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How did you react to the crisis?
Old 09-19-2009, 12:54 PM   #1
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How did you react to the crisis?

My apologies if this is a repeat of an older thread. I won't be offended if the moderators delete it.

We had to get out of the furnished house we were renting in January (the owner was returning from overseas). Ours portfolio balance was pitiful, and things looked just scary enough that I figured that preparing for the worst was prudent. We moved into a tiny apartment, cutting our expenses drastically. Now that the market has recovered so dramatically that we feel a bit foolish. I guess we overreacted. Maybe it is time to loosen the purse strings some.

Anyone else care to share how they responded to the crisis? Would you do it again? Are you readjusting now?
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Old 09-19-2009, 02:04 PM   #2
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Old 09-19-2009, 02:14 PM   #3
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I've been in the withdrawal phase for 3+ years.

Looking back, I fretted a lot, cut back some minor expenditures and delayed a major purchase but strictly "held the course" in the portfolio neither selling or buying outside of our longterm plan.

I did opt to start my SS at 62 (knowing I can repay and reset later if appropriate) and that decision was somewhat influenced by the recession. Starting SS minimized my withdrawals from the shrunken portfolio.

I'd like to think I handled the portfolio the way I did because I was smart, but actually I think it was because I was like the proverbial "deer in the headlights" and didn't do anything because I didn't know what to do!
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Old 09-19-2009, 02:18 PM   #4
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Anyone else care to share how they responded to the crisis? Would you do it again? Are you readjusting now?
We ended up rebalancing in Feb 2008 more by accident than by design, so it was nice to be able to sit through the next 15 months thinking "thank goodness we rebalanced"!

Another thought while watching our ER portfolio shrink was "What a waste". But I'm glad that I resisted the temptation to leap into all of those irresistible bargains in summer 2008... and last November... and last March. Spouse and I have learned that when the market is making us feel "Woo-hoo!" then it's probably time to put aside a little more cash.

A final thought was "Thank goodness it's a recession, now we can finally hire a contractor!" It's been a very good year for home improvement, especially with a cash discount.
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Old 09-19-2009, 02:24 PM   #5
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For 2009, we reduced our annual budget by almost 13%. If we continue at our spending rate so far in 2009, So far, we're on track to come in below the budget.

The market recovery has made the process of updating my resume & looking for a job painfully slow.
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Old 09-19-2009, 02:26 PM   #6
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I must admit that luck played a big part in how well we weathered the crisis. In 2005, we moved to an area that proved to resist fairly well to the recession and financial crisis. Our area was also a net beneficiary of the Base Re-Alignment and Closure program (BRAC), which has helped prop up our housing market. And we work for recession-proof industries and have continued to benefit from higher salaries, bonuses and stock option grants.

Based on all that, the drop in stock market and financial crisis had limited impact on our finances. Don't get me wrong, we lost plenty of money, but at least it wasn't all crumbling around us. We tightened our belt a bit, lowered our expenses by 12%, and increased our savings rate to take advantage of the market drop. Investment-wise, we stuck to our investment plan throughout the crisis (it wasn't easy!) and kept pouring money into equities. Looking back on it, it was absolutely the right thing to do, no regret.

I think that the lower expenses/higher savings rate are here to stay permanently. We sifted through our expenses and eliminated things that seemed to add little value. We haven't missed those things at all, so there is no reason to go back. As corporations took advantage of the recession to get leaner, so did we.

But now that we have recovered all the losses from the past 2 years, we are readjusting our portfolio to reflect a lower than anticipated risk tolerance.
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Old 09-19-2009, 02:39 PM   #7
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Our mortgage was paid off 3 1/2 years ago and we haven't had any debt for at least 7+ years. So, we continued the course while DH was working and invested in the stock mkt through his 401k. We have tightened our purse strings a bit this year, but are not doing without.

During all the hoopla, I felt fear for others....and good fortune for myself.
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Old 09-19-2009, 02:57 PM   #8
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I lost my job last summer and since I knew it was coming I hoarded cash and drew down a large chunk of HELOC funds into a savings account to make sure I could ride out even a very lengthy bout of unemployment. We squeezed expenses while I was out of work, but I started a new, extremely stable/safe job 4 months after I landed in the gutter so the belt ightening did not last long. I had employment-related requirements to sell certain positions at the end of 2008, and I used the proceeds to double down on the very best ideas I had. I also too my HELOC drawdown and used it to buy a bunch of ridiculously cheap investment grade bonds.

My portfolio has largely rebounded and I have liquidated enough of the bonds at fat profits to just about finish repaying the HELOC draw. This was not a lot of fun, but we got through it OK and I suspect that we will be better off long term due to the timing and nature of my doubling down.
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Old 09-19-2009, 03:00 PM   #9
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A final thought was "Thank goodness it's a recession, now we can finally hire a contractor!" It's been a very good year for home improvement, especially with a cash discount.
I just got a price to repair/replace fascia boards and paint the trim work on my house. I was shocked at the price. About 70% higher than I guesstimated. I'm probably out of touch on the repair work but I know I'm not on the painting as I had my mother's house painted 2 years ago and it's basically the same size house. The recession must not be affecting prices in my area.

Oh well, time to move on to another quote.
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Old 09-19-2009, 03:10 PM   #10
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Oh well, time to move on to another quote.
Home improvement around here goes through a boom-bust cycle with hardly anything in between.

A carpenter friend worked his assets off for five years starting at the end of 2002, making as much hay as he could while knowing the inevitable would happen. In 2005 he began putting in 50-60 hour weeks. In 2006-7 he was routinely padding bids by 50-100% and still getting the contract. By this time he was piling up the cash whenever he could.

In 2008-9 he's been spending a lot of time with his family and donating his labor to needy organizations...
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Old 09-19-2009, 03:20 PM   #11
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My job was never in danger, but it was sickening to watch my portfolio. I kept DCAing into equities until the rebound was well under way, and then stopped. I had depleted my cash reserves over the past year or two to invest in real estate and precious metals (which I'm glad I did), and now I am allocating savings to build up cash and fixed income. I cut back expenses and delayed purchases such as a new car, clothing, and leisure activities. I now limit the hours I devote to the (underpaid) administrative portion of my job, and decline invitations to speak at conferences, etc, unless my expenses are paid, and I ask for an honorarium if it is an outside organization. And I have taken on more clinical work, because it pays. No more freebies!
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Old 09-19-2009, 03:20 PM   #12
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We gritted our teeth and "held the line" just as we did during the last bear market which handed us 3 straight years of losses. DW doesn't get involved normally but during times like this she does a great job in keeping me focused - a bit like encouraging me to go to the gym when I know I should but don't really want to.

Throughout 2008 we continued to pay the max into our 401(k), IRA's and after tax savings and rebalanced 3 times to get the stocks allocation back up to the target. I was very fortunate with my job, no salary increases and no bonus last year or this (normally worth about $15k/year) but no lay-offs either.

Paper losses in 2008 were 16.25% in 2008 and this year IRR is 10.5% so far. We didn't cancel our 3 week trip to England which is the only major expense - but the tickets were "free" and we stayed with relatives everywhere we traveled.

I also accessed this site a lot to gain confidence from you lot that I really was doing the right thing - thanks everyone
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Old 09-19-2009, 04:21 PM   #13
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In 2007, we reached our "number". We changed our asset allocation to have more fixed income and also begin switching to a very tax efficient portfolio. We got rid of balanced funds and actively-managed funds. All fixed income went into tax-sheltered accounts. The market was nice and helped us out.

Then in early 2008, I semi-retired as planned. My spouse continues to work in an unrelated field. We are still in the accumulation phase, but with my lower income we don't invest as much as before. We did cut back on eating out as a natural consequence of seeing less money in the checking account. We also stopped contributing to the 529 plans and didn't do some planned home renovations.

The market also rewarded my much fewer working hours by trending lower. We did some tax-loss harvesting along the way. Then in September, we started to rebalance into equities. I remember shifting more into equities only to have that position lose 30% by November. December was a big month for more tax-loss harvesting.

In 2009, we continued rebalancing into equities in January and February. Early March was brutal. I was shell-shocked. I got over it by late March. If we review our MSMoney records, we tax-loss harvested any losers in taxable accounts in late March. We rebalanced more into equities in April and May. My 401(k) plan changed providers and low-cost index funds became available which helped with reducing fund expenses.

So today, the portfolio is about where it was in January 2007 (but not November 2007!) except it is much improved. The overall expense ratio is about half what it was and we have tons of carryover capital losses. The portfolio is also extremely tax efficient. Even though my take-home pay has dropped substantially, so did our income taxes. Our 2009 taxes should be just one-third of our 2007 taxes. We also became eligible for Roth IRAs for the first time, so we moved money into Roths this year.

I'm not sure what I would've done if we had needed to withdraw from the portfolio. Even though I only work part-time, I don't want to lose my job just yet. We just received our profit-sharing bonuses, so I know my employer at least has been recently profitable and has continued with the 401(k) contributions.

I guess I can summarize this post by writing that I reacted by gritting my teeth as well.
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Old 09-19-2009, 04:48 PM   #14
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I kept up my regular maximum contributions to the TSP G-Fund.

In my taxable account, I managed to hang tough through it all and I have a lot more confidence now than I had before. Consistent with my previous plans I bought into equity funds through late October and really I finished my buying too early, thinking I was getting great bargains in October. Perhaps I missed some buying opportunities later on, though as a relatively inexperienced investor I am proud to say that I never sold one single thing. My taxable portfolio is completely recovered to more than its September '08 amount (and my TSP has grown, naturally).

On the spending end of things, I did not spend as much as planned. It didn't seem like a good time to become accustomed to "the good life". Luckily my house is paid off and I am still working. In early November my daughter became engaged. There were some expenses associated with that at that time, such as paying for the wedding.

I feel like I have graduated from the College of Investment Catastrophes. What an awesome experience! It is one that I hope we never have to go through again. But if we do, I know now that I can handle it.
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Old 09-19-2009, 04:58 PM   #15
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My response to the "crisis" was to do nothing. I learned a lesson back in 2000 when I was worried about the Y2K bug. I got out of the market and got back in too late. My boss had a 401k balance similar to mine prior to my withdrawal, and he was ahead of me by more than 100k when I got back in. I made up my mind then to not let any market situation dictate my allocation.

I also see the current lay-offs, foreclosures, and business failures and feel fortunate for my situation. The lack of profits in my company has resulted in a 60% cut in my income. I used to save all of my share of the profits, so only my savings rate is down considerably. We have also cut back a little in spending, but generally things are ok. Portfolio seems to be rebounding.
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Old 09-19-2009, 05:31 PM   #16
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Well, you know what they say in most of the retirement books. If you hit a major down turn in the first 2 years of retirement it could ruin your plans. I stepped in it big time and when the market hit 7K I was just about to jump out and the market dropped about 400 points that day from around 7100 to 6700. I was shell shocked at that point and just sat it out.

DW needed some major dental work at the beginning of the year and that ruined any plan of the 95% rule so I started looking around for some PT work. I landed a PT job in May selling boats and so far this year I've made enough to get me way under the 95% rule. This made me feel more comfortable by taking out a lot less from my port.

Although I'm still down over 200K from my high I'd feel real comfortable with another 100K. I'm hoping that this happens as working is making me tired. I may even leave in the next few weeks, I need to get back to doing nothing.
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Old 09-19-2009, 05:35 PM   #17
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I guess I can summarize this post by writing that I reacted by gritting my teeth as well.
I can summarize how I handled it with 2 smilies.
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Old 09-19-2009, 05:40 PM   #18
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Hey Dawg, are you moving everything to CD's now. (heh)
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Old 09-19-2009, 05:51 PM   #19
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I tried to stay out of the stores for impulse purchases. Also passed on a two week trip to Australia with my cousin in March. Just felt out of sorts even though I could have rustled up the money. Did fly to London to visit with my son in July(where he is working on a job short term), but it was a relatively cheap trip as I stayed in his apartment.
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Old 09-19-2009, 07:07 PM   #20
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I'm neither in the "accumulation" phase nor the "drawdown" phase. By that I mean that my pension + SS pretty much takes care of everything. So even though I shifted a wee bit from my bond fund to my stock market index fund, I basically "stayed the course." I learned that there's no need for me to have as much in equities as I had previously thought (although my equity target before the bad-times was only 47.5%.) As things improve (as they have been and I hope they will continue to), I will look for about 40% equities; 55% fixed and 5% cash. I'm 64, have been retired for 7 years, have an inflation indexed pension and took SS at 62.As time goes by, I learn that I can be less aggressive and still be happy.
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