How can you trust the stock market? Read today's article

[brewer12345]

Four years of cash at the start and you were through without a scratch. I reinvested my cash in increments all the way down. All of those investments are now well in the money. I'm better off now then if the market just made a straight line between 10/2007 and now.

Edited to add: Falling knives are more relevant if you are buying stocks that could go to zero. I was 99.9% sure that my favorite ETF at the time, VNQ, would eventually exceed what I paid for it. I was out of most individual stocks before 2007.

So long as you did not [-]piss your pants and[/-] sell at the bottom you did OK.

 

[Midpack]

Could someone please explain how you can trust the market, even if just in index funds, with the problem of high speed trading taking over?

So someone who KNOWS, please explain to me why I should be in the market if it is no longer the market we grew up on, and don't quote the past to me.

After reading your posts on this thread, you're just looking for people who will echo the answer you've already chosen. You're not asking us, you're telling us...

 

[W2R]

Could someone please explain how you can trust the market, even if just in index funds, with the problem of high speed trading taking over?

Personally I don't "trust" anything or anyone, except myself and my beloved F who has earned my trust a thousand times over.

However, I rationally *CHOOSE* to invest in a portfolio of broad index funds, with a conservative AA, and frankly (like most of us here) I have recovered nicely from the 2008-2009 crash despite the preachers of doom.

If you feel panic, impending doom, or are freaking out concerning investing, a good cure is to read (or re-read) The Four Pillars of Investing at least twice, clear though, slowly and thoughtfully.

(Other helpful books can be found on this great list: Investment Books )

 

[haha]

But you must have been taught when you were young not to try to catch a falling knife...

It took until April of 2012 for my portfolio to get back to where it was in October 2008. Now that I am 59 I can't afford such risk.

I have noticed on this forum that some posters have such a high net worth they can survive these drastic drops. I wish this site was divided up based on net worth so we could communicate with other posters who we have a savings parity with, meaning those that can't survive a crash at a certain age. So perhaps you will buy into a bottom but I do not want to experience a bottom again.

Best,

Cheesehead

This board has some very wealthy members, some middle of the roaders, and some public retirees who are actually very well off, with or without savings, and some who have less generous packages.

We all learn fom one another.

The 2008 crash that scared you was due to much more than technical trading issues, and no one can for certain say that it will not/ cannot happen again.

Read the thread on annuities, and maybe some allocation that is discussed there will appeal. Not many of us who are already retired want to lose half our net worths. It is never gauaranteed that the market values will return to where they were.

If you do keep some stock allocation, know what you own. I started paying attention to stocks in the 60s, and there has never been a big bear market that did not take some favorites down for the count.

That said, at present there does not seem to be the typical gross overvaluation often seen before no returns allowed crashes.

Read the board for ideas, not for advice.

Ha

 

[brewer12345]

Read the board for ideas, not for advice.

Ha

Ding! Ding! Ding!

 

[rescueme]

I have noticed on this forum that some posters have such a high net worth they can survive these drastic drops.

Having a HNW has nothing to do with it, IMHO.

If you are still in the accumulation stage, your current cash flow (income) probably does not depend on the value of your retirement investment portfolio at the current time.

If you are retired (as I/DW are), your current cash flow (income) should not depend on the current value of your retirement investment portfolio. You should (as we have done) harvested your gains, over many years, to "cash" (whatever that means to you) to ensure more than a few years of income, regardless of what the market is currently doing.

It's not what you have, but rather how you manage those assets you have that is the important thing related to "survivability" - as you have stated.

Now, if you are still in your accumulation stage and have yet to reach "the number" (Lee Eisenberg - The Number - A Completely Different Way to Think About the Rest of Your Life) and the markets are upsetting you, then that is an entirely different question.

Now as to your original question, without a doubt I/DW would not be as well off today if we had not participated in the equity market during our accumulation years.

I look at it in a rather simple way. With an equity (direct or fund), I own a very small part of a company (or with a fund, a very small part of many, many companies).

If they make a product that I use, or think I will use in the future, I want a stake in the profits (regardless of how small) over time.

Take for instance something we all use - toilet paper ...

It's a product that is needed and expected for a great deal of the human race. As folks become more accustomed to its use (rather than leaves, used in 4th world countries ), it is an expected staple.

Since most of us use it, and more people will use it as a "leaf substitute" over time, and more importantly that there are more people in the world today - than yesterday, and more people tomorrow - than today, the market for the "product" is expanding.

Sure, we can expect more than a few "toilet paper manufactures" to come on line as the market expands, which will limit the profitiabilty of current manufactures, but I could invest in a sector fund (something like the health care sector, but related to a specific part of the body) to "capture the profits" of many TP manufacturers.

That's just a simplistic way of looking at why we're in the market, but it shows as long as you have a product that folks want/need and there is an expansion of the market for the good/service, there is a chance that you can share in the profits (heck, just look at the release of the IPhone 5, last week - and we do own a piece of Apple ).

Just my simple POV.

 

[packrat44]

Oh, please bring on another flash crash. They don't mean anything long term and the last one was a great buying opportunity. I have a chunk of cash lined up and just waiting to go.

+1.

The last flash crash caught me with 100% equities and I could not take advantage. At present, I am very cash heavy and anxious for another opportunity.

 

[packrat44]

I've made a career out of catching falling knives.

.

Is that covered by your medical insurance policy?

 

[brewer12345]

Is that covered by your medical insurance policy?

h

 

[packrat44]

If they make a product that I use, or think I will use in the future, I want a stake in the profits (regardless of how small) over time.

Take for instance something we all use - toilet paper ...

It's a product that is needed and expected for a great deal of the human race. As folks become more accustomed to its use (rather than leaves, used in 4th world countries ), it is an expected staple.

Since most of us use it, and more people will use it as a "leaf substitute" over time, and more importantly that there are more people in the world today - than yesterday, and more people tomorrow - than today, the market for the "product" is expanding.

Sure, we can expect more than a few "toilet paper manufactures" to come on line as the market expands, which will limit the profitiabilty of current manufactures, but I could invest in a sector fund (something like the health care sector, but related to a specific part of the body) to "capture the profits" of many TP manufacturers.

That's just a simplistic way of looking at why we're in the market, but it shows as long as you have a product that folks want/need and there is an expansion of the market for the good/service, there is a chance that you can share in the profits (heck, just look at the release of the IPhone 5, last week - and we do own a piece of Apple ).

Just my simple POV.

You stepped into a $hitty subject but you came out smelling like a rose.

 

[easysurfer]

...
So someone who KNOWS, please explain to me why I should be in the market if it is no longer the market we grew up on, and don't quote the past to me.

Thank you

I think that's the very reason why an indexing approach makes sense. Instead of trying to guess the nuances of the market, just follow the darn thing and focus the attention on asset allocations and rebalance when needed.

 

[copyright1997reloaded]

It took until April of 2012 for my portfolio to get back to where it was in October 2008. Now that I am 59 I can't afford such risk.

I have noticed on this forum that some posters have such a high net worth they can survive these drastic drops. I wish this site was divided up based on net worth so we could communicate with other posters who we have a savings parity with, meaning those that can't survive a crash at a certain age. So perhaps you will buy into a bottom but I do not want to experience a bottom again.

Best,

Cheesehead

If you can't "afford such risk", get out. Simple as that. If you can't sleep at night, you will make emotional decisions, and that will lead to sub-par investment performance.

Having said that, you need to really think about where "such risk" is coming from. Having your savings out of the [-]casino[/-] stock market is still putting it at risk, from things like inflation, etc.

I FIRE'd in late spring, 2009, in the midst of the biggest beating ($ wise) I had ever taken in the market. Losing over 400k between late September 08 to late November 08 is a tough nut to swallow for someone whose largest ever car expense is around $23k!

Here's the thing: If, in the middle of that chaos, you can see opportunities and you have reserve capital, you can take advantage of it...but only if you are willing to "afford such risk" knowing that the flow may continue to go against you for a long, long time.

[FWIW, one of my rules of investing: If I find myself "admiring" my net worth and gains, it's time to sell some stuff. If I find myself thinking of "panicking" (i.e. selling out before it's too late) because of how bad things are, it's time to buy. So, I try to do the opposite of what my emotions are telling me. ]

 

[Onward]

If I find myself thinking of "panicking" (i.e. selling out before it's too late) because of how bad things are, it's time to buy.

During my accumulation years I relied on what someone once called the "gastronomic indicator": if I looked at my portfolio and truly felt like vomiting, I'd do everything I could to buy stocks immediately.

 

[pb4uski]

....It took until April of 2012 for my portfolio to get back to where it was in October 2008. Now that I am 59 I can't afford such risk.....

The Vanguard Total Stock Index Fund Investor Shares peaked around Oct 2007 bottomed out in early 2009 and recovered back to almost the Oct 2007 level in early 2009 and then dipped again and fully recovered to the October 2007 level in early 2012. However, if you look at the performance of $10,000 5 year graph at https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT#hist=tab:1 you'll see that it was more than 20% down for only a little more than a year.

For many of us who have been investing for a long time it was just a bigger and scarier version of what we had seen happen many times before.

While you say you can't afford that risk, I'm 56 and I can't afford the risk of inflation eating up purchasing power of my retirement savings, which is why stocks comprise about 60% of my retirement nestegg.

 

[ejman]

The Vanguard Total Stock Index Fund Investor Shares peaked around Oct 2007 bottomed out in early 2009 and recovered back to almost the Oct 2007 level in early 2009 and then dipped again and fully recovered to the October 2007 level in early 2012. However, if you look at the performance of $10,000 5 year graph at https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT#hist=tab:1 you'll see that it was more than 20% down for only a little more than a year.

For many of us who have been investing for a long time it was just a bigger and scarier version of what we had seen happen many times before.

While you say you can't afford that risk, I'm 56 and I can't afford the risk of inflation eating up purchasing power of my retirement savings, which is why stocks comprise about 60% of my retirement nestegg.

+ 1. Another comforting thought is that even after the Great Depression although the Dow Jones took over 20 years to regain its prior level, it took less than a decade if one includes dividends and other factors. The Great Depression “25-Year Recovery” Myth | The Guru Investor

 

[Lsbcal]

+ 1. Another comforting thought is that even after the Great Depression although the Dow Jones took over 20 years to regain its prior level, it took less than a decade if one includes dividends and other factors. The Great Depression “25-Year Recovery” Myth | The Guru Investor

I think it is great to be optimistic and I try to be too.

But ...
1) If you were retired in the 1930's you'd have been spending during that depression. So it would have not been such an easy recovery. Firecalc spreadsheet can show how it might have been for each of us.

2) What came after that recovery assuming you did not spend in retirement? A major recession in 1938. Then there was WW2 with a huge market drop in May 1940 (Nazi invasion of France).

History does not exactly repeat (thank goodness).

 

[rbmrtn]

You may have been too heavy in stocks ( 100% maybe ? ). I like this article from Paul Merriman at fundadvice. With a 30% stock allocation you capture most of the return with much less volitility. See chart 7

FundAdvice.com - The perfect portfolio

Time in the market generally works to recover your losses; but it works better when younger, still working with an income to recoup the loss. After retirement our time horizon is shorter. not as much time to wait on a recovery.

 

[copyright1997reloaded]

I think it is great to be optimistic and I try to be too.

But ...
1) If you were retired in the 1930's you'd have been spending during that depression. So it would have not been such an easy recovery. Firecalc spreadsheet can show how it might have been for each of us.

2) What came after that recovery assuming you did not spend in retirement? A major recession in 1938. Then there was WW2 with a huge market drop in May 1940 (Nazi invasion of France).

History does not exactly repeat (thank goodness).

It was a lot better to retire in 1935 than in 1928, and so far it's been better to retire in 2009 than in 1999.

 

[easysurfer]

I FIRE'd in Jan of 2008 before the big meltdown. My only regret of not still w*rking was not having income from a salary to continue DCA'ing into the market that was going down, down and more down. When the market tanks, I change my mindset to think of all the shares I can buy instead of how my investments are taking a dive.

 

[W2R]

It was a lot better to retire in 1935 than in 1928, and so far it's been better to retire in 2009 than in 1999.

As one of the few 2009 retirees here, I have no complaints. Just wish I could have retired earlier.

Not many of us seemed to retire in 2009, though. We never even had a "Class of 2009" thread. Maybe I'll start one.

 

[Lsbcal]

You may have been too heavy in stocks ( 100% maybe ? ). I like this article from Paul Merriman at fundadvice. With a 30% stock allocation you capture most of the return with much less volitility. See chart 7

FundAdvice.com - The perfect portfolio

Time in the market generally works to recover your losses; but it works better when younger, still working with an income to recoup the loss. After retirement our time horizon is shorter. not as much time to wait on a recovery.

That chart is for 1970 to 2008. The bond bull market started around 1982 and continues up to today. I'd be surprised if the next decades give that same risk/return graph. It would be interesting to see the same graph for maybe 1940 to 1970.

Here is a real return graph showing the great bond returns in recent decades (only goes up to 2001). Note the poor returns prior to 1982. Rates can only go down just so far.

 

[ejman]

That chart is for 1970 to 2008. The bond bull market started around 1982 and continues up to today. I'd be surprised if the next decades give that same risk/return graph. It would be interesting to see the same graph for maybe 1940 to 1970.

Here is a real return graph showing the great bond returns in recent decades (only goes up to 2001). Note the poor returns prior to 1982. Rates can only go down just so far.

It's interesting to see that even in the rising rate environment of the 70's and early 80's certain balanced funds (Uncle Mick's pssst) did OK even with the bonds dragging performance (scroll to lower part of page for Wellesley's early performance) Of course, history never repeats exactly. VWINX Performance Overview | VANGUARD WELLESLEY INCOME FUND Stock - Yahoo! Finance

 

[Lsbcal]

It's interesting to see that even in the rising rate environment of the 70's and early 80's certain balanced funds (Uncle Mick's pssst) did OK even with the bonds dragging performance (scroll to lower part of page for Wellesley's early performance) Of course, history never repeats exactly. VWINX Performance Overview | VANGUARD WELLESLEY INCOME FUND Stock - Yahoo! Finance

Interesting point. I wonder how the stock/bond allocation has varied over those years for VWINX. I notice it is now 40/60 stocks/bonds.

After writing the above I found this from Bogle on VWELX:
http://johncbogle.com/speeches/JCB_WMC1203.pdf
Should be required reading for those owning a hunk of this fund.

 

[fanmail]

During my accumulation years I relied on what someone once called the "gastronomic indicator": if I looked at my portfolio and truly felt like vomiting, I'd do everything I could to buy stocks immediately.

Did you happen to sell stocks when you looked at your portfolio and felt like doing this: ?

 

[Onward]

Did you happen to sell stocks when you looked at your portfolio and felt like doing this: ?

Nah. I hate selling stocks (in my case, index funds). I would make a lousy trader.