How I handle a market downturn

[sanfanciscotreat]

Dividends look fine to me.
Looking forward to the $41000 SS to start when I turn 70 later this year.
Also have to start taking RMD's next year.
By then the problem will be paying taxes and spending the rest.

 

[John Galt III]

OK, on the *this time it might be different* front : Watercooler talk has been that the *too big to fails* will not be bailed out this time, but will be *bailed in* with depositors' money (whatever forms that takes I don't know). And if the depositors have been smart enough to extract their money before the downturn, and there isn't enough of it to satisfy the *too bigs*, where do the *too bigs* go to rip off more money, to survive? Are they allowed to implode?

 

[Trooper]

Turn off CNBC...Corrections are normal and healthy.

And finance.yahoo.com Be aware that fear sells.

 

[W2R]

Some of us forum members have been there, done that, when it comes to market crashes and we know they have not led to the end of the world thus far. We can view the claims of "This time, it's different" with a more skeptical eye. We know that the biggest mistake is to sell low, so we try not to do that.

OK, on the *this time it might be different* front : Watercooler talk has been that the *too big to fails* will not be bailed out this time, but will be *bailed in* with depositors' money (whatever forms that takes I don't know). And if the depositors have been smart enough to extract their money before the downturn, and there isn't enough of it to satisfy the *too bigs*, where do the *too bigs* go to rip off more money, to survive? Are they allowed to implode?

I'd use a different watercooler and just relax about all this. Nothing that bad has happened yet, and as Audreyh1 said, there might not even be a bear market this year.

Be aware that fear sells.

Very wise caution for us, IMO.

 

[calmloki]

About 7 weeks ago we decided if VTI dropped about 5% from our average purchase price we would buy some. Got to the end of the year and re-upped our 60 day purchase order at $101 and sumanagum - it filled! That's ... good? We shall discuss a new target purchase point today. It helps a whole bunch that we have the rentals perking along and some property loans paying. OTOH, no pensions, tiny social security checks, checking the market daily, and being very aware that cash in banks did better than our "stock portfolio" make further stock purchases more difficult. Will be an entertaining discussion.

 

[Bestwifeever]

I'm just waiting for the "no mo whoa" signal from W2R, to know it's over. ETA: no mo WHEE, not whoa!

 

[ls99]

Same way as market ups. two or three times a year I look at my totals.

 

[Dash man]

I ended up buying some AAPL, AFL and SO today. If the market keeps dropping I'll find some more dividend stocks to buy.


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[NW-Bound]

... being very aware that cash in banks did better than our "stock portfolio" make further stock purchases more difficult. Will be an entertaining discussion.

Yes, buying low is very tough after seeing what was low becomes lower.

So, I spread it out and nibble here and there. Currently sitting on 32% cash, not as much as I had at the bottom in 2008.

In early 2009, I went from 60% cash to 40% cash at the market bottom. Could not go all in, as I was too chicken. Would do very well otherwise. But eventually I went back to my usual 20% cash (75% stock, 5% bond).

Currently, 61% stock, 7% bond, 32% cash.

 

[ESRwannabe]

The way I stay calm is by drilling down into the investments I own to see how the companies are actually doing. I listen to the quarterly webcasts, read the 10-Ks, and follow the industry journals/websites.

What's going on in the market is not necessarily reflective of what's going on at the actual companies (huge understatement...).

It doesn't bother me if a company is doing badly if I can understand why that is happening. From there I can form an opinion on whether or not I should be buying, holding, or selling shares.

One of the things I don't like about funds/etfs/cefs and so on is that they can separate you from understanding what you actually own. I think if people actually understood what they owned they would not necessarily care about volatility.

Volatility is not necessarily a bad thing. It can be an opportunity.

 

[NW-Bound]

I'm just waiting for the "no mo whoa" signal from W2R, to know it's over. ETA: no mo WHEE, not whoa!

Yes Whoa. Whoa is a signal to buy.

 

[NYEXPAT]

I have been fluctuating from about 90% cash to 90% equities for several years. ( went to cash mid December).For 2016, I will no longer buy these dips, but will sell any rallies as bear market rallies can be rather powerful.

 

[Terryjm51]

So what is up with China. Their market falling and driving our market
down.


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[Trooper]

Why are these people investing in the stock market? if 3% drop in a couple of days is going to make them panic then they shouldn't be invested in equities.

Also shouldn't this advisor talk them out of the market if they can't handle volatility?

+1. Kind of like going to a Thai restaurant and being afraid that you'll get spicy food.

 

[REWahoo]

So what is up with China. Their market falling and driving our market down.

It's the Yang which normally follows a period of Ying.

 

[Bir48die]

I'd use a different watercooler and just relax about all this. Nothing that bad has happened yet, and as Audreyh1 said, there might not even be a bear market this year.


Very wise caution for us, IMO.

You don't think the George Soros is buying short? He is set to ride the downturn so he wants to stoke fears and make money. The guys is a leech on society.

 

[Mulligan]

Turn off CNBC...

Corrections are normal and healthy. This bull is old. We've had 1 official 10% correction since 2009 - corrections often renew and refresh the bull. Bulls usually end with a whimper. Was 2015 the whimper? Maybe.

We are only down about 11% from the highs of 2150 SP500. At least another 10% to go before we enter a bear. 1700 is SP500 bear territory.

It's perhaps more painful because 2015 was flat and then finished negative (-1% real return) thus doesn't feel good from a sequence of returns standpoint. And we've been up a lot since 2009

Remember you have to break to rally and rally to break.

Even if we have another 7 years ...but this time it goes down and down not up and up ... we are already a year into it so only 6 to go ! Where she stops, nobody knows...

This is it in a nutshell, Papa.... People only have 2 memories...The unusual calmness of the market the past several years, and the crash itself... The natural historical gyrations of a market are not well remembered.


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[jkern]

My plan was to roll over my former employer's 403b to a Vanguard IRA at the beginning of the year. Now I'm a little nervous about selling everything and purchasing a new portfolio. I know that in a way it's just re-balancing.

 

[papadad111]

This drop is really bothering me.

I plan on RE on April 1st. The BS bucket just overflowed.

I have my asset allocation the way I want it, a small non cola pension that will pay about 1/3 of my needs, and only two years to go until 62 when DW and I will both take early SS which will cover another 1/3 of what we need. 100% with FircCalc on investments to cover the rest while maintaining our current life style which we are happy with.

Have about 3 years of cash to cover market downturns like this. The problem I have is switching out of the accumulation phase to retirement phase. I was always a dollar cost averager but would add extra to the monthly check if the market was declining. Did that for 30 years. To keep buying more during some declining markets when you can not see the bottom was nerve racking, but after seeing the long term results - it gets kind of addicting. I have an almost irresistible urge to move some of my safety cash into equities. It is hard to break old habits!

Buying more on drops was an oversimplified system but seemed to work for us. It is allowing a sales guy and a waitress to retire early when a lot of our friends in our socio-economic level are struggling. Just finding it hard to switch to a new plan.

Don't let it scare you. I too am a recent FIRE. I struggle with money jitters too. It's normal.

I keep reminding myself that having the cash for X number of years of basic expenses will get me through most "correction" and "recession" phases and maybe even a DEPRESSION phase.

That X factor is different for everyone. For some it's a year. For others it's 2-3 years and for yet others it's even more...7 or 8 years in cash not unheard of.

For me I'm about 20 years out from an SS check, and no pension what so ever. Plus hopefully a long many year retirement ... So by comparison I'm on the riskier end of the spectrum.

I like holding on the longer end of basic cash needs.. I hate bonds these days so my bonds are cash ...

But I need equities to offset inflation and best to snap up bargain when the market falls 15-20 percent. History says it pays off most of the time.

Without new money, you can't do that other than reducing cash- so just sit tight.

 

[Looking4Ward]

Now that I'm living off my investments instead of contributing to them, I feel like I just stumbled upon a huge sale and left my billfold at home

 

[Running_Man]

I think most reactions of the average person are actually understandable, the panic is never at the start of a decline, there is the benefit of being at a top, being able to crow about how good the market is for your portfolio and how all other declines have been erased away and all is good.

But for newly retired with a million dollar portfolio with a 75% stock allocation ----because you have read the academic studies and know stocks are best for the long run and all declines are eventually recovered --- you offset your aggressive posture by only drawing a conservative 3% from it look what happens in a two year bear market of 20% the first year and 50% slide in the second year in a zero rate environment to the investee

Start 750K stocks 250K ST Bonds
Bear Y1 615K Stocks 175K ST Bonds (includes 30K withdrawal) after rebalancing
Bear Y2 307K Stocks 145K St Bonds (before rebalancing)

It is at this point in year 2 that realization hits the retiree that their retirement even with a very conservative withdrawal rate is in severe trouble and has doubts about rebalancing right when the market is probably bottoming. Why because the withdrawal rate is now almost 6.6 percent and they doubt they are going to make it through retirement. This is the reality causing Bernstein to switch to a 20 year cash cushion in his recommendation for retirees. Declines of the year one variety are not that scary as the withdrawal rate doesn't even get to 4 percent and rebalancing is very helpful when the market recovers. Most investors are prepared and easily handle a year one type decline, which are the most common, not the second scenario, which while much rarer is the cause of most portfolio destruction and why average investors don't get market based returns over the long run.

So when I hear on CNBC as they have been stating -- don't panic at the start of a decline, you almost never hear that at the end of a decline because the same people who listened to the academics saying don't panic now have an insufficient amount on which to count on their retirement, which is of course a good cause of concern. Of course this causes the academics, such as Bernstein, to reevaluate their positions to handle the latest data.

 

[Options]

See this:

https://blog.wealthfront.com/no-need-to-fear-market-corrections/

Specifically:

Individual investors react very poorly to stock market corrections. Many individual investors sell when the market declines out of fear it will never come back. The data, which we will present in this post, actually says the opposite. Not only will the market come back, but it will do so a lot sooner than you might think.

and

There is very little about investing that makes intuitive sense. You’re better off investing in a falling market than a rising one. You should sell your winners and buy more of the losers. You can’t time the market. Ignoring market corrections and bear markets is yet another example of an investing best practice that just doesn’t feel right. But just because it doesn’t feel right doesn’t mean you should do the wrong thing. The data is just too clear to ignore.

Emphasis added

 

[sheehs1]

Everyone has their own comfort level. After 2008, I decided to do a bucket type strategy. What I have in the stock market in equities is there for the long haul, hopefully never having to touch it. It is there is help combat inflation. The rest is outside the market in cash and Certificates of Deposit which equates to 65% of investable assets. Gone are the days of the 5% and 4% CD's of 2008/2009. I still have some of those but those are coming due this November. Luckily I was able to get in on the Pen Fed 3% offer a year or two ago, with 3 or more years left. (Thanks ER forum!!) I just routed another $200K to a 2% 5 year offer by Langley FCU/3 month interest penalty. Was tired of $$ sitting in a bank doing nothing. The way I figure it, in 3 months, if rates go up and there are better CD offers, I will take the penalty and reroute having lost zero.

What is important to me is I have a floor of assets getting "something" that market gyrations can't touch. If I am not mistaken Bernstein talked about "building your floor". Might have to reread "4 Pillars of Investing".

Back to the OP's concern. The above is what helps me sleep at night and put blinders on to what is now going on in the market.

 

[W2R]

If I am not mistaken Bernstein talked about "building your floor". Might have to reread "4 Pillars of Investing".

Despite being more than just a little bit tedious, I managed to carefully [-]plow through[/-] read every word of the "4 Pillars of Investing" not just once, but twice some years ago. This book did me a tremendous amount of good.

 

[Christine]

It's Popcorn Time. Entertaining to read all the news stories. I placed a small buy order yesterday. Will place another a bit larger in a few weeks if the red numbers continue.