In retrospect: How Did You Handle The Crashes?

[Dawg52]

Quote:

Originally Posted by Nords Whew. We hate to steal punchlines, but we weren't sure how much longer we could wait for you to chip in...

Sorry, been focused on the U.S. Open. Plus I'm just slower these days.

[sheehs1]

I did it a bit differently in 2008 than others here and cashed out before the DOW started it's grind down to sub 7,000. Between the high of almost 14,000 and when I cashed out I was down about 5%. Between 2004 and 2006 I just had this feeling the housing market could not sustain itself. Then I was reading all about the 55 trillion dollar CDO exposure. Wall Street Journal gave plenty of "heads up" articles. It wasn't an article here or there. Rather, it was "daily". Same with The Financial Times and The Economist....etc. Read a book by a guy called "No NonSense Finance" Errold Moody (sp). www.efmoody.com

He provided some insight into dollar cost averaging down that made sense to me. Also pointed out that if you have a 50% drop, you need to make back 100% to get back to even. O.K. fine. But it can take time and you still loose sort of thing. Just make sure you have the time frame for it to do that.
BTW I called Errold Moody and had a couple of long conversations with him.

I slept at night....and eventually got back in around Dow 8,500 and had more to get back in with than if I had ridden it down. I know that is NOT what most here recommend but it worked for me. Sold high on the "cash out" and bought back in when it was much lower ...not the bottom ...but lower. If everyone remembers they were projecting DOW 4,000 back then.

I will say, deciding when to get back in can be a conumdrum.

[Independent]

We were very conservatively invested and our portfolio did just fine.

My former employer was not so cautious, lost a lot of money, and dumped my retiree health care subsidy after a medical event that made my wife a "high risk" individual. That cost us $$.

All three of my kids got hit through job losses or housing losses. We ended up providing some financial support for two of them.

Net, we were prepared for some risks, not for others.

[Midpack]

Having only retired last summer I haven't experienced a downturn without employed income. In 87, 00 and 08 I sold nothing and did a little equity/fund buying (never kept a lot of cash on the sidelines), and did well by not panicking.

Now that I'm retired I've reduced my equity exposure to 50-60% (ranged from 100% to 70% while working) but I'd still plan to do nothing except normal rebalancing come what may. Preserving principle is brighter on my radar now, and I'm sure that will increase as we age. I hold more cash now for income, but that's by design, and not to be available for buying opportunities.

It will be interesting to see what I actually do when the next drop happens, hopefully I'll sleep like a baby as I always have...

[btbw2380]

What has worked for me to do nothing other than some buying during downturns is to ensure my portfolio throws off more than enough cash to meet my "needs" budget. That puts my portfolio tilted more towards income than growth and likely reducing long term total return but I enjoy life a lot more knowing I won't be forced to sell while at the same time generating decent capital appreciation.

[marko]

Quote:

Originally Posted by btbw2380 What has worked for me to do nothing other than some buying during downturns is to ensure my portfolio throws off more than enough cash to meet my "needs" budget. That puts my portfolio tilted more towards income than growth and likely reducing long term total return but I enjoy life a lot more knowing I won't be forced to sell while at the same time generating decent capital appreciation.

Heard this quote today: "...sometimes a fund wins by not losing..." (as in the case of many bond funds etc)

[pb4uski]

Quote:

Originally Posted by ShortInSeattle A question for those who were already retired during the 2001 or 2008 market crashes... How did you handle them? I'm talking both financially and emotionally. Had you dialed down the risk in your asset allocation so that your losses were moderated? Dd you cut expenses further? I'm just realizing that as a 30 something I have the luxury of saying "great, a buying opportunity" when things go south, but when you're living off those investments I imagine the stakes are much higher, and scarier. It must take guts. Given that we're likely to go through similar events in the future as we retire, any lessons learned? Appreciate it. SIS

Stayed the course in 2001. Pretty much the same in 2008, though my AA was significantly off target and I should have sold bonds and purchased equities but I just didn't have the courage to do so but I didn't bail out on equities.

[ShortInSeattle]

Thanks for the replies everyone. Very useful and interesting.

SIS

[heyyou]

With quarterly statements and busy at work, 1987 was a non-event to me. I literally did not know that something had happened. In 2000, my large caps dived but I just kept buying them and small caps in my 401k. I was saving and investing almost half a multiple of my annual retirement expenses per year by then.

Luckily sold the paid off larger house to build a small retirement house early in 2005, then retired.

Didn't do much in 2008 because I was stunned. Laid awake some, knowing we were still better off than many, partly due to financial assets, and knowing that we are more adaptable to lower income than some people. Our self-esteem and happiness is not based on buying or owning more stuff than the neighbors.

[Huston55]

Quote:

Originally Posted by pb4uski Stayed the course in 2001. Pretty much the same in 2008, though my AA was significantly off target and I should have sold bonds and purchased equities but I just didn't have the courage to do so but I didn't bail out on equities.

We did pretty much the same. But, I have to say that the second time around (2008), when we were 7 yrs older, it was more of a white knuckle ride. Our portfolio came through fine but, with a mix of angst and sticktuitiveness (the dominant one depending on the week). AA is now 60/35/5.

[easysurfer]

Quote:

Originally Posted by heyyou With quarterly statements and busy at work, 1987 was a non-event to me. I literally did not know that something had happened. In 2000, my large caps dived but I just kept buying them and small caps in my 401k. I was saving and investing almost half a multiple of my annual retirement expenses per year by then. Luckily sold the paid off larger house to build a small retirement house early in 2005, then retired. Didn't do much in 2008 because I was stunned. Laid awake some, knowing we were still better off than many, partly due to financial assets, and knowing that we are more adaptable to lower income than some people. Our self-esteem and happiness is not based on buying or owning more stuff than the neighbors.

1987 was before my investment days. I to was too busy with work to notice. I do remember some co-w*rkers in a panic. A couple of them came up to me and asked, are you gonna sell? I said something like "I don't invest in the market, have everything in cash" and they thought I was a genius .

I didn't really start investing until around 1989. In retrospect, wish I did sooner.

[Lsbcal]

In 2008 I was a buy-hold investor. We were at 55/45 AA. That changed to 40/60 at the market low in March 2009. I neither added equity money nor sold. Rebalanced in July 2009 to 55/45.

Major strategy changes going forward:
1) Current AA is 65/35, partly because of low bond real rates.
2) Have a very heavily research timing methodology. As an example, it would have been out of the market entirely in Dec 2007 and back in May 2009. Of course, that was the past. I'm not expecting that this will work 100% in the future. It is a risk reduction strategy first, maybe beat the market if I'm lucky.
3) The timing methodology includes moving some assets between US and international. Currently 100% US. So far, so good.
4) Bond timing for intermediate bonds moves between a bond fund like Vanguard Total Bond Mkt, Intermediate Treasuries, and cash. It has worked decently in the past but is not expected to work always over the short term (a few months).

Most people are better off with buy-hold. I'm probably not.

[Huston55]

Quote:

Originally Posted by Lsbcal In 2008 I was a buy-hold investor. We were at 55/45 AA. That changed to 40/60 at the market low in March 2009. I neither added equity money nor sold. Rebalanced in July 2009 to 55/45.

Ouch, 45% drop in equities. Takes fortitude to get thru that.

[friar1610]

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Originally Posted by Nords It's a different story with my Dad's assets. I have no credible reason to take risks on his behalf. I've been selling off his expensive mutual funds (for decades-long capital gains) and socking the money away in CDs. He's at 40% equities now (down from 85%) and could stand to go down to 25%. I should probably sell more into the rest of this year, especially if share prices keep going up. My spouse and I should probably do the same with our own assets over the next 30 years, but we just haven't addressed that conundrum yet...

Nords,

Would you mind telling us how old your Dad is? Right now my wife and I are a bit over 40% equities. I've set 40% - 45% as my desired equity allocation. Although I haven't made any actual moves, I have a frequent discussions with myself. On one hand, I think I should be higher in equities because my guaranteed flow of income is very stable and I can afford to take a bit more equity risk. On the other hand I think I should be where I am or perhaps lower on the equity side because my guaranteed flow of income means I don't have to take more equity risk. I'll probably just stay where I am but it would be interesting to know where your Dad is age-wise given that he has approximately the same AA as I do. (Disclosure: I'm 67; spouse is 65.)

If someone will just tell me where the market is headed for the next 5 years, I'm sure I can resolve that dilemma.




Edit: I just read the thread regarding Nords' experience with PenFed on behalf of his Dad. As a result I see that his situation is markedly different from mine and therefore decisions on AA are obviously quite different. Just ignore the original question.

[Lsbcal]

Quote:

Originally Posted by friar1610 ...(snip)... If someone will just tell me where the market is headed for the next 5 years, I'm sure I can resolve that dilemma.

Most likely 5 years from now the market will be well up from here. But along the way there could be bumps in the road. Who knows.

I think you have to consider your own tolerance for risk when considering your AA. It is tempting to try to find a consensus among your age group but that would be a mental trap. BTW, I'm close to your age. Another way to handle this would be to define a part of your equity allocation that you would sell should some event be reach like (1) bonds reach historical real rate territories, or (2) equities climb to high valuations and businesses are doing very well.

[friar1610]

Quote:

Originally Posted by Lsbcal I think you have to consider your own tolerance for risk when considering your AA. It is tempting to try to find a consensus among your age group but that would be a mental trap. BTW, I'm close to your age. Another way to handle this would be to define a part of your equity allocation that you would sell should some event be reach like (1) bonds reach historical real rate territories, or (2) equities climb to high valuations and businesses are doing very well.

Oh yeah; I understand that. I just think it's interesting to learn how others in more or less the same boat handle things.

[Nords]

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Originally Posted by friar1610 Although I haven't made any actual moves, I have a frequent discussions with myself. On one hand, I think I should be higher in equities because my guaranteed flow of income is very stable and I can afford to take a bit more equity risk. On the other hand I think I should be where I am or perhaps lower on the equity side because my guaranteed flow of income means I don't have to take more equity risk. If someone will just tell me where the market is headed for the next 5 years, I'm sure I can resolve that dilemma.

You've framed a very good question, but I've never found an answer.

Even if we know where the market will be in five years, how much more money do we really need to risk for that goal?

The best answer I've been able to come up with is "diversify". When I convert my pension (and my spouse's pension) into the equivalent of TIPS or I bonds, it totally overwhelms our equity asset allocation. So I know that we don't need to invest in bonds because we're already way overloaded in annuitized income. The only other asset classes that I'm aware of which will keep up with inflation appear to be real estate and equities. There doesn't seem to be a need to have two of every asset class in existence, so we're not investing in commodities or gold or other "fringe" asset classes. We have a rental home, we keep enough cash in CDs to fund two years of living expenses, and we have the rest of our liquid assets in equities.

We take some extreme risks with a portion of our equities (selling call/put options, investing in startup companies) but again we try to limit the allocation that we put at risk. The purpose of investing in those asset classes is mainly to make sure that I understand them now and am not tempted by them when I'm in my 70s.

I can see that in 10-20 years we'll even have sold off our Berkshire Hathaway* shares in favor of an equity portfolio that's a third in a dividend ETF, a third in an international ETF, and a third in a small-cap value ETF. Maybe by then our startup companies will have had their "liquidity events", too.

*When Berkshire starts paying a dividend, we're keeping those shares forever.

[Danmar]

Quote:

Originally Posted by ShortInSeattle Thanks for the replies everyone. Very useful and interesting. SIS

keep in mind it is a lot easier and fun to talk about this period if the financial hit was small, or non existant. Not representative of course.

[Danmar]

@Friar 610. I don't think there is a right answer to your question. I am in a similar position. Our pensions cover our basic needs. Could live very nicely on a fixed income type return on the portfolio but how much fun would that be? i have a natural disposition to take equity risk. That is after all how I got to our enviable current position. Really depends on your risk tolerance.

[Huston55]

Quote:

Originally Posted by Nords The best answer I've been able to come up with is "diversify". When I convert my pension (and my spouse's pension) into the equivalent of TIPS or I bonds, it totally overwhelms our equity asset allocation. So I know that we don't need to invest in bonds because we're already way overloaded in annuitized income. The only other asset classes that I'm aware of which will keep up with inflation appear to be real estate and equities. There doesn't seem to be a need to have two of every asset class in existence, so we're not investing in commodities or gold or other "fringe" asset classes. We have a rental home, we keep enough cash in CDs to fund two years of living expenses, and we have the rest of our liquid assets in equities. [/SIZE]

Nords-

Do you keep 2 yrs of total expenses in cash or, 2 yrs of remaining (after accounting for guaranteed income like pensions) expenses?

I'm thinking of the Galeno model, which says keep 6 yrs of expenses (a little too much in my view) and wondering why you decided on 2 yrs.