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Old 06-20-2014, 04:29 PM   #41
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If the markets sells off before your plan kicks in, then plan to ride it out.
That's the big one there. For good market timing you need to be (roughly) right twice.

If the market tanks, it goes fast and deep usually. If you weren't out when it started, ride it out. Conversely, if you weren't in when it boomed, don't go in.

Like Graham said, if you go and vary your allocation, always keep some % in bonds and equities. That way, you are always partly right
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Old 06-20-2014, 06:28 PM   #42
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That's the big one there. For good market timing you need to be (roughly) right twice.

If the market tanks, it goes fast and deep usually. If you weren't out when it started, ride it out. Conversely, if you weren't in when it boomed, don't go in.
...
And there is a caveat here. Suppose you were wondering what to do in December 1929. The year-to-date loss was -9% but Sept through Nov losses alone were -31%. So a big up and a big downer. You decide to stay in the market. By Sept 1930 you are up 2% from that December 1929 point. You congratulate yourself on staying the course.

Well it was a massacre after that. By Jan 1933 you would have lost -76%. Maybe a bit less in real terms because of deflation plus a balanced portfolio with bonds would have helped.

Ancient history but worth a thought. Bogleheads would have been jumping out the windows. Not likely to happen again ... I hope.
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Old 06-21-2014, 07:47 AM   #43
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We retired early on Jan 1 2008. Fortunately we had pensions and adequate cash holdings. A tad frightening then as we were and still are heavy equities. Started the first leg of 62/70 SS strategy a little over two years later. Now like other drops it is a yawn in the rear view mirror. The key for us was the pensions and staying the course.
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Old 06-21-2014, 08:58 AM   #44
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We retired early on Jan 1 2008. Fortunately we had pensions and adequate cash holdings. A tad frightening then as we were and still are heavy equities. Started the first leg of 62/70 SS strategy a little over two years later. Now like other drops it is a yawn in the rear view mirror. The key for us was the pensions and staying the course.
Congratulations... It's nice to hear that you were able to weather the 2008 crisis. As you mentioned, it was mainly due to the fact that you have a pension; I presume that if you had to dip into your investments, you wouldn't be as comfortable today. Many people these days don't have pensions and are forced to live off of their own 401k/IRA. So many people don't plan for their retirement and are forced to continue working. It's also nice to hear that you used the 62/70 SS strategy, way to go! Nice to hear success stories...
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Old 06-21-2014, 09:26 AM   #45
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+1. This is our plan. We will have enough in cash to cover projected withdrawals for 7 years, to keep from being forced to sell in a down market. I'm willing to accept the low interest on cash for peace of mind.
+1

I have $100K sitting in a virtually no-interest account and $600K in short term bond fund at Vanguard. That's seven years of living expenses. Balance of retirement fund is in stock index ETFs and mutual funds, across several indexes at Vanguard and Schwab. I plan to just ride it out. The hard part will be resisting the temptation, after a crash, to take $500K of the bond fund and steer it into the stock index funds....
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Old 06-21-2014, 09:27 AM   #46
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Jut out of curiosity, I went through my records to see how many times I've experienced a drop of ~20% or more.
Thanks Andre.

Would you mind sharing what type of portfolio you held. Asset allocation?
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Old 06-21-2014, 09:34 AM   #47
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Do you ride the market downturns out or do you have plans in place to pull a percentage of your investment out of harms way when the market drops a certain amount?
An active asset allocation rebalancing approach would have emphasized the corrections depending on your chosen cycle: quarterly versus annually, for example.
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Old 06-21-2014, 09:34 AM   #48
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Congratulations... It's nice to hear that you were able to weather the 2008 crisis. As you mentioned, it was mainly due to the fact that you have a pension; I presume that if you had to dip into your investments, you wouldn't be as comfortable today. Many people these days don't have pensions and are forced to live off of their own 401k/IRA. So many people don't plan for their retirement and are forced to continue working. It's also nice to hear that you used the 62/70 SS strategy, way to go! Nice to hear success stories...

We had a short term bucket but as you accurately note it was pension and subsequent SS that eased any pain from being severe. actually came out ahead because the real estate bubble enabled us to buy a second place on the cheap. We sold our pre retirement retirement home in March of 2007 in the DC suburbs at 95 percent peak and rented until our new home was done out of state. That home held 90 percent of value in a different market which was good. We benefited more than we were hurt because of timing and locations.
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Old 06-21-2014, 09:45 AM   #49
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It helps to have a sufficient amount set aside in cash or short term bonds to fund expenses for a couple of years (or more). This prevents having to sell equities during any 'market unpleasantness'.
The benefit of holding a large bucket of cash to "prevent having to sell equities during any market unpleasantness" is highly overrated IMHO.

For someone who covers expenses 50% pension/SS and 50% portfolio withdrawals, it's likely that interest and divs would cover withdrawal requirements. If not and you need to sell a few bux worth of something, I've never had a time when my broadly diversified portfolio didn't have something in it that wouldn't be painful to sell during an equity downturn.

I suppose for someone whose expenses are met 100% by portfolio withdrawals and the portfolio is non-diversified and consists completely of equities all of which have taken a big hit, then it may have paid off to have been holding a bunch of cash.

It would have been mighty expensive to have been holding cash beyond investment liquidity needs these past few years. For example, look at the opportunity cost of holding $100k in 2% CD's vs holding $100k in Wellesley the past 3 years. The difference would buy a bunch of groceries during the feared downturn.
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Old 06-21-2014, 10:00 AM   #50
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I do have 1 year's money in short term investment grade bonds. In the 2008 downturn I sold FI to fund spending.

The equities were going way below the target allocation but my policy is to not rebalance until the market has a sustained advance. The algorithm is tuned to what worked in rebounding markets as far back as 1929.
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Old 06-21-2014, 10:16 AM   #51
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The benefit of holding a large bucket of cash to "prevent having to sell equities during any market unpleasantness" is highly overrated IMHO.

For someone who covers expenses 50% pension/SS and 50% portfolio withdrawals, it's likely that interest and divs would cover withdrawal requirements. If not and you need to sell a few bux worth of something, I've never had a time when my broadly diversified portfolio didn't have something in it that wouldn't be painful to sell during an equity downturn.

I suppose for someone whose expenses are met 100% by portfolio withdrawals and the portfolio is non-diversified and consists completely of equities all of which have taken a big hit, then it may have paid off to have been holding a bunch of cash.

It would have been mighty expensive to have been holding cash beyond investment liquidity needs these past few years. For example, look at the opportunity cost of holding $100k in 2% CD's vs holding $100k in Wellesley the past 3 years. The difference would buy a bunch of groceries during the feared downturn.
We get about 1/3 of our living expenses from DW's part time small business and the rest from the portfolio. I intentionally went into ER with a bulked up position in cash and CDs partially because I do not like what the bond market offers and partially because I am trying to mitigate sequence of returns risk. If the markets remain benign in the next couple of years I will be increasingly comfy with drawing down the excess cash.
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Old 06-21-2014, 12:32 PM   #52
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We get about 1/3 of our living expenses from DW's part time small business and the rest from the portfolio. I intentionally went into ER with a bulked up position in cash and CDs partially because I do not like what the bond market offers and partially because I am trying to mitigate sequence of returns risk. If the markets remain benign in the next couple of years I will be increasingly comfy with drawing down the excess cash.
That's a good point. These days cash is not that far off bonds for investment returns. There may not be much cash drag for the next few years.
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Old 06-21-2014, 12:49 PM   #53
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I think it is possible to take a tidy sum out of markets knowing nothing more complex than if it is cheap consider it; if it is not cheap, pass.

You will miss most or all of the moon rockets, but almost never get skunked. Kind of like the difference between a baseball player who hits some homers, rarely gets a walk and whiffs pretty often, and a guy like the late Tony Gwynn or Pete Rose, who seemed almost to own a lease on the bases.

Ha
That always sounds reasonable to me, but when I've gone back and looked at inflation adjusted market charts, I have a hard time with it.

It seems there were many times that I would have felt that the market was 'hot enough - time to lighten up' (1997?), and it continued to rise for a year or three, and there never was a re-entry point at/below where I got out. Sure, you don't need to hit the home runs; avoiding some of a major downturn and capturing some of the ride up is a big win. I'm just not convinced that is assured by just moving in/out based on some measure of value. It's kind of a version of that old saying that 'the market can remain irrational longer than you can remain solvent'.

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The benefit of holding a large bucket of cash to "prevent having to sell equities during any market unpleasantness" is highly overrated IMHO.

For someone who covers expenses 50% pension/SS and 50% portfolio withdrawals, it's likely that interest and divs would cover withdrawal requirements. If not and you need to sell a few bux worth of something, I've never had a time when my broadly diversified portfolio didn't have something in it that wouldn't be painful to sell during an equity downturn.

I suppose for someone whose expenses are met 100% by portfolio withdrawals and the portfolio is non-diversified and consists completely of equities all of which have taken a big hit, then it may have paid off to have been holding a bunch of cash.

It would have been mighty expensive to have been holding cash beyond investment liquidity needs these past few years. For example, look at the opportunity cost of holding $100k in 2% CD's vs holding $100k in Wellesley the past 3 years. The difference would buy a bunch of groceries during the feared downturn.
+1 (or n+1 as a few others have chimed in by now).

Yep, with a conservative WR%, divs/interest make up a good portion of the withdrawal, so we are talking about maybe selling off maybe 1%-2%. And the fixed side would be expected to take less of a hit than the equities, so even normal re-balancing would have one selling off fixed, not selling equities while they are down.

-ERD50
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Old 06-21-2014, 01:02 PM   #54
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I fully support the wise rule of "choose an AA and then buy-hold-rebalance." But few rules lack any exceptions. In Fall-Winter of 2008, during the steady monthly drumbeat of bad financial news and significant market losses, I DCA-sold about 30% of my equity holdings (mostly mutual funds) in my IRA over a couple months. I had three related reasons: (1) the downturn in the markets was so profound that I was reasonably confident that the following months it would be lower still and I could buy back in at a lower price; (2) I wanted to generate cash in my IRA so I could buy when market was lower; (3) I wanted a hedge as the market slumped lower. By the time the DOW had gone down another 1000 - 1500 points, I was back in at roughly the same equity % as before. I probably captured about a 5-10% delta but, more importantly, I felt better during the depressing slide, knowing that I would be able to take some advantage from the falling markets.
Would I do it again? Not easily for sure. But today I have more cash on the sidelines that I could use to take advantage of another profound implosion.
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Old 06-22-2014, 11:17 AM   #55
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We based our retirement on the worst case scenario. The opposite has occurred to our financial situation. I believe in preparing for the worst and hoping for the best. Kraft dinner and cat food does not appeal to me.
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Old 06-22-2014, 11:29 AM   #56
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The benefit of holding a large bucket of cash to "prevent having to sell equities during any market unpleasantness" is highly overrated IMHO.

For someone who covers expenses 50% pension/SS and 50% portfolio withdrawals, it's likely that interest and divs would cover withdrawal requirements. If not and you need to sell a few bux worth of something, I've never had a time when my broadly diversified portfolio didn't have something in it that wouldn't be painful to sell during an equity downturn.

I suppose for someone whose expenses are met 100% by portfolio withdrawals and the portfolio is non-diversified and consists completely of equities all of which have taken a big hit, then it may have paid off to have been holding a bunch of cash.

It would have been mighty expensive to have been holding cash beyond investment liquidity needs these past few years. For example, look at the opportunity cost of holding $100k in 2% CD's vs holding $100k in Wellesley the past 3 years. The difference would buy a bunch of groceries during the feared downturn.
+1.....Exactly.....Makes a lot of sense to me
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Old 06-22-2014, 11:44 AM   #57
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That always sounds reasonable to me, but when I've gone back and looked at inflation adjusted market charts, I have a hard time with it.

It seems there were many times that I would have felt that the market was 'hot enough - time to lighten up' (1997?), and it continued to rise for a year or three, and there never was a re-entry point at/below where I got out. Sure, you don't need to hit the home runs; avoiding some of a major downturn and capturing some of the ride up is a big win. I'm just not convinced that is assured by just moving in/out based on some measure of value. It's kind of a version of that old saying that 'the market can remain irrational longer than you can remain solvent'.



+1 (or n+1 as a few others have chimed in by now).

Yep, with a conservative WR%, divs/interest make up a good portion of the withdrawal, so we are talking about maybe selling off maybe 1%-2%. And the fixed side would be expected to take less of a hit than the equities, so even normal re-balancing would have one selling off fixed, not selling equities while they are down.

-ERD50
Well, I would never try to convince you. The only perfect answer is to keep generating earned income, then any drawdown is an opportunity.

Ha
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Old 06-22-2014, 12:29 PM   #58
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Well, I would never try to convince you. The only perfect answer is to keep generating earned income, then any drawdown is an opportunity.

Ha
Oh, that's OK - I can't even convince myself!

I don't think it's even close to black & white, so I won't try to 'convince' anyone, it's more along the lines of just questioning it and thinking about it. And then different people might act differently, even with the same information - no real right/wrong here, IMO. I do think there are times when it clearly would have worked, and times where you could have been left behind, wondering what to do next.

I guess my feeling is, markets have always recovered in the past, the worst cases in FIRECalc are based on simple re-balancing, not any value judgement AA changes (and even re-balancing probably makes little difference). So I personally feel that going on the roller-coaster ride is preferable to trying to judge a decent AA change point, and possibly be left standing at the station if the train pulls out w/o me.

But I might still do it, depending on circumstances, and I'd be more likely to do it as I age (a highly valued market, with fewer years to support might leave me in the 'already won the game' camp).

Oh, I want to clarify something I said earlier (in this thread, or maybe another related one, I'm too lazy to go back and look) - when I talked about 'capital preservation', I didn't specifically mean trying to preserve a nominal $ amount, or a buying power amount (though that would be great, or even better - growing it), I only meant 'preserving some of my capital for as long as I might live', and with the unknowns, that also requires some buffer.

-ERD50
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Old 06-22-2014, 01:03 PM   #59
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Oh, that's OK - I can't even convince myself!

I don't think it's even close to black & white, so I won't try to 'convince' anyone, it's more along the lines of just questioning it and thinking about it. And then different people might act differently, even with the same information - no real right/wrong here, IMO. I do think there are times when it clearly would have worked, and times where you could have been left behind, wondering what to do next.

I guess my feeling is, markets have always recovered in the past, the worst cases in FIRECalc are based on simple re-balancing, not any value judgement AA changes (and even re-balancing probably makes little difference). So I personally feel that going on the roller-coaster ride is preferable to trying to judge a decent AA change point, and possibly be left standing at the station if the train pulls out w/o me.

But I might still do it, depending on circumstances, and I'd be more likely to do it as I age (a highly valued market, with fewer years to support might leave me in the 'already won the game' camp).

Oh, I want to clarify something I said earlier (in this thread, or maybe another related one, I'm too lazy to go back and look) - when I talked about 'capital preservation', I didn't specifically mean trying to preserve a nominal $ amount, or a buying power amount (though that would be great, or even better - growing it), I only meant 'preserving some of my capital for as long as I might live', and with the unknowns, that also requires some buffer.

-ERD50
Perhaps I should clarify what I meant when I said if it's cheap consider it, and if it isn't pass on by. Overall, I meant issue by issue, not buying or selling the whole market. Although buying the whole market is likely the best set-up. Buy the whole market when it is giveaway cheap , something that we haven't seen for a while.

Also I did not mean to suggest selling if one's investment "is not cheap". I personally will not buy unless I think something is cheap. However, I own things that are no longer cheap. There are many reasons not to sell- not least of which is taxes. If my investments were mostly tax deferred or tax free, I wouldn't own much equity now. But that is not the case, so I do own a considerable amount of equity now, although I have sold a considerable amount too.

Ha
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Old 06-22-2014, 01:28 PM   #60
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We decided to focus on cutting our spending since we do not have the personality types to withstand big market swings like many of you here. Good for you market investors but we realized we just don't have the stomachs for it.

First we cut enough off our expenses to ER in our fifties and then we realized we could cut enough more without lowering our standard of living to ER without investing much in stocks and still save money in retirement instead of depleting the portfolio.

So that is our current "job" - trying to figure out how to live better yet spend less, like in this article by Juliet Shor, author of the Overworked American:

"People who have more time at home and less at work can engage in slower, less resource-intensive activities. They can hang their clothing on the line, rather than use an electric dryer. More important, they can switch to less energy-intensive but more time-consuming modes of transport (mass transit or carpool versus private auto, train versus airplane). They can garden and cook at home. They can meet more of their basic needs by making, fixing, doing, and providing things themselves.

People are returning to lost arts practiced by earlier generations—woodworking, quilting, brewing beer, and canning and preserving. They are also hunting, fishing, and sewing. People engage in these activities because they enjoy them and they yield better-quality products or products that are not easily available. Producing artisanal jams, sauces, and smoked meats, or handmade sweaters, quilts, and clothing makes these pricey items affordable."

Work Less, Live More by Juliet Schor YES! Magazine

I know it isn't the right lifestyle for everyone, and many here may be living quite sustainably already, but if you can't stand the big market swings and have some pad in the budget, going to a more sustainable, lower environmental footprint way of life may be a way to get by in retirement with lower volatility and lower investment returns and not have to worry about any big market corrections.

The flip side of this is this article from a blogger who went back to work and realized just how expensive work can be because with a 40+ hour on site job plus commute you have to outsource so much of your life -

http://www.raptitude.com/2010/07/you...been-designed/
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