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Perspective - Alternative Plan?
Old 11-22-2008, 03:48 AM   #1
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Perspective - Alternative Plan?

I feel a bit self centered lamenting my losses, but I'm craving a little new perspective, some peace of mind, and I'd like to tell my story, my plan, what happened and what I'm experiencing and ask for some down to earth advice on moving forward.

We recently received an inheritance and at age 42 I had I million cash plus a paid off 230k home. Managing that much felt a little outside our comfort zone and my past stock picking (average to below average) left me with alot of self doubt in managing that much so we hired a top notch financial planner in our town. Our plan was to FIRE at age 50-55, when our little one went off to college, and we had 2 million net worth. The FP really did a decent job, by most standards, or at least it appears that they did. We are in a "growth and income" strategy. Though our "FIRE" date was fairly soon, 10 years give or take, he felt we needed some decent stock exposure due to our long retirement time (age 50-90 we hoped!!) -- he had us nicely indexed, around 70-30 stock bond, mostly vanguard type ETFs, etc. with enough cash when needed. Our strategy included paying myself and my wife and contributing 10,500 of each paycheck to a SIMPLE retirment plan, then replacing that money from the cash portion of our portfolio.

Now, a year later, our 1 million portfolio is around 580,000 as of yesterday morning. Every scrap of planning, right down to the DECADE we retire seems to be gone. I just dont' know what to do. It's hard because I know we're STILL well off, better off than most people in the world, but that doesn't change how I feel. Our pain is our pain. I've kept a cool head so far, well that is not true, I've "acted" how a person with a cool head would act -- I'm staying put for now ... I can only hope and pray that history repeats itself and the next few years will be above average years for stock market returns.

I've been avoiding realestate because our plan was not to be tied down. I own two small business and have strategies setup so I only need to work 20 hours per week, give or take, so I can keep that up indefinitely or work more hours -- that might be good for me! But I just have an overwhelming feeling, like I've had for the past couple of years, that there are better ways than the stock market.

I'd love to hear some stories, some feedback, some advice, some perspective. I'd also like to help someone else who's feeling knocked over.
Thank you in advance.

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Old 11-22-2008, 04:15 AM   #2
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I think many of us are in a similar situation.

Not sure of your current age... but if you are 42, you still have 8 - 13 years before your planned ER date. That is quite a bit of time for your portfolio to recover. If you were at 70/30, you are probably better off than many people.

IMO - Stick with the plan of a diversified portfolio of securities and rebalance to targets (based on time interval or % out of balance). Right now I am just waiting for some of the smoke to clear to rebalance. I am sticking with the plan.

My ER target date is in 3 years. I am asking myself the same question... Will I (and the market and economy) be in good enough financial shape to stay on plan for ER.

The advice I adhere to (or at least try)... is:

  • Try to not get rattled and make sudden moves
  • Position the portfolio well in advance for our life stage... (be conservative regarding the portfolio and timing)
  • Have the portfolio position in such a way that I am not forced into sudden moves
  • Stick with a tried and true approach that is reasonably conservative (i.e., measured risk).
  • Don't get too fancy and invest in securities or situations that I do not understand. When I say understand... I am not talking conceptually... but really have information about it and understand it.
  • Educate myself on the subject. That helps me to be more confident in my decisions.
  • Seek advice from others (that have knowledge and perspective) to do a sanity check when making investment decisions... (the reason I read this forum and others). But... caveat emptor.. not all advice is worth following... do not follow it blindly.

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Old 11-22-2008, 04:39 AM   #3
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I know it's hard not to freak out, but just keep on track and the market will rebound. Eventually you will at least get all your money back, even if you didnt make a lot of money on top of that. I would say by that time though, you should definitely move almost all (if not all) to low or no-risk vehicles. You dont; want ot be at the mercy of the market when you are trying to relax and enjoy yourself.
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Old 11-22-2008, 05:05 AM   #4
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Hotwired - stay the course. We are in a similar situation, but we are a bit older and our losses are a lot larger (3x). Again, stay the course. If you bail now, and the market turns up, you will be locking in your losses, and thus moving your timing out even further.

Find Joy in the Journey...
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Old 11-22-2008, 05:31 AM   #5
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I agree with the others - stay the course. You haven't really lost anything unless you sell.
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Think about 5 years from now
Old 11-22-2008, 05:35 AM   #6
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Think about 5 years from now

Originally I said 3 years, but now I have upped it to 5 years. But at any rate, if the DOW is at 12,000 or 14,000 or 16,000 in 5 years, will you feel better. No one knows, but if it recovers, or somewhat recovers, not selling will give you a chance to make back your losses. Selling now, and you will probably never make it back.

How do I feel? Like the captain of the Titanic! On the strongest ship that could not sink, with history and all rational thought behind me, yet it sinks anyway. For years I have said stock market, stock market. Ride the waves, stay the course.

Yet buy high, sell low is still out there. I do not want to do that, and neither should you. Considering what I have lost, I am holding up very well. Consider how you would feel if someone hacked your investment account and took out half the balance. You have to live your life and hope to get the money back.

All along I knew there were risks, and we had a nice runup from 2003-2007. This was just much quicker and severe than any of us anticipated. Has the world fundamentally changed? I do not think so. I heard 100 stocks in the S&P 500 are now selling below $10 per share. Some of those companies must be stronger than that.

The market usually anticipates, and likely has already foreseen even a bigger mess than we are currently in. Hopefully, it will see an end to this sooner, and begin a slow journey back up.

I feel your pain; I feel my pain, but I am not jumping off any bridges either. And don't worry about feeling self centered. We all need to discuss our feelings, not just investment advice. Writing this to you has helped me with some perspective as well.
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Old 11-22-2008, 06:00 AM   #7
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You do have time on your side. Keep working, keep contributing and there is a good chance you will recover. Your FP gave you the normal advice given to most your age. In my case, I retired a little over a year ago and feel very uneasy about my portfolio. But I too will inherit a good chunk of money in a few years so that will help smooth out my situation. Thank God that money is in cd's! But until then, as my portfolio recovers, I will be moving into a much more conservative AA. You probably don't need to go as conservative as I plan, but you might consider a more conservative AA as your portfolio recovers.

Good luck!
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Old 11-22-2008, 06:13 AM   #8
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Believe me, we all share your pain, you are not alone. I was in the market in 1987 with almost 100% equities when my holdings declined by over 20% in one day. I did not sell (in fact I deployed what cash I had the day after), and I was rewarded handsomely for not bailing. I was in the market, now with considerably more net worth than 87, through the dotcom bubble early this decade. Again sold nothing, just continued to DCA in adjusting AA along the way and was again rewarded handsomely for not bailing. This time I've lost more, more quickly, but again I will not sell and in fact deployed what little cash I had to work with (about 3% of net worth) a few weeks ago. It may take a while, but my net worth will come back (I'm 54 FWIW). If I have to work longer before retiring, so be it, we are fortunate to be well off compared to most.

You may have to work longer than you originally planned too. That's not a hardship, in most countries in the world, most people still work their entire lives without any chance of ever retiring. That you will ever retire is an advantage that most of the world's people will never know.

I have read Bogle & Bernstein enough that I am committed to low expense, smartly diversified come what may. I am also close to 70/30 eq/bonds. I am not inclined to sell off, but if I was I would simply re-read The Four Pillars of Investing again and I'd come to my senses.

Every time there's a market selloff, people make a convincing case for 'this time it's different' - but in retrospect it never is. Sure the details change, but the outcome never changes. If somehow it is really different this time, and I don't believe it is, there was no safe place to be...

If you do sell, you need to fully understand what it means to lock in your losses. You have not lost anything yet, it's all paper losses. On the day you do sell, you have in fact forever taken the loss though. I'd suggest you think long and hard about that. Neither you, nor your FP, can know when to get back in. You could time it right, you will probably conclude you know more than everyone else. But sooner or later, you will be wrong, at considerable expense or lost opportunity. The investing world is littered with market timing casualties, don't be one of them.

So put me in the stay the course camp as well. It has rewarded me handsomely over and over, even if it was scary/gruesome some years.

And if you own your own businesses, you have more influence over your income than many of us, a distinct advantage.
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
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Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 11-22-2008, 06:13 AM   #9
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I was going to reply with some sound advice, like build a diversified portfolio, continue to contribute to your retirement accounts, and rebalance the portfolio at least annually, but some of our other contributors have beaten me to it. The advice you'll find from people on this forum is redundant, steady, and right on the money, regardless of euphoria in the market or extreme pessimism. I have also seen my retirement portfolio drop significantly in the last two or three months, but I am sticking to my plan. Hang in there.
Retire date sometime in 2017
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Old 11-22-2008, 06:21 AM   #10
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Originally Posted by hotwired View Post
I feel a bit self centered lamenting my losses, but I'm craving a little new perspective, some peace of mind, and I'd like to tell my story, my plan, what happened and what I'm experiencing and ask for some down to earth advice on moving forward.
Join the club, we're trying to live on our investments that have taken a 40% hit. If your FP isn't managing your money, rebalance over the next few months. That way when the recovery happens you'll rebound quicker. No one knows when the low will come, but at least now you'll be prepared when things do come back.

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Old 11-22-2008, 07:00 AM   #11
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I agree with staying the course. But if your FP didn't put you in load funds or in lower fee fund houses, I would examine the fees on the funds you have and compare them to similar funds elsewhere. You don't want to be paying a large fee on a fund while it stagnates in growth for a few years.
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Old 11-22-2008, 07:18 AM   #12
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You've gotten very good advice here. I find it somehow reassuring that your basic plan sounds just fine, and your angst is that of the "falling tide" rather than some dumb, individual decision gone wild. Not a whole lot more you can do but relax, know you have plenty of cash and bonds, too, and avoid the big mistakes born of panic.

Read Ray Lucia's buckets of money book if you get a chance. It may help you look at your portfolio differently if you can get past all the hype.

You'll be fine. Just don't do anything drastic. And welcome to the board - group therapy is now in session .
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As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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Old 11-22-2008, 07:19 AM   #13
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Good advice in these replies. Stay the course, you are 10 years out so plenty of time. Only thing I would add to the advice posted so far is to have a plan to gradually shft your mix as you close in on your RE date to reduce the volatilty closer to when you are getting ready to start withdrawing.
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Old 11-22-2008, 07:24 AM   #14
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10 years is still a long time, anything can, and probably will, happen between now and then. Keep in mind that the best reasonable scenario for someone trying to plan a future retirement is lousy market returns well before their retirement day. In an odd way, this bear market is a blessing for anyone 10+ years away from retirement. That is because returns are strongly mean reverting (with high returns following low returns, and vice versa) so the money you're putting to work now (including the money you already have invested) will very likely yield above average returns in the years ahead.

That of course assumes you continue to invest in risky assets and don't get scared out of the market. While I don't know all of your details, I have a strong suspicion that the biggest risk to your retirement goals is not future market returns, but the risk that you abandon your investing plan in favor of something "safer".

One other thought . . . to the extent we can judge them, market valuation measures suggest equities are very cheap right now. While nobody knows what future earnings will be, the super bearish economist Nouriel Roubini projects S&P 500 earnings will decline to about $60 . . . meaning that the index was trading at a 13.3x multiple as of Friday's close. If you believe Wall Street earnings estimates, the market is trading at 10.5x forward earnings. The last time the index PE multiple was below 13.3x was in 1989. The last time it was below 10.5x was in 1984. Both of these periods ended up being fantastic times to buy and own equities.

Be of good cheer.
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Old 11-22-2008, 07:25 AM   #15
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Here is some more "stay the course" advice from the trenches:

The Only Smart Bet In A Market Of Chaos (TMW) *|* November 21, 2008 *|*By Will Ashworth - Investopedia Advisor
"It's tough to make predictions, especially when it involves the future." ~Attributed to many
"In theory, there is no difference between theory and practice. But, in practice, there is." ~(perhaps by) Yogi Berra
"Those who have knowledge, don't predict. Those who predict, don't have knowledge."~ Lau tzu
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Old 11-22-2008, 08:29 AM   #16
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I retired about a year ago right when the DOW was at it's all time high. Right after retirement I met with a planner who told me my 30/70 stock to bond mix was way to conservative and I should get more stock exposure. I decided pretty much to stay where I was at. I suppose on another day that I could be kicking myself for being conservative, but am glad I did my own research and followed my own thinking rather than listen to the advisor.

I've read most of the books often cited here and followed many a discussion. There will continue to be those who will say the old 60/40 or so stock bond mix is right and stay the course. These weigh heavily on the theory that the statistical analysis of past events will predict the future. I think that our future will have much more statistical independence (and risk) than these anticipate. It will be interesting to see if the texts will be rewritten and modified after all of this is over.

In retirement I've pretty much arrived at the conclusion that work sucks and retirement rules. It is worth it, in my book, for those of us who have taken loses to lower our spending expectations for retirement in order to achieve our retirement timeline. I know that some are on the edge and can't cut things much furhter, but life is short and that are so many things to enjoy that don't cost a lot of money.
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Old 11-22-2008, 11:09 AM   #17
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A loss no matter how large or small always hurts. I usually take the "how could I have been so stupid" & "why did I not see this coming" line of thinking.

This helps no one.

We have suffered in the market like the others on this board and will stay the course. We are now in retirement and we'll see how this eventually pans out. I always enjoy reading this board, it helps to calm my nerves.

I have read the Four Pillars of Investment (actually got it on audio book) but will certainly check out the other recommendations.

When I get too edgy over losses I refuse to watch BNN therefore DH must get his market fix off the TV in the basement
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Old 11-22-2008, 11:15 AM   #18
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hw, I am in a similar scenario and will add my support to what other posters have said. The silver linings here are that both of us are better off than most people in the world , and we have a number of years to get our retirement portfolio in shape. The lesson I have learnt is that I need to aggressively build the safe, liquid investments that will ensure that I don't have to tap into my equity investments for a number of years. I am currently DCAing 1/3 of my monthly savings into equities, which is enough to satisfy my opportuniistic optimism. The other 2/3 is going to build my cash reserves.
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Old 11-22-2008, 11:27 AM   #19
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My bet is that people will find that rebalancing will have a dramatically positive effect over the next five years. Because times are so unusual many will be afraid to rebalance (me too) but for those courageous enough to stick to their plan things will probably work out...I think.
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Thank you!
Old 11-22-2008, 11:46 AM   #20
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Thank you!

Holy Cow!
What a load of support and feedback. Thank you so very much. I do plan on staying the course with the excpetion of a foray into either single family or rental realestate - not as a "different" place to park the money, but as an alternative / complementary business to my lawn care business.

What I discovered helped me psychologically was:
1. counting up all the great things we have.
2. Asking myself -- in what really IMPORTANT ways does this "event" hurt me right now? 10 years? 20 years? And the truth is ... not very much. We have a great home, good health, and we don't have expensive tastes - (I'm looking to collect a few used cathode ray tube televisions before they're gone so I don't have to spend exorbitant $$$ on flat screens!)
3. Realizing that much of my loss was in my mind. I had a vision of having reached a zero stress Nirvana on the day our svaings hit 2 million -- and frankly, I know that's not the case.
4. Re creating, in excel, our FIRE plan, thereby doing away with the "what could have been".
5. Beginning research and work on my exciting new plan to be a landlord. I've been chomping at the bit for 3 years to do this!

Thanks again all. This is quite the forum. I'm going to start spending much more time giving of myself here. I might be in the suckhole a bit this week, but I'll do my best to give back at least what I take from here.

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