How did you react to the crisis?

[dgalbraith100]

I went back to work in the middle of the crisis... not because I needed to (wife is still working a very stable job), but because an interesting opportunity found me.

Since our cash flow almost doubled, I bought a new car, finished a solar hot water project 1-2 years sooner, started eating out alot more, doing alot of house upgrades, and in general being completely opposite of what most people did. Basically I am trying to do my part of spending our way out of this downturn ) (We are saving 30% of my income and 10% of my wifes, so I didn't completly stop saving )

My thinking is, I have the cash flow right now, prices on cars, construction are very good... I might as well buy the things I would normally have waited a few more years to buy. I feel like I can spend a bit more when "times are rough" since when "times were good" I was saving like crazy. (we have savings of 12 times our expenses at 37, so I think we are plenty on track in the savings department. I expect FI to be 7-10 years out at my current pace if things don't take another huge crash.

Laters,
-d.

 

[M Paquette]

I retired in March 2008. so seeing this recent fluctuation made me a bit nervous. I'm only too well aware of how the first several years of retirement on a portfolio can put the rest at risk.

Anyway, I stayed the course, did some rebalancing early this year, and also did a considerable chunk of tax loss harvesting. I can comfort myself by knowing I won't pay capital gains taxes for the next decade or two. (Assuming I have gains...)

 

[chinaco]

No Major changes... sticking with the plan. In hind sight, the plan could have been better, but it is good and has done its job

We did not make any major changes to the portfolio related to the crisis. It did cause some minor behavior adjustments.

In 2006 I did a major change to our portfolio to prep for ER. Since we were about 5 years from the date, I allocated a sufficient amount to fixed securities (mainly Intermediate Bond funds). I was going to further change the allocation over 2007 and 2008 to put a bit more in bonds... but did not because of the market crash. I decided to sit tight since my allocation (due to stock market) went to 50/50. That 2006 reallocation saved our bacon... although we suffered like everyone else.

I made some minor portfolio changes that were related to particular funds. When I sold the funds, I put it temporarily in a MM and averaged the money back into the stock market.

DW ERd in 2007, so our earnings have dropped since the crisis (about 40%). Since all of the money she earned was being saved, we have not changed our living standard. We have a LBYM lifestyle and we still are saving (on my salary).

DW has been a bit more careful of expenditures since her ER, loss of paycheck, and crisis.

Since the market has recovered, I am letting the equity side of the portfolio heal.

Hey folks... a balanced portfolio of stocks and bonds works!

 

[freebird5825]

Anyone else care to share how they responded to the crisis? Would you do it again? Are you readjusting now?

I started out in 2007 (FIRE year) with a 50/50 AA and ongoing DCA. I wanted to see how that would go with my personal risk comfort level. 4Q08 left me with a 45/55 AA, and a -25% loss YTD 2008, including new 2008 money. Not too horrible but more than I was willing to see disappear. Theoretically assessing your risk is one thing, living it is another. A good lesson learned.
Hmmmmmm... was my overall reaction. So I waited until 1Q09 to do a few minor changes to go for a 2009 starting 40/60 AA and let it ride. I made a few small "buy into equities funds" moves at a pretty good time. I continued my DCA as usual towards the more favorable targets.

I also went on a cruise that had been pre-planned since April 2008. We had the $$ earmarked and saved for it for over a year. We decided we weren't going to back out, no matter what Mr. Market or the current exchange rates were doing. We were dealing with an American company, so we did most of our trip related spending (USD) with them as opposed to onshore (euros). We kept our expenses low on the trip and have zero debt coming out of it.

 

[Bimmerbill]

I didn't change much, but really stepped up my "pay off my debt" idea, ala Dave Ramsey (I didn't budget, so not really the whole DR plan). I reduced my 401K from 18 to 5% (the match) and paid off all consumer debt from about OCT08 to this month.

Left my 401k allocation roughly the same, never rebalanced. Just bumped 401K back up to 12%, not sure I'll be able to sustain that.

I have a stable gov't job, so little risk of losing it. Will save up a good EF, then see what's happening.

ETA: I've been trying to get some contractors interested in taking my money. 1 showed up 2 days late to meet me (at least he called) and the other never showed up. I have to call a few more!

 

[CuppaJoe]

After 35 years in the market and having reacted to many downturns, I started seriously planning retirement in the summer of ’07 and got into a “transitional” AA, extremely conservative. Of course, that kind of AA did okay and I don’t believe there was much in paper loses, unless you separate out the part that remained it equities. I didn’t keep track of PF progress until I actually retired in Aug. ’08. I have been gradually increasing equities at a mere 1% here and there and now keep an EOM record which shows PF has fluctuated roughly 4% upward and 3.5% downward, not counting the 4% withdrawals; it is currently at it’s highest point ever. I'm as concerned as anyone here about the next shoe to fall, bond exposure and future inflation potential.

 

[ESRBob]

Great posts. Reads like people comparing notes after a battle. We don't seem to be hearing from any casualties, though. Wounded, sure, but I wonder if there were people who threw in the towel, sold all their stocks in a panic, and if they ever got back into equities this year. They might not be on ER forums anymore...

Our own situation can be summed up as "dull pain": we didn't sell much of anything except to harvest tax losses, immediately re-buying the same asset types. (Sometimes I swapped to higher quality debt and took some losses in the process but all in the 5% range)

That meant I wasn't doing any rebalancing at the bottom. So I definitely did not have the nerve to add to stocks through this process (as some here did, to their credit). But I didn't sell them either. Portfolio losses for 2008 were in the 20% range.

This year has just been riding things back, but we're still not back to the late 2007 peak (about 10% below Oct 2007 now). I keep telling myself I need to calculate my asset allocation and do a new rebalancing but keep putting it off. Denial was my faithful companion this past year.

One other thing we did was to switch about 10% of the portfolio into a TALF hedge fund this Spring, switching out of traditional FI funds and into this TALF fund which invested in credit card receivables, car loans, farm equipment loans etc. This was done with lots of cheap govt lending through that Treasury program and locked in 19-20% for three years assuming the recovery stumbles along and defaults on these receivables don't exceed 50%. I don't think we'll see anything else like it maybe in our lifetime, but it is an example of how even with a clear plan and formula we bent it to take advantage of an unexpected opportunity.

 

[Dennis]

Well, I found that
1. A Balanced Port is Only good for reducing Exposeur an lowering Risk in Bear markets, it does not Capitalize on recovery or Bull Markets
2. Be FLEXIBLE .. just use your common sense. have a nice Bal. Port but rebalance an Move 10-20% of your Bond $ into your equity or aggressive Equities when the 200 MA tells you ( which was in Feb/March) an Prev it was in Oct/Nov of 08'
3. At the Least ? DCA since the Bottom..in 5-10% increments..
4. History Does Repeat> Just have to look at the Past to plan your Future.. LOok at 02'/03' for your guide which Funds/stocks to have more into..
5. Market timing will also work, but you best be a Full Time investor..not just spend a few hours a week on it..
6. Equities made over +61% on ave in 03', + 30% in 04'..after loosing over -40% ave btwn them in 00-02'.. sound familar?
7. Example Many Vanguard people have just used their VWELX and VWINX funds and Move more into VWLEX in recovery and Bulls and Less in VWINX and Vice Versa when Bull markets run longer than 3 yrs.. They just Watch the Dollar Volumes of those Funds and Just Follow the Leaders..
8. There are other Funds to do the same , that are even better, but can't disclose whom they are , it would cause too much trouble for Wall Street if everyone Knew what to do an when an Since The House controls everything an Just gets the SEC to Keep it Rigged? ( Just like Vegas does with the State).. the Odds R Against you Otherwise..Eventually The House Always wins..

You Don't have to go Reinventing the Wheel.. KISS..

 

[FUEGO]

I ramped up spending and got way more aggressive with my asset allocation. I also completed some tasks to facilitate a career change "just in case" the current job/career starts going down hill.

Between December 2008 and March 2009, we booked and went on a week long cruise to the Caribbean, two weeklong trips to Vegas, and booked a beach house rental for a week (the beach trip is next week). Prices probably averaged half of what they usually are. The cost was so low that it just came out of our normal monthly cashflow without really changing how much we save or spend. I'm glad we did all that stuff. It was really fun and inexpensive to boot ($2600 total??).

We were 100% equities going into the Great Recession. So no bonds or cash sitting on the sidelines that we could plunk into equities. But I did have a lingering actively managed fund that was a big chunk of my portfolio. This was from my pre-vanguard/boglehead enlightenment days back when I was with Edward Jones. I was slowly getting rid of this fund. And I really wanted to get into some more risky and hopefully non-correlated asset classes (REITS, small cap international, international REITS) as part of my long term asset allocation, but these asset classes had been very pricey or unavailable before when I was setting up my asset allocations.

In late November 2008 at the bottom of the market in 2008, we sold most of that actively managed fund and a little of some other stuff that represented approximately 25% of our portfolio. With the proceeds, we bought REITS, small cap intl, and intl REITS. These investments are up in the 65-80% range today from where I bought them. I also made some more switches from the actively managed fund into small cap value in Mar 2009, along with plunking some more from the actively managed fund liquidation into a triple leveraged financial ETF within 2 days of the absolute bottom in March. As a result, we have done well investment wise by taking on more risk when risk premiums got out of whack.

On the job front, I applied to take a professional exam in January 2009 and spent months studying and subsequently passing the exam, and just yesterday I was fully admitted to practice in this new profession. Starting to put out feelers for new job opportunities. The salary bump may be 50-150% from where I am now. My current job is tightly connected to residential and commercial real estate development, which is not doing so well today. So far this year we have laid off 25% of the workforce, had our 401k match taken away, received no raises, no bonuses, had the health insurance premiums foisted completely onto the employer, and most recently we all enjoyed across the board pay cuts. Needless to say, job prospects at the current employer aren't great, even though I have survived the first 2 rounds of layoffs. I certainly feel like this is a sinking ship, I'm just trying to jump off before it slides under the water.

DW's job is rock solid, as she works for the one of the best capitalized and solvent investment banks out there.

All of this is in the context of our well-managed expenses. We figure that we could rather easily live off of either DW or my salary. Or we could live off of two unemployment checks if it came to it. I think our state pays 79 weeks of unemployment benefits right now, so we would be set for at least 18 months or so while still saving money from the unemployment checks.

In the meantime we are living life and enjoying ourselves. It is hard to really get down during these difficult economic times when you feel a little smug for having made sound financial decisions when others around you weren't necessarily paying much attention to their finances.

What, me worry?

 

[audreyh1]

Way to go FUEGO!

Audrey

 

[FUEGO]

Way to go FUEGO!

I guess I should add that I'm still in my 20's (for now), and have managed to acquire a larger than average portfolio given my age. So I have the capacity to take on a lot more risk and accept failure or adverse results and let time heal any resulting wounds.

Our portfolio has officially more than doubled since the bottom reached in the last year. Partially due to new contributions but mainly due to amazing recovery of the risky asset classes I own. I just wish the recovery would have happened at a much slower pace so I could dump more money in the markets.

 

[IndependentlyPoor]

Between December 2008 and March 2009, we booked and went on a week long cruise to the Caribbean, two weeklong trips to Vegas, and booked a beach house rental for a week (the beach trip is next week).

Prices probably averaged half of what they usually are. The cost was so low that it just came out of our normal monthly cashflow without really changing how much we save or spend. I'm glad we did all that stuff. It was really fun and inexpensive to boot ($2600 total??).

...we bought REITS, small cap intl, and intl REITS. These investments are up in the 65-80% range today from where I bought them.

OK, I am officially jealous now. A savvy investor with nerves of steel who also knows how to enjoy life. My smilie is green for a reason.

 

[FUEGO]

OK, I am officially jealous now. A savvy investor with nerves of steel who also knows how to enjoy life. My smilie is green for a reason.

Well, I could have lost my ass(ets). It turned out ok. Green is what I'm finally seeing on the portfolio page. After buying a little early in November, I didn't look as smart as the market dropped in February and early March.

What's the point of having all this money and purchasing power if you don't spend a little to have some fun?

 

[REWahoo]

OK, I am officially jealous now. A savvy investor with nerves of steel who also knows how to enjoy life. My smilie is green for a reason.

Don't be too envious. I'm thinking FUEGO probably has difficulty walking with a pair of obstacles that large hanging in his way.

 

[IndependentlyPoor]

Don't be too envious. I'm thinking FUEGO probably has difficulty walking with a pair of obstacles that large hanging in his way.

Brass ones at that.

 

[IndependentlyPoor]

What's the point of having all this money and purchasing power if you don't spend a little to have some fun?

As Auntie Mame told Angnes Gooch:

YouTube - Mame Trailer Excerpt

 

[Helen]

I too moved quite a bit of money into stocks around April in both taxable and 401k accounts.

In addition, I've been finishing updating the house. It's been a great time to hire contractors - they will actually show up.

I've also been taking advantage of the tax credits this year. I bought a fireplace insert and insulated the house. That will get me close to the max of the $3500 tax credit.

I also hit the 7.5% of AGI for medical expenses so I had the rest of my molars crowned this year. I think I got one of the crowns for free after the tax deduction.

 

[Lusitan]

I tend to tune-out most of the media chatter as a routine, and I pretty much stuck to that (although I couldn't help but follow some of the news, sort of like gawking at a car wreck ...)

In terms of my investments, I didn't touch my existing investments (although my target retirement funds were automatically rebalancing) but I did switch my new 401k contributions to 100% stocks in order to help keep my asset allocation in line.

I didn't make any other big financial moves. I skipped my non-deductible IRA contribution in 2008 (don't qualify for a Roth or a deductible IRA) but and instead used that money to pay down some student loan debt and beef up my emergency fund.

 

[Sparky]

It was a terrifying time from fall 2008 until a couple of months ago. I had such huge losses in my portfolio and my dividends from financials went kaput. I was positive I would have to find a job and even applied for one, only to be told the position was cancelled. I got letters of recommendation in order, updated my resume, and then... nothing. I'm still here. I resisted the urge to sell and I'm not in as bad a shape as I was. I've lowered my expenses tremendously and I don't think I would ever go back to my free-wheel spending. It feels much safer this way. I was so upset and could hardly concentrate that I actually starting painting, after an absence of 20 years, just to take my mind off things. So I discovered a new (old) hobby that I really love.

 

[Bikerdude]

Great to hear your doing OK Sparky! What percentage of your portfolio have you regained?

 

[Sparky]

Great to hear your doing OK Sparky! What percentage of your portfolio have you regained?

Well, my portfolio was down about 70% and I've regained about 30%, so I guess I'm only down 40% or so. I paid off my house in 2001 when doing so was considered "unsophisticated" (remember those days?). So, by reducing my expenses to the bone, I'm okay for now, and none the worse for it, BTW. I went over every expense line by line and am saving (well, not spending) about $1,000 per month.

 

[calmloki]

We had all the rental real estate paid off and were ready to start divesting and maybe getting into more of that there lucerative stock markety stuff. Thing was, nobody decided to be buying at what we felt good for a selling price. Hrmph! OK, so we just kept on a renting them out - bumped the rents a bit, though probably not enough to keep up with the increased garbage and utility bills. Did notice when a rock solid dividend payer went on sale - three times - my gal is happy to ask me how that BofA stock is doing... Much better now, thankyou - if it doubles from here I'm Diamond Jim Brady, and quite a bit better than the GM stock her loyal heart prompted her to buy as they were busily going under. We did sell some big losers for the tax write off, and I only screwed up one of the sales. Boy, that stock stuff is fun! Did make a number of property loans - might have made enough interest to cover an unsecured loan that's looking bad and may end up with a property or two we hadn't planned on owning. Not running around freaking out, very happy to have rentals as our primary income source, and trying out having a property manager so we can try out that retirement stuff some of you talk about. Would think that my micro-manager self would be all weirded out after 11 days away from hands on rental managment, but I've resisted calling to check in - figure I can hold out till we get back on Sunday to make sure absolutely everything was done exactly the way i would have done it. Heh.

 

[tryan]

More reacting ... DW was offered a position with bennies at the middle school where DS is. A no brainer for us (given that BC/BS plan jumps to over a grand/mo).

Position is only for a year (someone dropped out on medical leave) but this will help bandage some of the wounds.

Calmloki - good luck with the "professional" management. Dropped mine when I RE. Keep a keen eye on the maintenance tab. Mine was taking a kick-back (20%) from the contractors they hired. I guess paying 12% - then 15% - on rents collected wasn't enough for them! Also was hard to pay a plumber for a tiolet clog or a pilot re-lite. Couldn't make any $$$. Hopefully your experience will be better!

 

[Snidely Whiplash]

Keep a keen eye on the maintenance tab. Mine was taking a kick-back (20%) from the contractors they hired.

Now there is one excellent peice of advice.

I once bought a building (8 apartments) from an older couple who had been using a management company. They owned the building outright but were only breaking even on it after taking into account all of the management fees and expenses.

Shortly after taking over ownership and management I had some of the tenants calling about changing light bulbs in their apartments. "Are you crazy? Why would you even begin to think I would come over and change burnt out light bulbs for you?" Because the management company that ran the building before me encouraged them to do so. Seems said management company was more than happy to send out a maintenance man to change light bulbs for the tenants, and prior records revealed that in doing so they would bill the in-house minimum wage maintenance man at an hourly rate of about $35.00 per hour (and making sure to include travel time), charged a hefty premium for the bulb itself, as well as a 20% maintenance override fee on top of everything. Unbelievable.

 

[calmloki]

More reacting ... Calmloki - good luck with the "professional" management. Dropped mine when I RE. Keep a keen eye on the maintenance tab. Mine was taking a kick-back (20%) from the contractors they hired. I guess paying 12% - then 15% - on rents collected wasn't enough for them! Also was hard to pay a plumber for a tiolet clog or a pilot re-lite. Couldn't make any $$$. Hopefully your experience will be better!

Have my fingers crossed - am paying 10% to a 35YO I trust. The gal carried him on her hip when he was about 6 months old, he lived with us for a year or so when he was in his early 20s, helped him sell his house and he bought one of ours - and he's not a relative, which helps. He does renting and collection and maybe 20% of the bill paying, also does much of the niggling stuff that eats at the bottom line. Have taught him to re-key and master locks, some rudimentary electrical and plumbing. The plan is that down the road he ends up owning some or all of them.