Holy cr@p, the sky is falling...

[CuppaJoe]

Buy, buy, buy!!!

Yes, but. I have a chunk in Money Market earmarked for equities. Here's the dilemma, I'm retired and can't seen to get to that part of my do-list; point, click, invest looks like w*rk. I agree, buy now or buy soon.

 

[unclemick]

Ya wanna talk nerves of steel do ya - this Friday going cold turkey - driving vacation with no lap top, don't watch the market OR football(may crack on this one), or post on the forum(maybe, maybe not).

If the withdrawal doesn't put me in ICU somewhere - Kansas City to a week on the beach at Nags Head and driving down to a wedding in Diamondhead, MS and back to Kansas City - two weeks or so hopefully.

Hmmm - forum abstinance, no market watching, no football - wonder if the there is a pill for that.

heh heh heh - we know that will never fully happen but it's a great theory. .

 

[peteyperson]

If someone's portfolio drops by 50% during retirement, they don't have a diversified one.

I was thinking it terms of Buffett's famous quote, invest in equities only if you are prepared withstand a 50% decline. Of course, with a diversified portfolio the decline should be substantially less. This retire, portfolio drops 20%, panic, go back to work, is crazy. If one cannot handle that kind of volatility then one will never be able to retire! AKA you cannot make an omlette without breaking a few eggs.

Petey

 

[uncledrz]

with no lap top, don't watch the market OR football(may crack on this one), or post on the forum. .

laptop....you can do without

not watching the market....may be good for you

no posts on the forum.....you can catch up in two weeks

But NO FOOTBALL...what are you thinkin'?...can't do it, shouldn't do it, I give you until Saturday night!

 

[rickier55]

I've been retired a little over 3 years now. DW right at 3 years. I have a Cola'd pension that covers 90% of my annual expenses. So I've been drawing on my portfolio a little less than 3% .

The market fall has bothered me some - but not really to the point of worry. I have a pretty heavily weighted equity asset allocation (around 80/20). Porfolito down around 11% YTD - The market down is not pleasant - but when I start to worry too much about it, I go through some mental math to show myself that if it dropped 50% and then stayed level for 10 years I'd still be ok - Well before then DW pension and SS will kick in.

Though I still wince when I see the market drops like Tuesdays.

Rick

 

[2B]

I'm just glad I decided to go from 90/10 to 60/40 last summer. I didn't have any special insight but after reading enough books and articles on asset allocation it was very clear I was taking too much market risk so close to retirement. I was FI so why push my luck?

We seem to be getting a little bounce back. Maybe my penance helped. I don't want to have to resort to Leviticus even though I know how much Lazy likes that.

 

[explanade]

Yes, but. I have a chunk in Money Market earmarked for equities. Here's the dilemma, I'm retired and can't seen to get to that part of my do-list; point, click, invest looks like w*rk. I agree, buy now or buy soon.

Are we at the lows for the year? Some guy on CNBC said be wary if it breaks through the 1200 at the S&P.

 

[Dawg52]

Triple !!!

Go do a FIRECALC run with your diversified portfolio choice.

Look at the squiggly lines that show the portfolio balance over time. Show me one that does not drop 50% over a 30 year retirement.

Please.

-ERD50

Triple?

I just ran a starting portfolio of 1 mil using a 50/50 split with a 4% w/d rate and including SS earnings of 17k(pretty typical for a single person) and I didn't see anything close to a 50% drop in any year. I also ran one excluding SS and any w/d and I didn't see one under that scenario either.

 

[ERD50]

Triple?

I just ran a starting portfolio of 1 mil using a 50/50 split with a 4% w/d rate and including SS earnings of 17k(pretty typical for a single person) and I didn't see anything close to a 50% drop in any year. I also ran one excluding SS and any w/d and I didn't see one under that scenario either.

Did you mean not a 50% drop in any single year? That is not what you wrote, and not what I responded to:

If someone's portfolio drops by 50% during retirement, they don't have a diversified one.

I responded to 'drops by 50% during retirement'. And much worse than that certainly happens with a 4% w/d rate.

From FIRECALC, with a $1M start and $40K spend, 50/50 mix:

The lowest and highest portfolio balance throughout your retirement was $-223,952

If the graph output changed w/wo SS, then you really do not have a 4% w/d rate in each case. You would have $40K spend minus the $17K income = $23K = 2.3% w/d rate. Then figure COLA.

But, if you meant that a diversified portfolio should not drop 50% in any single 12 month period, well, I sure hope you are correct! Hopefully, I'm in full survivalist mode if *that* happens

-ERD50

 

[Dawg52]

Did you mean not a 50% drop in any single year? That is not what you wrote, and not what I responded to:



I responded to 'drops by 50% during retirement'. And much worse than that certainly happens with a 4% w/d rate.

From FIRECALC, with a $1M start and $40K spend, 50/50 mix:



If the graph output changed w/wo SS, then you really do not have a 4% w/d rate in each case. You would have $40K spend minus the $17K income = $23K = 2.3% w/d rate. Then figure COLA.

-ERD50

Well I guess you are correct under a true 4% w/d rate from your portfolio. I have always thought in terms of how much money do I need per year as a % of my portfolio. Using the numbers in my example, 4% would = $40,000 regardless of where it comes from. Pensions, SS or from the portfolio itself. Again in my little world I would be drawing down $40k per year from my portfolio for the first 8 years until I reach 62 when SS kicks in. Under that scenario, I do not see a 50% drop at any time. But under your example of w/d 4% from the portfolio plus SS, you could see a 50% drop.

FIRC would lead you to believe as shown in my example, that is the way one would look at it. I know under the old FIRC(and new) if you put in a 4% w/d rate and then add SS, it automatically nets out the two as you stated above. It doesn't maintain a 4% w/d rate and just add SS on top of it. My misunderstanding of the concept I guess.

 

[Spanky]

I've been retired a little over 3 years now. DW right at 3 years. I have a Cola'd pension that covers 90% of my annual expenses. So I've been drawing on my portfolio a little less than 3% .

The market fall has bothered me some - but not really to the point of worry. I have a pretty heavily weighted equity asset allocation (around 80/20). Porfolito down around 11% YTD - The market down is not pleasant - but when I start to worry too much about it, I go through some mental math to show myself that if it dropped 50% and then stayed level for 10 years I'd still be ok - Well before then DW pension and SS will kick in.

Though I still wince when I see the market drops like Tuesdays.

Rick

Rick,
You have nothing to worry about (at least financially).

 

[danm]

Doing great, the worse it gets, the better I do as I invested for deflation.

Don't ask me to tell you next time, I did already.

...my FIRE depends on the TSE and it fell another 500 points today.

I now need to die 3 years earlier :-(

Best to hunker down, enjoy my classes, and hobbies, until brighter skies. I can't add to the camera collection, but I can shot more of my stockpile of film.

How are you weathering this?

Vick

 

[cute fuzzy bunny]

So Dan, how does one invest for deflation and what are you in thats done so well?

 

[Helena]

To prepare for deflation,
one needs cash and no debt....
the opposite financial position
of the average American.

 

[FinanceDude]

I've been retired a little over 3 years now. DW right at 3 years. I have a Cola'd pension that covers 90% of my annual expenses. So I've been drawing on my portfolio a little less than 3% .

That's good.........HOW would you be investing WITHOUT the pension??

 

[FinanceDude]

To prepare for deflation,
one needs cash and no debt....
the opposite financial position
of the average American.

I think deflation may be on the horizon, but there's plenty of INFLATION out there still. Cash can help deflation, but the periods of deflation in US history are a much shorter story..........

 

[cute fuzzy bunny]

The last time we had significant measurable deflation was in the early 1930's, and that was most likely caused largely by retirement of a lot of paper civil war currency. The start of the depression and 25% unemployment were also strong factors.

Considering we're barely skimming a recession, unemployment is less than 1/4 of that scenario, and we dont have any funny old currency to retire...I wouldnt count on something we havent seen in 75 years turning back up anytime soon.

The only other plausible cause of strong deflation would be the implicit failure of a lot of US businesses, with persistent bailouts and government 'handouts' to those companies to prop them up over a period of years and decades, coupled with the average american ceasing their current levels of spending and turning towards a saver mentality.

While we're bailing out some companies, I sort of doubt we'll still be pumping money into dozens of very large and hundreds of large companies over the next ten years. As far as the consumerism changes...eh...good luck with that.

 

[explanade]

Some have predicted a scenario like Japan in the '90s -- stagnant growth, no movement in equity or real estate.

We haven't had an official down quarter but the last adjustment to GDP at 3.3% was comprised mostly of exports. Now, the dollar is worth a bit more than it has been worth most of the past year and it's strengthening because a lot of other countries are facing weaker growth prospects than us. So exports may not continue at previous levels.

 

[cute fuzzy bunny]

I'd like to see the rationale that 'some' put forward. I see almost no plausible chance that we'd see anything here that would correlate with Japan. Other than the fact that we're both countries and both have economies.

 

[dex]

I think deflation may be on the horizon, but there's plenty of INFLATION out there still. Cash can help deflation, but the periods of deflation in US history are a much shorter story..........

Good points.
My thoughts are that we are in for a period of slower world wide growth*.
Much of the past growth - after 2000 - was fueled by the expansion of the money supply by the Fed to avoid the past financial problems - Stock Market bursting; 9/11 and the current financial problems. Also the war spending has fed world growth.

War spending will be slowing down greatly. US consumers will be spending less due to higher energy costs and conscientiously trying to reduce their debt.

Currently the US is slowing down and the world will follow. Other central banks will lower rates to stimulate their economies.

This slower growth phase may last about 1.5 - 2 years as excesses in housing, retail space and manufacturing are eliminated.

After that growth should resume.

Ultimately, the growth in world wide population and government efforts to keep larger populations of people happy will help to avoid deflation. Now there will be deflation in certain sectors - labor costs among them.

*I do think the US stock market will bottom towards the end of next year and the world will follow after that.

 

[Abreutime]

I think deflation may be on the horizon, but there's plenty of INFLATION out there still. Cash can help deflation, but the periods of deflation in US history are a much shorter story..........

Greenspan, and now Bernanke, recognize the dangers of deflation for an economy, so I'm sure they'd be willing to pump money into the system to prevent it. See this speech by Bernanke himself, in which he references Milton Friedman's last ditch "strategy" to avoid deflation, dropping money from a helicopter.

Reduction in asset prices isn't deflation, and is something that always has a reasonable chance of occurring. I'm confident we won't see deflation in the US in my lifetime.

 

[Helena]

Greenspan, and now Bernanke, recognize the dangers of deflation for an economy, so I'm sure they'd be willing to pump money into the system to prevent it. See this speech by Bernanke himself, in which he references Milton Friedman's last ditch "strategy" to avoid deflation, dropping money from a helicopter.

Dropping money [or credit] from helicopters creates another
Weimar Germany.... a bankrupt country that ends with huge
deflation and the rise of Hitler.

 

[Canadian Grunt]

Greenspan, and now Bernanke, recognize the dangers of deflation for an economy, so I'm sure they'd be willing to pump money into the system to prevent it. See this speech by Bernanke himself, in which he references Milton Friedman's last ditch "strategy" to avoid deflation, dropping money from a helicopter.

Reduction in asset prices isn't deflation, and is something that always has a reasonable chance of occurring. I'm confident we won't see deflation in the US in my lifetime.

I think on Friday you are going to see that inflation is up year over year but they will nock it down by using core inflation figures. Watch and wait for tomorrows Fed report.

Inflation from this past oil run up will be passed to the consumer moving forward. Check flight prices, transportation costs, food etc.

Oil will cycle up again towards Christmas.

 

[explanade]

I'd like to see the rationale that 'some' put forward. I see almost no plausible chance that we'd see anything here that would correlate with Japan. Other than the fact that we're both countries and both have economies.

I think Japan saw its real estate bubble pop. Remember at the end of the '80s, Japanese banks were big and real estate there had run up.

So the supposition was that it would take a long time to recover from the real estate deflation.

Plus what dex set forth can figure into it as well. Consumers are tapped out and they may not have the access to credit that we had much of this decade -- a lot of home equity loans fueling spending.

It also doesn't help that wages have stagnated.


Oh and the oil price recovering around Xmas, a conspiracy theorist might say after the election prices will go right back up.

 

[Canadian Grunt]

I think Japan saw its real estate bubble pop. Remember at the end of the '80s, Japanese banks were big and real estate there had run up.

So the supposition was that it would take a long time to recover from the real estate deflation.

Plus what dex set forth can figure into it as well. Consumers are tapped out and they may not have the access to credit that we had much of this decade -- a lot of home equity loans fueling spending.

It also doesn't help that wages have stagnated.


Oh and the oil price recovering around Xmas, a conspiracy theorist might
say after the election prices will go right back up.

Japanese real estate in the 80's was well overpriced but the real bandits were the banks, not only did they hold mortgages but they went out and bought the buildings as well. The environment is different from what is going on in the US. The market is still up from 5 years ago except certain areas, it’s just that new entrants got caught and the banks made some bad loans. This will restrict growth moving forward but the market will stabilize eventually. You won’t see another spike in real estate for quite a few years.

As for oil, commodities tend to take an escalator up and an elevator down. There is still demand for oil. China and India are still growing and creating demand. Oil will rebound. All the easy finds are gone so the cost of extraction increases and I can make a pretty sure statement that OPEC won't be giving it away.