How do you deal with "unprecedented"

[CaptainO]

The thread titled “What percentage of net worth allocated to stocks?” took an interesting turn. I was going to pose a similar question regarding percent of net worth in equities (or bonds, for that matter). To take it one step further, how do you retired folks that say most of your net worth is invested in equities or bonds respond to Jager’s post?

Originally Posted by Jager
“Well, I'm not at all against equities. Up until 2004, when I bailed from the market, I was 100% in stocks - and had been for many years. I look forward to getting back to them somewhere down the road.

In the meantime, here's a thumbnail of what informs my thinking:

- Most financial pundits (and most investors) came of age during the long-running secular bull market from 1981-2000. They know nothing else.

- The secular bear market which began in 2000 has largely been held in abeyance by the infusion of liquidity and stimulus by central bankers around the world. At the cost of gargantuan and rapidly rising debt.

- Societal obligations (SS, Medicare, and their equivalents across the developed world) are not fundable in the long run via any cogent scenario I have ever seen presented. The math simply does not work.

- The politics are such that the hard, painful decisions that could be made, won't be. It will first have to devolve into crisis.

- Financial tools such as Firecalc, wonderful as they are, have embedded within them as their major assumption that the future in front of us will never be worse than the past. There will never be a financial dislocation, for instance, worse the 1930's.

I'm an optimist by nature. But I'm utterly convinced there will be a reckoning. The math impels it. I believe the times speak to the preservation of what one has saved. Not return on investment.”

I can't help thinking along the same lines as Jager, because I keep hearing the term “unprecedented” in regards to today’s economic policies, and fear it could all come crashing down.

For you folks that are all in the market in some form or another, you’re obviously disregarding the ominous clouds and staying the course. I’m curious as to how you arrived at your perspective. Do you dismiss this kind of talk as Chicken Little, or do you say “Well, I’ve got to get this amount of return, so the market is my only option”? Or, do you base your approach on another viewpoint? I’d be very interested to hear your thoughts.

[NotMyFault]

In my opinion the value of the stock market is based on the value of the companies that make up the market which is basically the entire US economy and a large portion of the global economy. So if you believe that the entire US economy is going to come crashing down in an unprecedented way where do you put your money so that it you can survive that. I like the stock market for such an event because I think that business will continue to go on and companies will continue to produce value. In other words if the stock market drops in an unprecedented way everything else is toast too so I take my chances there

NMF

[REWahoo]

Quote:

Originally Posted by CaptainO I can't help thinking along the same lines as Jager, because I keep hearing the term “unprecedented” in regards to today’s economic policies, and fear it could all come crashing down.

I don't think there is anything anyone can say to alleviate the fear of everything crashing down. Like worrying about the possibility of contracting polio prior to the Salk vaccine or the destruction of the world by nuclear annihilation during the Cold War, something is always looming out there with the possibility to wipe us out. You can allow it to keep you up at night or you can understand there is only so much you can reasonably do to guard against it and get on with life.

We will either adjust to this "unprecedented" financial crisis or not. Since I'm not smart enough to think I have any way to realistically hedge against it, I choose to keep my conservative 40/60 AA in retirement and soldier on. But I'm keeping my eye on the night sky because there just may be an asteroid somewhere out there with my name on it - and maybe yours too...

[Animorph]

I think historically we look pretty average. I'm happy to ignore both the extreme optimists and pessimists. If conditions change, I'll change with them.

And I have a few years cash at the moment, since my portfolio has performed above expectations and I have been able to sell for expenses a little early. That always helps.

[ejman]

I think we are all guilty of some form of temporo centrism in that we feel the stuff going on now is the most significant ever. Think back to the time of great depression. Then far and above our own economic problems, there were not one but two major political movements in the world (Nazism and Communism) with the aim of taking over the world and destroying democracies and sundry folks that were of the wrong whatever.

In that context, the problems we have now are mostly of a home grown political variety that will eventually pass. Budgetary issues are solvable with the will do so. The external threats although obviously very significant are of an immense magnitude lower than the existential threat that the Nazis and the USSR posed.

Thus, I'm optimistic that as the Brits say, "we will muddle through"

[haha]

I am often struck by how many strawmen, false dichotomies, and similar distortions of what is knowable are found here.

I think we are just very uncomfortable to admit that for the most part we are flying blind.

Usually when someone brings up what appears to me to be a very reasonable doubt, they get squelched by various versions of relax matey, you are being chicken little. To decide that you will stay out of stocks until you feel more certain, is a long way from hiding in a bunker, or expecting the worst. IMO, neither a fixed optimism nor pessmism is warranted.

The truth is, it is impossible to say what will happen, thus being sure that outcomes will be positive or negative are equally uniformed postions.

The absolute gold standard of retirement is a government pension. But it would not totally shock me to see even these get abruptly changed, if/when push comes to shove.

Ha

[REWahoo]

Quote:

Originally Posted by haha I am often struck by how many strawmen, false dichotomies, and similar distortions of what is knowable are found here.

It is amazing that many of us 'regulars' post the same general responses to pending catastrophe threads and get the same replies from other 'regulars', isn't it.

Thanks for pointing out, once again, that everyone is too dismissive or too optimistic. Keep at it and one day you'll be proven correct, I'm sure.

[Midpack]

"This time it's different" articles on the economy/finance have been a staple for much longer than any of us, authored by vaulted economists/academics almost as often as amateurs. For the US at least, so far "they" have been wrong for the long run every time so far, and people who were scared out of investing paid a heavy price for their "beliefs." It's well documented that business, markets, economies run in cycles.

One day it may indeed be different, though history would suggest a geopolitical issue may override pure economic realities, and we may/not see them coming.

I take it you haven't seen a suitable buying opportunity since 2004. Nothing I can say will convince you I suspect, and I don't want to anyway.

There are no guarantees, never have been, and never will be. I hope we're all successful...

[NotMyFault]

Quote:

Originally Posted by haha I am often struck by how many strawmen, false dichotomies, and similar distortions of what is knowable are found here. I think we are just very uncomfortable to admit that for the most part we are flying blind. Usually when someone brings up what appears to me to be a very reasonable doubt, they get squelched by various versions of relax matey, you are being chicken little. To decide that you will stay out of stocks until you feel more certain, is a long way from hiding in a bunker, or expecting the worst. Ha

The phrase "all come crashing down" from the OP gave me the impression that he was expecting the worst.

[haha]

Quote:

Originally Posted by REWahoo It is amazing that many of us 'regulars' post the same general responses to pending catastrophe threads and get the same replies from other 'regulars', isn't it. Thanks for pointing out, once again, that everyone is too dismissive or too optimistic. Keep at it and one day you'll be proven correct, I'm sure.

How many new messages can I come up with after 10 years? Or you? Your posts are no more novel to me, than mine are to you. Anyway, I do try quite hard to couch my ideas in very general terms, that I hope are not specifially challenging to any individual.

Naturally we have our leanings, as these are usually the atitudes that we rightly or wrongly credit with getting us a long way in a sometimes difficult environment. Yet if we take specific stances, it obviously very easy to be wrong, maybe for a while, maybe for as long as we live. I cannot see the harm in practicing care, and trying to evaluate everything that enters our minds, as what enters our minds will enter our decision making processes.

From my POV, I have already been proven correct, since all I counsel is to stay open minded. Hard to be wrong with this. One thing I can guarantee is that I have never and will never be confused enough to think that I know the anwers, or that because I have survived some years of retirement my ideas are better than anyone else's. For me, I like them as they are mine, just like I prefer my own children. Very unusual thing!

I though that Jager's explanation for why he is avoiding stocks at this time was helpful and indicated thought. So I would prefer this not to be shut down so quickly, by references to polio, or the Cold War, which clearly are entirely different. Not much we could do to avoid polio, or nuclear war, but we can keep a high cash position if what we fear is a market crash. This may be wise or unwise, but at a 4 year market high, is is not likely to be damagingly unwise.

Ha

[Midpack]

Quote:

Originally Posted by REWahoo It is amazing that many of us 'regulars' post the same general responses to pending catastrophe threads and get the same replies from other 'regulars', isn't it. Thanks for pointing out, once again, that everyone is too dismissive or too optimistic. Keep at it and one day you'll be proven correct, I'm sure.

That's profound...

[NotMyFault]

To Ha

I have been lurking here for about a year and I love your posts. Very straight forward and no holds barred. Refreshing like having a band-aid ripped off. Keep up the good work

NMF

[REWahoo]

Quote:

Originally Posted by haha From my POV, I have already been proven correct, since all I counsel is to stay open minded. One thing I can guarantee is that I have never and will never be confused enough to think that I know the anwers, or that because I have survived some years of retirement my ideas are better than anyone else's. For me, I like them as they are mine, just like I prefer my own children. Very unusual thing! Ha

And my counsel that to continue to think this time "things may all come crashing down" may be correct but "You can allow it to keep you up at night or you can understand there is only so much you can reasonably do to guard against it and get on with life" differs from your perspective...how?

[Lazarus]

People can get emotional about this stuff. I criticized a friend about putting all his money in silver. He no longer talks to me. I guess he is happy in his bunker somewhere. Shame, but I guess it was bound to happen over something.

[donheff]

Quote:

Originally Posted by CaptainO For you folks that are all in the market in some form or another, you’re obviously disregarding the ominous clouds and staying the course. I’m curious as to how you arrived at your perspective. Do you dismiss this kind of talk as Chicken Little, or do you say “Well, I’ve got to get this amount of return, so the market is my only option”? Or, do you base your approach on another viewpoint? I’d be very interested to hear your thoughts.

I guess I dismiss those concerns as Chicken Little. I expect that the market will tank again. I just don't know when so I can't decide when to get out of the way. Then the market will go back up again but I don't know when so I couldn't figure out when to get back in. Seems easier to pick an AA and stay with it. That worked through a couple of big drops and rises. Maybe it will through the next, maybe not. The factors you mentioned could lead to an "all come crashing down" future, or it could lead to something else. If I was operating closer to the financial edge I suppose I would worry more about it. But I have a lot of flexibility so I stay with a substantial portion of equities hoping to leave something to the kids. If you see he future correctly maybe the kids won't do so well. Or, maybe after it all comes crashing down, the DOW will rise like a phoenix and the kids will do great. Time will tell.

Edit: I expect that if I had no pension to fall back on if it all crashes down I would annuitize to cover essential expenses. Then I would put the rest in a moderate AA like I have done.

[haha]

Quote:

Originally Posted by REWahoo And my counsel that to continue to think this time "things may all come crashing down" may be correct but "You can allow it to keep you up at night or you can understand there is only so much you can reasonably do to guard against it and get on with life" differs from your perspective...how?

I am not sure I understand your question. It is not my thought that "it all may come crashing down". I try to avoid that kind of language, as it can increase anxiety. I do think that there may be some real exposures in current market valuations. I also do not think that having a high cash position precludes getting on with life, many here keep high cash positions and seem to have fine lives.

I guess that is where our ideas may differ, if they really do. I think that unlike nuclear war, there is a cure for worries that equity prices are too high, given the risks. Sell equities. I have already stated, that in spite of my concerns, I have 67% equities, because given what I hold and the tax and other costs (mainly tax) to getting out of them would likely not be worth it. It would be hard for me to accept definite, considerable costs, to lessen risks that may or may not be actualized.

As to sleeping, I think the only time I ever lost sleep over markets was after the October 1987 crash, when I was trying to decide what to do. Yet, I think phrases such as "sell down to the sleeping point" suggest that most people find it easier to sleep with less volatility rather than more in their portfolios, particularly people who are dependent on these portfolios.

Ha

[walkinwood]

Pundits have a terrible track record. The US was going down the tubes in the 70s and the end of all economic problems were in sight in the last 90s.

So, you have to stress test your portfolio's ability to meet your expenses over your remaining life span. And remain flexible regarding your portfolio (AA), expenses and even ER status.

For us, with a 60/40 split, we feel that we could take a 30% hit to our portfolio value (a 50% hit to equities & bonds untouched for example) and still survive. It would hurt and we may need to supplement our income a bit, but we'll be okay.

If I waited to have enough to be able to fund my retirement by holding just cash or gold or TIPS or Immediate annuities, I may still be working. And even that isn't a fail proof strategy.

I also don't see the benefit of continually thinking about this, so I check portfolio values & expenses about one or twice a month to know if we're fine or not and then move on to more enjoyable things.

[FIREd]

Since I recognize that I can't possibly predict the future, I have basically spread my investments across various asset classes and currencies. If something blows up, hopefully there will be enough left over to recover. I don't believe in being 100% in anything, be it stocks, gold, real estate, or cash. Nothing is 100% safe.

[Texas Proud]

One of the things that get me with the thought of the market crashing down etc. is that history has shown that even when it happens, almost everybody adjusts...


Look at the UK... Germany, Japan... their citizens are doing just fine and for the most part (excluding the few wars) have been doing so for over 1,000 years... there have been many crashes, and many people have suffered, but there is an adjustment phase and things start over again...

[Tyro]

Isn't the future, by definition, unprecedented?

I may believe the economic rulebook has changed (or is still changing) too, but as has been pointed out to me here (and not without merit), until the new rulebook is written, what else is there to go on except the past?

We're doing the best we can to make the best decisions we can, based on the best information & opinions available to us, and remain financially vigilant. I've seen, experienced, and dealt with living in fear, and I choose not to do so. I'm at a time in my life when I intend to squeeze as much enjoyment out of its wonder as I can, because most of us here are on the short side of it anyway.

Tyro