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Old 03-03-2009, 02:29 PM   #21
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Originally Posted by stephenandrew View Post
Agreed--sometimes we make the right decisions, but things don't work out. But I guess my main point is that I was dismissive of the potential level of market risk. Frankly, I never believed that it would be possible to incurr this kind of loss, which just reflects my ignorance I suppose. Maybe more than anything I am just venting, reflecting on the fact that given my age, and the amount of capital lost, that I may, in fact, have to start making some other plans regarding my future retirement, e.g. working longer. Its almost funny now, but when I projected out what I would have at age 56 with my excel worksheets, I used a "conservative" 7% annual gain for the next 10 years. My spreadsheet looks a little different now. Sorry for the moaning--yes, I know things could be worse---much worse. Fortunately for me (and I suspect most of you), investment returns are only one componet of financial success. Since we have no debt except a mortgage that will be paid off in May 2010 ($35,000 balance), things will be (should be?) fine. Maybe the real lesson here is that you can't control investment returns, but you can always LBYM.
Well, look at it this way: from this point forward, where's the best potential for earning 7% real return? I'll take my chances with equities.

FYI, we've also lost over $200K of our retirement funds so far.
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Old 03-03-2009, 02:53 PM   #22
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Mentioned elsewhere, I'm emerging from the recent unpleasantness relatively unscathed because I was always so risk averse. My roughly 20% stock position has became something less than 20% now. Oddly enough, I'm using this downturn to add to my equity position. I can't actually justify that move on the basis of "value" because earnings are down so much. Still, it just seems easier to buy in at half the cost of the recent past. Don't know if this is a good move in the long run, but the only thing that frightens me more than the volatility of the stock market is inflation. I don't know any other way to consistently outperform inflation (in the long run) than through equities. Sure, I could use TIPS (actually have a small non-qualified stash in I-bonds - wish I'd bought more when they were a good deal) but even they probably won't consistently protect against hyperinflation which may result from the "cure" for the recent unpleasantness.

Anyone else "rebalancing into" equities at this time? I assure you it's only because I consider doing nothing to be potentially worse. I look at it as the vaunted diversification which I should have done long ago (and I guess I'm glad I didn't!) I suppose rebalancing is not the appropriate term for what I'm doing since I've actually trying to increase my equity position, but I'll call it rebalancing if you will.

Feels pretty lonely, especially when I read this thread.
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Old 03-03-2009, 06:50 PM   #23
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...Feels pretty lonely, especially when I read this thread.
That's a good thing, not a bad thing.

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Old 03-03-2009, 09:04 PM   #24
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Yeah. LBYM really helps when it comes to rolling with the punches, whether its a job loss or a market crash. Knowing how to get by with less really is important.
I wonder how much of our spending is truly discretionary?

You need someplace to live, though if you are single or a flexible couple you could move into a group house. Still, that would likely cost within sevreal hundred dollars of your own apartment.

You need medical and other insurances. Most of us need a car. If you do not want to be completely out of touch with people you need telephone and internet service. For me, without a siking fund for auto depreciation this is nevertheless about 65-70% of my expenses. before I have purchased any food.

I don't want to discuss food because when I do someone will always wonder how I spend that much. For the most part, food costs are a function of where you live, unless you are a rice and beans kinda guy.

To make a big drop in expenses one would need to make big changes- like becoming an apartment resident manager, or a night clerk in a motel, or something that was likely not what he had in mind when he retired.

Ha
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Old 03-03-2009, 09:53 PM   #25
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When I first came to this forum 1-2 year ago, I was warned that my 65% cash position (CD's, I-bonds and MM) would be eroded by inflation....and I still hear that argument here. That may be true, but how much do you really lose to inflation with cash investments? Maybe 1-2% a year? My 35% equities have truly been eroded and it wasn't caused by inflation....it was caused by the riskiness of the stock market. What's worse? I'd rather lose 1-2% a year to inflation instead of losing 50% in a year to equity investments. If a person has enough put away towards retirement and will eventually have a decent pension or social security income, the "inflation loss" by investing in cash investments will not force a person to "lose out" to inflation. I always found the inflation argument a little hollow in that many people completely ignore the risk of the stock market. Even I ignored the risk to some extent with my 35% equity holdings. I guess I was trying to hedge my bet on my cash investments. I know there are people that will disagree with having a large percentage of their investments in cash....but every so often the stock market reminds people that it doesn't guarantee an annual 8-10% return.
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Old 03-03-2009, 10:20 PM   #26
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I know it does not help much when we watch the portfolio's shrink by the 100K++ units year to year.

There are only two things that keep me sane:

1. Going back to determine how much money I have saved over the years vs current balance. I still am at 10X what I invested thanks to the golden years of the 90's

2. Was "lucky" enough to get laid off in July 06, so I shifted, at the time, 50% of my portfolio to a CD ladder system. Now that portion is more like 67% of my portfolio, as the stock portion ( and darn financial preferred stocks) continue to drop everyday.

I think too many months have gone by to gain back any significant employment, so I just keep working my spreadsheets, we are going further into living below our needs, ie taking out less of portfolio, and somewhat hoping for the best.

A little scared with the recent Obama budget and what it will do to further decimate Wall Street though as that leg has to come back.

Sorry my two cents to keep sane.

Thanks
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Old 03-04-2009, 01:09 AM   #27
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When I first came to this forum 1-2 year ago, I was warned that my 65% cash position (CD's, I-bonds and MM) would be eroded by inflation....and I still hear that argument here. That may be true, but how much do you really lose to inflation with cash investments? Maybe 1-2% a year? My 35% equities have truly been eroded and it wasn't caused by inflation....it was caused by the riskiness of the stock market. What's worse? I'd rather lose 1-2% a year to inflation instead of losing 50% in a year to equity investments. If a person has enough put away towards retirement and will eventually have a decent pension or social security income, the "inflation loss" by investing in cash investments will not force a person to "lose out" to inflation. I always found the inflation argument a little hollow in that many people completely ignore the risk of the stock market. Even I ignored the risk to some extent with my 35% equity holdings. I guess I was trying to hedge my bet on my cash investments. I know there are people that will disagree with having a large percentage of their investments in cash....but every so often the stock market reminds people that it doesn't guarantee an annual 8-10% return.
DallasGuy, I'm basically with you. I'm not terribly concerned about 3% inflation. Even though I could be looking at a 30 year retirement, I built reasonable inflation into my plan which emphasized cash, non COLA'd pension and (eventually) "COLA'd Social Security. My big concern is some sort of hyperinflation (does anyone recall the late '70s/early '80s?). Whether hedging against that with a 25% to 35% equities will be beneficial, who knows? It didn't help much at the time of the last big inflation, but equities recovered very nicely as the inflation was beginning to moderate IIRC. So I guess I'm just trying to cover as many bets as possible. Believe me I prefer cash, but I suppose I'm looking for some insurance as well. Whether that's equities or not, we won't know until it's too late. Just don't know what else to use as insurance.
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Old 03-04-2009, 10:08 AM   #28
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I wonder how much of our spending is truly discretionary?
Right. Frugalistas have an especially small amount of discretionary spending. There's very little here that's discretionary:



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Old 03-04-2009, 10:38 AM   #29
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Say they invested at 5% for 25 years, and you invested at 11% for 25 years. Say you all invested 25K per year just to keep it simple.
You end up with 2.8mm. Discount that 50% (really less if you are diversified, but let's assume all stocks) for the current recession. With 1.4mm to their 1.2mm you still win.
[QUOTE=JOHNNIE36;790640]See your logic Rich, but the 11% you use is questionable. I've heard that the market has returned on average 8% since its inception. That was some years back and don't know how recent trends have affected that average. Are there any recent figures published?/QUOTE]
Took the words right out of my mouth, Rich.

Spouse and I have been investing regularly and tracking the results since our 1986 marriage. Across all asset classes of equities, equity-income mutual funds, money-market funds, and CDs we've still achieved a 20+-year record of just under 11%. And that includes the recent carnage.

Too many investors are confusing short-term volatility with permanent loss.

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Anyone else "rebalancing into" equities at this time? I assure you it's only because I consider doing nothing to be potentially worse. I look at it as the vaunted diversification which I should have done long ago (and I guess I'm glad I didn't!) I suppose rebalancing is not the appropriate term for what I'm doing since I've actually trying to increase my equity position, but I'll call it rebalancing if you will.
Feels pretty lonely, especially when I read this thread.
We are. We finished our rebalancing last year and now we're just watching for whatever goes out of the asset-allocation bands. We're also consuming our two-year cash stash instead of replenishing it.

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My big concern is some sort of hyperinflation (does anyone recall the late '70s/early '80s?). Whether hedging against that with a 25% to 35% equities will be beneficial, who knows?
Just don't know what else to use as insurance.
I was there, and I have the same concerns.

But I think prolonged 3% inflation is much more dangerous than a few years of the double-digit stuff. Everyone reacts to hyperinflation but nobody pays much attention to the minor hemmorhages... until it's too late.
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Old 03-04-2009, 10:50 AM   #30
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[quote=Nords;791340]
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See your logic Rich, but the 11% you use is questionable. I've heard that the market has returned on average 8% since its inception
There is merit for both of those numbers...

I believe that the 11% quoted is a (long term) nominal return.

The 8% quoted is the (inflation adjusted- long term) real return.

depending on your context, either quoted return is useful. However they are not interchangeable and should not be confused.
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Old 03-05-2009, 09:28 AM   #31
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Hmm. Maybe.

Say they invested at 5% for 25 years, and you invested at 11% for 25 years. Say you all invested 25K per year just to keep it simple.

They end up with 1.2mm.

You end up with 2.8mm. Discount that 50% (really less if you are diversified, but let's assume all stocks) for the current recession. With 1.4mm to their 1.2mm you still win.
Even giving you the 11 percent return for equities, fixed income investments could easily exceed 6 percent over the last 25 years
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Old 03-05-2009, 10:53 AM   #32
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Yeah. LBYM really helps when it comes to rolling with the punches, whether its a job loss or a market crash. Knowing how to get by with less really is important.
That is so true. No matter how much we spend or don't spend, we can usually figure out a way to spend less if we sincerely try. Very few of us are living beneath the poverty income limits (and plenty of others in this country are).
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Old 03-05-2009, 12:18 PM   #33
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I wonder how much of our spending is truly discretionary?

You need someplace to live, though if you are single or a flexible couple you could move into a group house. Still, that would likely cost within sevreal hundred dollars of your own apartment.

You need medical and other insurances. Most of us need a car. If you do not want to be completely out of touch with people you need telephone and internet service. For me, without a siking fund for auto depreciation this is nevertheless about 65-70% of my expenses. before I have purchased any food.

I don't want to discuss food because when I do someone will always wonder how I spend that much. For the most part, food costs are a function of where you live, unless you are a rice and beans kinda guy.

To make a big drop in expenses one would need to make big changes- like becoming an apartment resident manager, or a night clerk in a motel, or something that was likely not what he had in mind when he retired.

Ha
Ha, you make some good points. For DH and I, we really don't have much discretionary spending because we live a modest, but comfortable, lifestyle. I suspect many of the folks on this board are much the same. In the area we live (Northern Virginia) we see plenty of people with tons of discresionary spending. These are the ones who bought gigantic homes, get a new high end car every few years, frequently go on expensive trips, plunk down big bucks at high end restaurants weekly and buy lots of very expensive merchandise. I have a friend who paid $400 for a purse. Hey, DH and I like nice things and do splurge once in a while. But $400 for a purse, a $50,000 car and a home for two with 6 bedrooms and 4 bathrooms? You wouldn't believe how many compliments I get on my $12 Target purse and DH still loves his '94 Ford pick up
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Old 03-05-2009, 06:42 PM   #34
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Ha, you make some good points. For DH and I, we really don't have much discretionary spending because we live a modest, but comfortable, lifestyle. I suspect many of the folks on this board are much the same. In the area we live (Northern Virginia) we see plenty of people with tons of discresionary spending. These are the ones who bought gigantic homes, get a new high end car every few years, frequently go on expensive trips, plunk down big bucks at high end restaurants weekly and buy lots of very expensive merchandise. I have a friend who paid $400 for a purse. Hey, DH and I like nice things and do splurge once in a while. But $400 for a purse, a $50,000 car and a home for two with 6 bedrooms and 4 bathrooms? You wouldn't believe how many compliments I get on my $12 Target purse and DH still loves his '94 Ford pick up
Unfortunately those friends were driving the economy, and on a global scale. The longer this takes to shake out the more I think people will resemble those on this board - LBYM and save. The implications for economic growth down the road could be significant. But then again I could be wrong as one should never underestimate the power of the American consumer...

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Old 03-05-2009, 08:04 PM   #35
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It's occurred to me that in the past 6 months, I've lost far more money that most of my friends have ever saved. I keep telling myself that it's still good that I've saved so much, but... I do find it pretty depressing. Or as the OP says, most humbling. Oh well, life goes on...
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Old 03-05-2009, 08:16 PM   #36
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See your logic Rich, but the 11% you use is questionable. I've heard that the market has returned on average 8% since its inception. That was some years back and don't know how recent trends have affected that average. Are there any recent figures published?
Just did the calculations today. The S&P 500 has returned 9% (with reinvested dividends) for the 100 years from Feb 1909 to today. So even with the current 50%+ sell off, the long run average is still 9%.

I'll be back with more to say on future return expectations in a little while, but suffice it to say, they're higher than the long-run average.
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Old 03-05-2009, 09:56 PM   #37
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I think the point of the post was to vent some of the pain of watching our financial lives go off the tracks, not to quibble over the long-term return of the stock market. Not only are so many lives messed up by this, but so many of the things we bought into now seem ridiculous, or maybe just a bit hollow. As one little example, the importance of low-cost investing - those 20 basis points I saved in my REIT index fund somehow didn't protect me while the thing dropped 60%.

The last six months has just flat out sucked. Maybe we Americans were living beyond our means, but that doesn't lessen the pain. Still, we adjust and move on, finding some silver linings, older and maybe wiser.

Sent out my first job application today after 3 years ER'ed.
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Old 03-05-2009, 10:04 PM   #38
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The last six months has just flat out sucked. Maybe we Americans were living beyond our means, but that doesn't lessen the pain. Still, we adjust and move on, finding some silver linings, older and maybe wiser.
Yep.

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Sent out my first job application today after 3 years ER'ed.
If you'd like to change your member name to "lifecouldbebetter", let me know.
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Old 03-05-2009, 10:15 PM   #39
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Yep.


If you'd like to change your member name to "lifecouldbebetter", let me know.
You're such a ball buster.
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Old 03-05-2009, 10:15 PM   #40
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I like the concept. Can I have two names, one for the good days, one for the dark ones?
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