW, my DW's retirement portfoio (measured in the same manner) is down -3.21% for the same period.

For me, what has happened in the last year (or several), mean little. By looking at my spreadsheet from my Traditional/Roth contributions over the last 20 years, it shows that I (along with my DW) have had positive returns (XIRR computed) 17 years, with losses in three. Average return over that 20 years is +9.18% for me, +8.21% for my wife (her portfolio is a bit more conserative). For me, it's the long term history that is important beyond recent (e.g. several years) market flux.

[LOL!]

Vanguard has updated its benchmark page to reflect 12/31/2009 prices.
https://personal.vanguard.com/us/fun...nchmarkreturns

It looks like growth did better than value in recent years.

[audreyh1]

Yes, value has definitely underperformed recently. My large value funds sure trailed - it was painfully noticeable! All that finance company stock dotcha know!

Thanks for the handy link!

Audrey

[brewer12345]

The question was have you recovered. Nothing was asked about the depth of one's plunge and the level of risk one took. I believe that at the depths I was down in the region of 60% (did not look too closely, but it was pretty far down). When I was down there I took extremely aggressive actions (how many of you borrowed money to invest? how many doubled and tripled and quadrupled down on stocks that had lost 70 to 90%?). Fortunately I was rewarded for these actions, but they were very risky. Would I have been happier to still be down mid to high single digits if my bottom had been down 25%? Absolutely.

The lessons for me of this mess have been very clear, and I am taking the appropriate actions based on lessons learned. Sure, I am back to my peak, but it was not a fun ride by any stretch of the imagination. Never again.

[audreyh1]

Quote:

Originally Posted by brewer12345 I believe that at the depths I was down in the region of 60% (did not look too closely, but it was pretty far down). When I was down there I took extremely aggressive actions (how many of you borrowed money to invest? how many doubled and tripled and quadrupled down on stocks that had lost 70 to 90%?).

Brewer, it took every last drop of courage I had to rebalance (again) into stocks on 1/15/09 - especially since I had caught a falling knife (rebalanced to buy stocks) twice during 2008.

And I had to constantly remind myself that I had still 12 years left in cash/bonds to keep from panicking.

I can't imagine doing what you did - especially since I have no incoming wage to keep building the nest egg! That's great that it worked out so well for you, congratulations.

Quote:

Originally Posted by brewer12345 The lessons for me of this mess have been very clear, and I am taking the appropriate actions based on lessons learned. Sure, I am back to my peak, but it was not a fun ride by any stretch of the imagination. Never again.

When you say "never again" what do you mean exactly? Do you think you can anticipate the next time something like this happens and take action ahead of time? Or have you changed your investment approach?

I'm pretty nervous about another blow up (with little recovery) in just a few years if we don't have some serious structural changes in our financial system.

Audrey

[brewer12345]

Quote:

Originally Posted by audreyh1 When you say "never again" what do you mean exactly? Do you think you can anticipate the next time something like this happens and take action ahead of time? Or have you changed your investment approach? I'm pretty nervous about another blow up (with little recovery) in just a few years if we don't have some serious structural changes in our financial system. Audrey

I was unemployed until 12/08, so it was a scary time. I took some actions while I was on the street, but mostly did what I did once I knew I had a stable job and could ride things out or even start over if need be.

I am in the process of changing both my investment approach and my total financial picture to avoid the risk of another disaster. I sold off appreciated investments (individual corporates) to pay off my borrowed investment money, used some proceeds to further delever (blow out the car loan and a small student loan), keep more cash and fixed income around, refinanced to a cheaper mortgage that has a scheduled payment of less than 40% of what my old note was, and have become a lot more disciplined about when to sell investments (individual names). I also started tracking asset allocation, individual name and sector concentrations, and total net worth/indebtedness/overhead cashflow requirements in a more disciplined fashion.

As things recover to more reasonable valuation levels, I will be selling down my concentrated positions and redeploying the proceeds to debt paydown and a more diversified, less volatile portfolio mixture. I also now work for an employer that cannot go out of business and which offers a COLAd pension and very generous benefits if I can stand to stay here for the long term (can qualify for pension payments and subsidized retiree healthcare if I stay til age 50).

The 5 year plan is to have the portfolio completely remade and to have all debt (including the mortgage) gone, and have a wad of readily accessible cash (and CDs, etc.) at hand. I have gotten to the point where I care more about the certainty of getting to ER than the speed of such, and if I stay with my current employer I know with a high degree of certainty that I will get there by age 50, which is about the same time both kids will be launched to college. Since we do not plan on staying in our current area after retiring but do not really want to uproot the kids, this seems like a reasonable plan.

In short, when I say "never again" I mean that I never want to be staring down into my own personal financial abyss ever again.

As an aside, I am pretty sanguine about the recovery. All the data points that way and I am tilted toward the stronger economies that are recovering more quickly (China, India, Brazil), which gives me more confidence.

[LOL!]

On the topic of S&P500: A Fama & French / Merriman / DFA style slice & dice portfolio would have only 25% of equities in US large cap funds such as those in the S&P 500. 75% of the equities in such a portfolio would not be in the S&P500.

Instead the equity portion of the portfolio would be filled out with 25% US small cap, 25% large cap foreign and 25% small cap foreign.

While I do not think everyone on this forum is a slice-and-dicer, I think many more people tilt towards that way than they do towards total-market-index+little-foreign.

[LOL!]

Quote:

Originally Posted by LOL! ..., so that they have at least 30% fixed income. If they didn't in 10/2007, maybe they do now.

It seems that brewer may be one of these folks with more fixed income now.

[ikubak]

Fully recovered and about 15% above the previous peak. This is the result of the contributions during the downturn and regular savings. Hopefully this next decade will be better than the last.

[skyvue]

I am finally back to where I was in Oct 2007. This is due to a lot of my own contributions as the individual funds aren't back yet to where they used to be. I never moved any money out of the market or my mutual funds during the downturn but I did change my new investments to be more conservative. I suppose if I had not done that I might be in a slightly better spot right now. However, the severe crash has changed me and I am less comfortable with risk than I used to be. When/if the market returns to the 2007 highs, I plan to rebalance all existing money into a more conservative picture (80% in stocks today).

[brewer12345]

Quote:

Originally Posted by LOL! It seems that brewer may be one of these folks with more fixed income now.

Somewhat I was at 15% or so before. Now am 25 to 30% and will not be going higher. More importantly, delevering my personal balance sheet and diversifying more broadly.

[audreyh1]

Brewer - it was great getting more details on your story. Gosh - I can't even imagine the staring in the abyss that you experienced in 2008! That you had the fortitude to take those actions shortly after landing your new job - that's impressive.

Audrey

[FIREd]

Quote:

Originally Posted by brewer12345 how many doubled and tripled and quadrupled down on stocks that had lost 70 to 90%?

I did because I use value cost averaging to determine how to invest new contributions. It forced me to direct new money specifically to the holdings that suffered the most during the crisis, such as REITs, small cap stocks, international stocks and company stock, all of which have recovered handsomely.

[Dawg52]

Quote:

Originally Posted by audreyh1 Brewer - it was great getting more details on your story. Gosh - I can't even imagine the staring in the abyss that you experienced in 2008! That you had the fortitude to take those actions shortly after landing your new job - that's impressive. Audrey

He has to be wearing a XXL.

[Maurice]

Brewer, I went through a similar thought process in 2000/2001. As a result I was in a much better situation this time around.