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Old 08-25-2015, 01:50 PM   #41
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I can't even begin to thank each and every one of you for your thoughts, advice, humor and liquor recommendations... =D

My Internet service went down (after the market closed...) and I couldn't respond yesterday. I plan to reread each one of your comments.

I wasn't in jeopardy of selling. The one thing I do have going for me is that I may "feel" reactive but I'm not a reactive seller, thank God. But I think it was seeing those numbers in our Fidelity account go lower and lower that made me panic in the form of "good grief, what if we just retired?" "What if it keeps sinking?" blah, blah, blah. In some ways it is a good exercise for me to help me look at my risk tolerance now, vis a vis a retirement horizon vs my risk tolerance with a long term working perspective in mind. I've always been on the aggressive growth side of stocks. My individual portfolio is 100% in stocks while our 401K is 88% stocks and 12% in a US Debt Index Fund. Another smaller, older 401K account is 100% invested in stocks.
I hate dealing with the 401K options probably b/c I have a better feel for individual stocks than funds. My 401K is down 5% for the year (yikes!!) but even after the bloodbath my individual stocks are up 19% overall. Granted, I'm not sure how to calculate my year to date percentages for my individual stocks so it's not a fair comparison. That is my total % increase since I bought the stocks (which I add to now and then). I just am looking at my Fidelity account and what it tells me.

Someone pointed out that losing 100K was really just like losing $4,000 a year. That one thing made me feel strangely optimistic. We aren't in general big consumers but we do have considerable expenses in maintaining both our modest house in the city and our "continuously being fixed up" farm an hour and a half away. It's a constant mind game b/c selling the farm would be a no-brainer in terms of decreasing expenses but we are wanting to have the option of retiring there for a good 10 years and keep our house in the city rented for cash flow during that time. We are in a highly sought after area of town so it would be easy enough to rent it out and give us the option of moving back to it if we got sick of mending fences, fighting fire ants, and gathering eggs.
I'm getting off topic but what I really wanted to say was thank you all so much.

I will post again and ask my AA questions when I get back from visiting my parents next week, if not before.
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Old 08-25-2015, 04:09 PM   #42
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Originally Posted by steady saver View Post

Someone pointed out that losing 100K was really just like losing $4,000 a year. That one thing made me feel strangely optimistic. We aren't in general big consumers but we do have considerable expenses in maintaining both our modest house in the city and our "continuously being fixed up" farm an hour and a half away. It's a constant mind game b/c selling the farm would be a no-brainer in terms of decreasing expenses but we are wanting to have the option of retiring there for a good 10 years and keep our house in the city rented for cash flow during that time. We are in a highly sought after area of town so it would be easy enough to rent it out and give us the option of moving back to it if we got sick of mending fences, fighting fire ants, and gathering eggs.
I'm getting off topic but what I really wanted to say was thank you all so much.

I will post again and ask my AA questions when I get back from visiting my parents next week, if not before.
Good for you not really being tempted to sell. The next education phase for an investor is to respond to market declines by wanting to buy. Market declines always make me feel like bargain shopper on after Xmas sell.

(Note those of you were around during 2008/09 can skip this post).

The key to feeling this way is to understand that 90%+ of market declines are pure noise and have nothing to do with any type of economic activities.

1. You don't lose anything until you sell.

Now this isn't some trite saying it is reality.
I'm go to strongly disagree with the statement that a $100,000 paper loss means $4,000 less income/year. In means no such thing except for situations like the great depression and the great recession where there was a real economic link between the market decline and the stock market.

Early last week the to total value of the US stock market was just over 20.8 trillion. This means that if you owned ~$208,000 of a total stock market fund, you owned one hundredth million share of all the US public companies.

The biggest of those companies is Apple. Apple sells about 200 million iPhones a year. This means as owner of one hundred millionth of Apple that you are entitled to the profits of 2 iPhone sales each year. (Maybe this makes you feel better about paying Apple's crazy high prices)

Now this last week or so your 208K of total market stock has declined by about 10% to ~$187,000 but your percentage ownership in Apple and almost all the thousands of other companies remains constant. Well maybe the troubles in China mean less iPhone sales in China?

Not according to Apple CEO Tim Cook who said Apple sales in China are doing great. Or take McDonald who sells 75 hamburgers a second or ~2.4 billion a year, your share of MCD means you get the profits* of 24 burger/year. McDonald China exposure is relatively small, KFC is the fast food of choice in China. Now it is true that economic slow in China will have an effect on the short term profits of US companies, but the impact is fractions of a percent, nothing like the 10+% decline we've seen.

Now as somebody in the accumulation phase, this decline is a great buying opportunity. Now perhaps it will get even better in the next few months, for your sake I hope so.

Now don't get me wrong the market reaction to some events is perfectly rational like the housing crisis. It is entirely possible the I'm completely out to lunch and China is on the verge of an economic collapse. iPhone sales will slow, as will auto sales (China is the biggest auto market),and KFC will sell less chicken and less rice bowls. If that is the case than your one hundredth million ownership in US companies is worth less and your retirement income truly is lower. But I'm skeptical that world economy has really declined by 10% over the last couple of weeks.

2. Stocks aren't cheap but after the correction they no longer are really expensive either.


*Technically the value of a company is equal to the present value of its future dividends payments not profits but since they are related I'm using profits.
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Old 08-25-2015, 04:21 PM   #43
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My two cents - you've already (based on your initial post), pushed off the idea of retirement from JAN 2017 to a later date - when your DH is already miserable. Why? You can do that forever (and have been for years by your own admission) - keep pushing retirement off. I'd rather deal with the job issue than face the idea of continuing to push off retirement and be miserable for 3 more years. Life's too short.
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Old 08-25-2015, 04:27 PM   #44
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I can say I really did not like the follow-through today. I thought that there was a major capitulation yesterday.

Obviously, some additional sellers showed up with the attitude "If I can only get back to where I started, I am out". And then the selling resumed. Maybe even some short term profit taking was realized.

In the end, it's only money. Anyone entering retirement should be aware that these things have happened in the past, and will happen again. Be prepared. Have enough cushion. Work OMY if you have to to get a solid FIRE plan.
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Old 08-25-2015, 04:40 PM   #45
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Old 08-25-2015, 04:41 PM   #46
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I was around 70/30 when the 2008-09 ursa major hit. I didn't get out early (or late) in the bear market, but I held out and Mr. Market turned me into about a 60/40 AA without any rebalancing. Well, I decided 70/30 was a little more risk than I wanted to handle in a really bad market, so I waited for the market to recover until I was close to 70/30 again... then I rebalanced into a range of 55-60% equities. I've found it much easier to weather this one as a result.
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Old 08-25-2015, 04:56 PM   #47
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I'm go to strongly disagree with the statement that a $100,000 paper loss means $4,000 less income/year. In means no such thing except for situations like the great depression and the great recession where there was a real economic link between the market decline and the stock market.
Well, a lot of us use 4% or 3.5% or whatever % of assets for withdrawals since it's a lot easier than trying to figure out what the net profit is on 2 iphones and whatever other part of each company we own through a mutual fund.

I don't think you can ignore the $100K paper loss but count a $100K paper gain on a stock surge that may have overshot it's value. Things tend to balance out over time. The market will recover, sooner or later, because the overall trend of the market is upward, along with the US and world economy. But it's not clear whether this was an unwarranted drop that will recover quickly, or a correction to a market that was too high, and will only recover through normal market growth over a longer time.
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Old 08-25-2015, 05:05 PM   #48
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Guess I'm one of the lucky ones - I've been checking my personal capital daily looking for an influx of money for another reason (hasn't hit yet, dammit!) and have been totally non-plussed by the 9% paper losses in total value thus far, though I did *ahem* "tactically rebalance" my TSP into more C and S yesterday...
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Old 08-25-2015, 05:06 PM   #49
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I was nervous. I went shopping. In Home Depot I saw A Chinese man spend money.

I feel better now.
quote of the day! thank you!
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Old 08-25-2015, 05:09 PM   #50
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It may be silly, but I long ago devised a way to ignore market swings like this.

When I reached a portfolio balance I was comfortable with, I decided it would be my benchmark.

Ever since then, whenever I do any sort of projection (FIRECalc, etc.) I use that number as my portfolio.

Over time, my actual portfolio has varied quite a bit, and reached about 123% of my benchmark at its high point. I just ignored that, considering it my cushion against volatility.

The recent dive has brought it back down to only about 111% of my benchmark, so I feel very comfortable ignoring it.

Sure, I could increase my spending commensurate with my actual portfolio, but leaving my benchmark in place lets me sleep like a baby every night, regardless of what the market is doing.
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Old 08-25-2015, 05:10 PM   #51
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I was nervous. I went shopping. In Home Depot I saw A Chinese man spend money.

I feel better now.
We need to send somebody over to China to see if the Chinese there are spending money. They are the ones whose frugality causes all this problem, not the Chinese living over here.
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Old 08-25-2015, 05:38 PM   #52
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Just to clarify my last comment, I don't mean one should immediately reduce their budget by $4000 if you lost $100K in the past week. But if you do VPW, at whatever your year end is, you certainly would account for it. If you use a X% withdrawal rate + inflation you would ignore it and hope it is noise that gets swallowed up over time, assuming you were already in retirement. However, if I had retired this year, I might adjust spending or at least watch how this plays out to avoid starting off with a bad sequence of returns.
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Old 08-25-2015, 06:03 PM   #53
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My two cents - you've already (based on your initial post), pushed off the idea of retirement from JAN 2017 to a later date - when your DH is already miserable. Why? You can do that forever (and have been for years by your own admission) - keep pushing retirement off. I'd rather deal with the job issue than face the idea of continuing to push off retirement and be miserable for 3 more years. Life's too short.
We haven't pushed it to 2018 yet but are considering it and were considering it before this recent drop. The Jan.2017 date was the first date we ever really set and we did that this year.

DH isn't currently miserable, just in status quo mode- but he has definitely wanted to quit for a few years now - many other things he'd rather do. However, many many factors are always involved right? One of those is that one has to be willing to at some point to let go of certain self-imposed constraints and just do it. That's hard for him to do. Risk is just more difficult for some than others. It's all good. I admire his sense of responsibility and concern - he's a super great guy. He knows that as far as I'm concerned he can pull the plug anytime. I've always felt that way and have always let him know that And you are absolutely right, life can be shorter than we think. We've experienced the death of a close friend (our age) and a 19 year old niece in the past year. I know others have probably experienced similar losses. It does put things in perspective. I'm ready for him to pull the plug when he's ready. I like what I'm doing so I don't feel the same stress.
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Old 08-25-2015, 06:09 PM   #54
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Not chilled

I semi-retired a month ago and had been curious about my reaction to something like this, which has been pretty restrained. I saw it before in '02 and '08-'09, which does help.

I had cash in a rollover account used for trading and picked up small positions in GM and WNR in what I considered to be pretty low prices. I had been looking at a car manufacturer and a refiner for 6-12 months and finally got a chance to get them at more reasonable prices.
I'm supposed to rebalance at -3% or +4% stock allocation, with the center line at 62%, so another 2-3% move down by the market and I'll need to pick up a stock mutual fund--probably add to the Europe fund.
It helps to think about what I've wanted to purchase but haven't been able to either because of rich valuations or the allocations are fine.
I increased cash back early in the year when biotech ran up, and had left it in cash not really being thrilled about bond values and wanting 2 years of cash available (it's at 3 years if you count the short duration fund), so there is plenty of dry powder.
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Old 08-25-2015, 06:10 PM   #55
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I can say I really did not like the follow-through today. I thought that there was a major capitulation yesterday.

In the end, it's only money. Anyone entering retirement should be aware that these things have happened in the past, and will happen again. Be prepared. Have enough cushion. Work OMY if you have to to get a solid FIRE plan.
I think that's the key there - feeling comfortable with your cushion. It may just be that we need more of a cushion to be able to sleep at night. Either that or sell the farm -literally
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Old 08-25-2015, 06:14 PM   #56
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Just to clarify my last comment, I don't mean one should immediately reduce their budget by $4000 if you lost $100K in the past week. But if you do VPW, at whatever your year end is, you certainly would account for it. If you use a X% withdrawal rate + inflation you would ignore it and hope it is noise that gets swallowed up over time, assuming you were already in retirement. However, if I had retired this year, I might adjust spending or at least watch how this plays out to avoid starting off with a bad sequence of returns.
It made total sense to me RunningBum. And it did put things into something tangible I could think about. Not spending money is easy for me when it comes to "extras". I'm just trying to work down my "fixed" expenses. Once I get two kids out of college I will feel like I got a raise. Assuming of course, that they don't move back home
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Old 08-25-2015, 06:24 PM   #57
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I do a couple things to help me stay calm during these hectic times:

A) Review my investment plan rules. I've included mine below and yes some of them overlap)
Personal Top 10 for a successful Plan
1) Spend less than you make (LBYM)
2) Stick to your Investment Plan (review annually)
3) Diversification / Asset Allocation (non-correlated asets. A piece of all markets)
4) Keep Turnover low (reduces costs, taxes and bad mistakes)
5) Low cost Index Funds (Vanguard Admiral Shares are preferred)
6) Keep taxes low (Index funds are tax efficient, low turnover keeps taxes low, rebalance 1 year +1 DAY for LT cap gains)
7) Discipline (See #2) Think long term when the market goes south and stick with the plan!
8) Don't look at your portfolio daily. Once fully invested, only look at the market monthly.
9) Keep it simple, don't get exotic, don't chase trends and don't be greedy
10)Harvest RSU/ESPP 2x per year- Keep this below 10% of NW.

B) Compare my portfolio versus the market. I use Personal Capital which is easier than trying to track everything in my spreadsheet. Over the last 30days my portfolio is down 5.9% versus 10.2% for the S&P 500. Year to date my portfolio is down 5.2% versus 9.3%. I am pretty well diversified with a target 60/40 mix of stocks and bonds, so it makes sense that my portfolio doesn't track the S&P500 (up or down). Due to my plan above, my investment portfolio is flat on the year.

It sucks seeing your portfolio drop, regardless of its size. But I found having a written plan helps me a ton. I hope this helps others.
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Old 08-25-2015, 06:32 PM   #58
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Just to clarify my last comment, I don't mean one should immediately reduce their budget by $4000 if you lost $100K in the past week. But if you do VPW, at whatever your year end is, you certainly would account for it. If you use a X% withdrawal rate + inflation you would ignore it and hope it is noise that gets swallowed up over time, assuming you were already in retirement. However, if I had retired this year, I might adjust spending or at least watch how this plays out to avoid starting off with a bad sequence of returns.
You really don't know VPW in my family. We can cut back to stupid levels very quickly.... increase our spending... What is that? DW does not know what that means. Our spending is dropping and we had planned a 1.5% WR... go figure.
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Old 08-25-2015, 06:34 PM   #59
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Well, a lot of us use 4% or 3.5% or whatever % of assets for withdrawals since it's a lot easier than trying to figure out what the net profit is on 2 iphones and whatever other part of each company we own through a mutual fund.

I don't think you can ignore the $100K paper loss but count a $100K paper gain on a stock surge that may have overshot it's value. Things tend to balance out over time. The market will recover, sooner or later, because the overall trend of the market is upward, along with the US and world economy. But it's not clear whether this was an unwarranted drop that will recover quickly, or a correction to a market that was too high, and will only recover through normal market growth over a longer time.
I agree that you should treat paper gains and losses the same. I also think for planning purposes a 3.5-4% withdrawal rates is just fine. 4% for somebody retiring in their 60s, 3.5% for somebody in their 50s.
Rather than calculating the profit of each iPhone, I find looking at dividends and interest generated by a portfolio is the right way to look at a floor for your income. Then add an additional 1-1.5% withdrawal to account for growth and spending down your capital.

My main point is that correction over the last week in all likelihood had minimal impact on the income a portfolio generates. So if the OP was planning on retiring with a 3.5% last week than raising that withdrawal rate to 3.8% (~10% more) this week is just fine. Now there are limits to this if the market gets cut in 1/2 than I wouldn't advocate a 7-8% WR because probably an S&P < 1000 is going mean sharply lower corporate profits.
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Old 08-25-2015, 09:04 PM   #60
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Back in 2008 we were about 90% in stock funds (all in 401ks). DH was 61 and I was in my mid-50s and we thought we were close. I had to sit there and watch our portfolio go down 45%. That was not a fun time.

I did learn some things from it:

1. Our asset allocation was bad for someone who wanted to soon retire. It was too heavy in equities. I moved it to about 60/40% (no not at that bottom of the market, I did that later).

2. It made me feel better to just not think about all this too much. I just sort of pretended like I didn't have the money.

3. By early 2010, things were looking good again. DH went ahead and retired in the middle of the year and I semi-retired.

4. This unpleasantness the past few days is, well, nothing compared to that. I'm not happy about it, but I am -- in a way -- relieved. That is, I am hopeful that this is a needed correction and that is better to go through it now and get it behind us. Maybe this time will be different and all that, but I feel OK. (We now have a 50%/50% allocation so that smooths out these kinds of swings)
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