How are you getting ready for "next time"?

[nun]

Quote:

Originally Posted by Gumby I plan to aggressively do nothing. At least, nothing different. We will continue to max our 401k and IRA contributions, while maintaining a roughly 60/40 allocation. If I see some equities that look like fire sale values, and I happen to have cash on hand, I will buy, as I did in 2009.

+1.

For me there's no magic answer to "making money" in any economic environment because I have a "couch potato" portfolio. I save aggressively and invest passively in low cost funds. I have a 50/50 allocation because I'm 50 years old, I do age in bonds. I max out ROTH, a DC plan, 457, 403b and save some after tax and rebalance through the ups and downs. I'm using after tax equity gains to pay down my mortgage as 4.5% is a good return right now and I want to minimized my need for cash flow in any future down turn and going into ER.

[ItDontMeanAThing]

Two and a half years into retirement, 3 more years to draw down taxable accounts until I can tap the retirement accounts without penalty.

Asset Allocation hasn't changed since retired in '08. That's mostly because I'm well diversified and don't have a clue what's going to happen next. I have sold some winners (except the gold mining fund) and bought some losers, but it involved less than 10% of my retirement assets.

Am LBYM on the draw down. Well beneath my means because I'm living comfortably and I don't know what's going to happen next in the global economic s*itstorm.

[Moemg]

Hopefully next time the exuberance of the market will make me take notice and I'll take a chunk off the table and hold it in cash . If I have three or four years in expenses I'll let the market play out. I also have a pension and that makes the bumps somewhat easier to take .

[steelyman]

Interesting replies and thoughts. Guess I forgot to answer my own question.

Next time around, I expect I will be FIREd, so anticipating that, I'm close to gathering the cash I will need to get through three years (not living expenses, but the amount needed to supplement pension income to get me to my target annual amount).

I was still accumulating in '08 (still am), but that won't be the case next time (unless next time comes in the next few months!). So further adjustments may be in order... but I hope not.

[nun]

Quote:

Originally Posted by Moemg Hopefully next time the exuberance of the market will make me take notice and I'll take a chunk off the table and hold it in cash .

Rebalancing will automatically make you take a chunk off the table. I've decided to be quite conservative and use that chunk to pay down my mortgage rather than buying bonds or holding cash.

[wolfbay]

If you didn't sell equities in 2008 then I'd say you have the right asset allocation. Other than rebalancing maybe you should stick with it.

[Nords]

Quote:

Originally Posted by steelyman We've just had an amazing recovery from a serious market crash over the past couple of years. It may be that it's a once-in-a-generation type of event.

*Snort* I can't help noticing how those types of events seem to happen every five years...

Quote:

Originally Posted by steelyman I am wondering, though, what most people are doing at present in response to where things were then, where they are now, and where they may go. Are you going to stand pat and say you were very smart since 2008, or are you changing your tune and approach?

We actually did stand pat in 2008 after a massive tax-loss swap sale. I'll be carrying those paper losses forward into 2011's tax return as well.

One big change since 2008 is our spending reductions caused by refinancing both mortgages. That two-year recession gave us a huge impact on the next 30 years' expenses.

As ridiculous as valuations climbed in 2007, repeating the experience of a 56% drop in our ER portfolio was at least as painful the second time around. Today we're a little more aggressive to sell before asset allocations get way outside their bands, and to pile the cash up a bit higher. It remains to be seen whether, during the next recession, we'll be as eager to put that cash back to work at the bargain-basement discount stock exchange.

I've noticed that I'm struggling with an anchoring problem or the "wealth effect". The current size of our ER portfolio will be steadily whittled away by inflation, yet I tend to think of today's value as "enough" and anything much bigger as "too much". It's hard to continue to chase accumulation without being tempted to cash out or "spend it back down".

I should probably take our current "enough" number and adjust it each year for inflation to remind myself what the "new enough" should be.

[chinaco]

IMO - Rebalance to the target allocation after the elapsed time or threshold is crossed.

[rescueme]

We did nothing during the latest downturn. Since I've been retired since early '07 (DW may be this year), we set up our respective "cash buckets" (containing 3-4 years of retirement income - including taxes due) and it worked out as planned.

The last downturn is nothing more than we experienced several other times since '82 (when we started saving/investing for retirement). Was it worse than the previous downturns? Of course.

Did we sell anything on the dip? Of course not.

Just more of the same, even though we realize that it was a deeper dip than normal...

[Bestwifeever]

Not as a protection against "next time," but keeping enough cash to take us beyond FRA for starting SS. If the rest of the portfolio (now in psst...Wellesley, bonds, and S&P500 index) tanks and never recovers, we'll still be okay. I hope.

[M Paquette]

Quote:

Originally Posted by steelyman I am wondering, though, what most people are doing at present in response to where things were then, where they are now, and where they may go. Are you going to stand pat and say you were very smart since 2008, or are you changing your tune and approach?

Not much. I might have to rebalance my portfolio next year. This year was close, but I dodged that bullet. Last rebalance was February 2009. My investment plan allows for +- 25% in each allocation before I have to rebalance, and calls for me to check and rebalance once a year (out of sheer laziness to keep any capital gains long-term).

I might go rent a place at Lake Tahoe for a few months.

[haha]

Quote:

Originally Posted by Moemg Hopefully next time the exuberance of the market will make me take notice and I'll take a chunk off the table and hold it in cash . If I have three or four years in expenses I'll let the market play out. I also have a pension and that makes the bumps somewhat easier to take .

Are you doing that now? Is a Shiller PE10 of 23.26 irrationally exuberant? In Feb 2011 it reached 23.78, is that irrationally exuberant?

Many of us have spent most of our investing lives with PE10s that by earlier standards would be considered to be bounded between normal and irrationally exuberant. October 2007, which was just prior to le deluge, reached PE10 of 27.31, or approx 15% ahead of where we are now. Was Oct 2007 irrationally exuberant? It was much lower than the prior peak in 1999. Is today, at 15% short of the Oct 2007 peak, not yet irrationally exuberant?

That is the rub with metrics like this. If you follow an AA algorithm incorporating PE10, it always wants to make you stop playing just when it is really getting to be fun.

It's like low-carb dieting. When it really cuts is when you are at a wedding or big feast of some kind and everybody is having cake and Champagne. I remember back in the lean years following the 2002 bottom someone was talking about PE 10 and irrational exuberance as a guide to when to be out of the market. Bunny-man pointed out that if one had exited the market when PE10 became higher than ever before, she would have missed most of the late 90s run-up. True enough, and that is just reality. You can't have everything, and it is always hard to know when something is too high to last, especially when it has lasted for years.

I think there is little doubt that one would be safer to be mostly out of market averages now, but we can always believe that better asset choices might spare us, and it could be true though for me it not tended to work out that way. And safer is not all we want; we also want higher returns. Nothing will goose returns quite like a bubble!

One good thing about being invested mostly in dividend paying quality companies is that they do tend to keep chugging along, and their payouts will tend to persist, even if quoted prices should suffer.

Ha

[donheff]

Quote:

Originally Posted by haha Are you doing that now? Is a Shiller PE10 of 23.26 irrationally exuberant? In Feb 2011 it reached 23.78, is that irrationally exuberant? Many of us have spent most of our investing lives with PE10s that by earlier standards would be considered to be bounded between normal and irrationally exuberant. October 2007, which was just prior to le deluge, reached PE10 of 27.31, or approx 15% ahead of where we are now. Was Oct 2007 irrationally exuberant? It was much lower than the prior peak in 1999. Is today, at 15% short of the Oct 2007 peak, not yet irrationally exuberant?

Where do you get the current PE10? The few tables I have found are ambiguous.

[haha]

Quote:

Originally Posted by donheff Where do you get the current PE10? The few tables I have found are ambiguous.

Online Data - Robert Shiller

The entire data set is available as an Excel file from a link down just a bit on this page, from its beginning to the most recent month's data.

Ha

[FIREd]

Tell me what the next crisis is and I'll tell you how I prepare for it.

The stock market sure looks expensive to me. The DOW is back to where it was in 2007, but the world is a different place. Higher unemployment, lower household wealth, higher sovereign debts and deficits, etc... If it wasn't for governments around the world flooding the market with cheap money, I don't think the DOW would be anywhere near 12,000 right now. What will happen when the cheap money goes away?

[GregLee]

Quote:

Originally Posted by FD What will happen when the cheap money goes away?

The cheap money is not going away --- how could it possibly? The only way of dealing with massive debts and deficits is to inflate them down to manageability. I predict that money will get cheaper and cheaper and the market will go up and up, forever.

[haha]

Quote:

Originally Posted by GregLee ... and the market will go up and up, forever.

Someone will remind you of this post sometime down the line.

[Moemg]

Quote:

Originally Posted by haha Are you doing that now? Is a Shiller PE10 of 23.26 irrationally exuberant? In Feb 2011 it reached 23.78, is that irrationally exuberant? . Ha

After I thought about it I realized it wasn't the market being irrationally exuberant it was people . When we had the tech crash it was plain to see people were going nuts buying things they had no idea about . Bars had ticker tapes going and everybody was giving stock tips . In 2007 we had the same kind of craziness but it was in real estate .People were using their houses like ATM's and house flippers were everywhere . The thing that bothers me is I knew is was the same kind of craziness but I didn't pay attention like I did before the tech crash . I lost very little in the tech crash but I lost a lot in the last melt down so yes , I am going to try to be more aware maybe not of the markets( except for individual stocks I rarely check PE's ) but of people going overboard and I will stockpile some money not a lot just enough to get me through a three or four years . Thanks Ha for making me think this through .

[slingshot]

'switched garbage service from container rental to stickers'
I'm having trouble conceptualizing? what are stickers?

[Meadbh]

I'm still in the accumulation phase. I hung in there through the market crash but it really made me think how traumatic it would have been if I were depending on my investments at the time it happened. So I kept DCAing into equities until they were well on the way up, and then stopped buying equities and bought some more real estate. As a result, I now have a large cash buffer, more income generating properties, and my equity allocation has passively declined from 60% to ~35% (of a larger number) since 2008.

Lots of changes are coming up for me in 2011. When the dust settles I will pay off debt and consider buying more equities on dips. But I do like the idea of a cash buffer.