Recovery From a Mistake

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Originally Posted by Vincenzo Corleone ... I think I gave the impression that I panic at any slightest pullback. I don't think that's the case. I think I'm right in saying that 2008-2009 was quite rare and probably once-in-a-lifetime; people saying it was the worst thing since the Great Depression, etc. Under less extreme circumstances, I don't think I would have panicked.

I did exactly what you did. Pulled completely out of the markets to cash in 2009, probably the biggest financial mistake I've ever made. Of course I didn't know what the hell I was doing at the time either.

What I did before making any moves back into the market quite frankly was to read. Me being me, I've now read enough books (highly recommended on this site and Bogleheads, among others) to fill a small library. I scoured BH and other sites every time I had a question about anything, from int'l investing to ROTH conversions to taxes to decumulation. Finally got to the point where I became saturated. Reading and becoming knowledgeable was the best financial investment I've ever made, and because the books came from the library, it didn't cost me a dime!

The above provided the confidence to create an ISP, have the AA and risk profile I'm comfortable with, can sleep at night, will allow me to FIRE in late 2015 and more than meet my investment objectives, and am (right now!) celebrating because I surpassed an investment "stretch goal" this month, one I doubted I'd make as recently as November.

Most importantly, I now realize there are people on this site and BH that spend an inordinate amount of time (IMHO) trying to optimize every last dime, and I tune out all of it. I've run enough scenarios such that even if we get another great depression, I will be fine. I spend my time living and planning the next great phase of this adventure called life. FIRE for me will very soon be a very expansive phase of my life, if not the most expansive. I am in the processing of changing every aspect of my life, and I can't tell you how exciting it is.

[audreyh1]

Quote:

Originally Posted by Vincenzo Corleone I think I gave the impression that I panic at any slightest pullback. I don't think that's the case. I think I'm right in saying that 2008-2009 was quite rare and probably once-in-a-lifetime; people saying it was the worst thing since the Great Depression, etc. Under less extreme circumstances, I don't think I would have panicked.

Perhaps - but the Greece brouhaha happened in 2011 and 2012, not 2008/2009.

[ducky911]

lump sum in and don't ever sell again

[pb4uski]

What is your current AA (stocks/bonds/cash)? I think you need to decide what your target AA across all your accounts should be given your appetite for risk. In fact, you may even want to memorialize your decisions in a personal investment policy that you can refer to in difficult times.

Then, what are the gaps and how do you get from your current AA to your target AA? A lot will depend on what options exist in your retirement accounts as some (like 401ks) are notorious for having poor choices. Do you have access to a stable value fund? If so and if it pays 2.5% or more, that may be a good place for your fixed income allocation given the possibility of higher interest rates and the interest rate risk associated with bond funds.

Once you decide what you best retirement plan choices are, then hopefully the rest will fall into place.

If you are light on equities, I would value average in over some period of time (say 12 to 24 months).

The valuable lesson you have learned is that it is relatively easy to decide to get out, the real trick is deciding when to get back in again.

[galeno]

We were at 60/40 when the storm hit in 2008. My wife freaked out and wanted to sell everything at rebalance time in Jan 2009.

I wanted to over rebalance to 80/20. We finally settled on 70/30 and rode the elevator back up. In Jan 2014 we will be back to 60/40.

Always be prepared to lose 50% of your equity allocation at all times. If you are not you need to dial stocks down to the level of your risk tolerance.

[frayne]

I think time and experience tends to numb one of the nuances of the market. Been investing since 1975 and one more than one occasion have seen my portfolio drop six figures during a slump and have never lost a minute of sleep over it. Being older, I worry even less.

MichaelB's advice about a balanced fund make the most sense in light of your time horizon and risk tolerance.

[NW-Bound]

I have "lost" more than $600K a few times. The most in a day is about $80K.

[Vincenzo Corleone]

I'd like to thank every one of you who responded. I value every single response I received.

frayne - "whatever percentage you have in mind into a total market stock index fund, and then forget about it".

Lsbcal - "The answer we know now is ... all in is the best number. We don't know the future. My feeling is that all in is going to be the best number".

ducky911 - "lump sum in and don't ever sell again"

The money we're talking about is in an IRA. I can't/won't touch it for another 20 years. Moreover, I have read elsewhere the same thing that the above posters have eluded to - averaging in helps the psychological aspect, but lump sum outperforms over long periods; which brings me back to the saying I once heard - time IN the market is better than timING the market.

Will we have a 10% correction? Sure. Does any of us know when? A month? Six months? A year? Who knows. I won't play that game again. I'm leaning towards taking ducky911's short and to-the-point advice: "lump sum in and don't ever sell again".

It was a costly lesson, but a lesson well learned. Thanks again, everybody. Happy New Year.

[Free bird]

There's much worse financial mistakes than not having money in the stock market. If anyone thinks the stock market isnt going to cough up a large portion of the gains of the last 5 years they're not paying attention. I'm confident the fed & our myopian politicians are blundering toward another event that will create a stampede in the risk off direction. Then that lack of stock exposure will look like genius. Buffet carries huge amounts of cash that he takes criticism for all the time. In our so called financial system nothing is as it seems. Besides past is past. It's what you do from this point forward that counts. I really don't believe these corporations are on as solid of footing as they'd like you to believe. Profits seem to be generated from generous tax policy & product & service shrinkage.

[galeno]

Corporate America's profit margin is an outrageous 11%. Historically it's around 6%. Warren Buffett himself believes that 11% is unsustainable even in the short term.

I agree with Buffett. We will have 58% non-US equities and 42% USA equities starting 2014. I expect non-US stocks to continue to out-perform US stocks over the short term.

Quote:

Originally Posted by Free bird There's much worse financial mistakes than not having money in the stock market. If anyone thinks the stock market isnt going to cough up a large portion of the gains of the last 5 years they're not paying attention. I'm confident the fed & our myopian politicians are blundering toward another event that will create a stampede in the risk off direction. Then that lack of stock exposure will look like genius. Buffet carries huge amounts of cash that he takes criticism for all the time. In our so called financial system nothing is as it seems. Besides past is past. It's what you do from this point forward that counts. I really don't believe these corporations are on as solid of footing as they'd like you to believe. Profits seem to be generated from generous tax policy & product & service shrinkage.

[Moemg]

Quote:

Originally Posted by NW-Bound I have "lost" more than $600K a few times. The most in a day is about $80K.

I prefer to think of as things I could have bought with the money e.g. In 2008 & 2009 I lost a beach front condo .

[NW-Bound]

Quote:

Originally Posted by Moemg I prefer to think of as things I could have bought with the money e.g. In 2008 & 2009 I lost a beach front condo .

Well, did you gain it back? I did recover my "loss" and then some. Many people here did too.

How much buying/selling or rebalancing they did, I do not know, but I did unload a lot of stocks at the end of 2008, and bought back in 2009.

What I sold were material and mining stocks that did very well in 2001-2008 during Chinese economy expansion and were coming down hard and fast at the end of 2008 when copper price collapsed from $4/lb to $1.5/lb. What I bought back were not the same stocks, however.

[NW-Bound]

I just checked my record. In the 2003 market rout, I "lost" less than $600K, but in the 2009 Great Recession, I "lost" $700K.

The nice thing is that the 2nd time, the loss was actually a smaller percentage of the portfolio. So, I have learned a thing or two. And I also did gain quite a bit between the two recessions.

I am riding high again, and waiting for the next shoe to drop.

[harley]

My issue is slightly different, but the same quandary. I managed to sell out of the market almost completely in early 2008, so I avoided most of the losses. However, I never got back in, so missed most of the run up. A shame, we're well off but a second lucky timing break would have been like winning the lottery. But basically we're still about where we were before the big drop. I did finally decide to start DCA'ing back into equities earlier this year. I'm buying in quarterly and stretching it out over a two year period. So I've caught a piece of the recent run up. It's hard to do since I still think the recovery is semi bogus, but I also recognize that I don't know as much as I think I do, so the best thing for me to do is get into the market in a manner that is less painful than going all in, and then just sit on my Ass-et Allocation from that time out. Good luck with making your own decision.

[bmcgonig]

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Originally Posted by karluk I think you have to distinguish between the mistake you made getting out of the market at the wrong time and the even worse mistake of taking five long years to decide to get back in. Using worries about a little country like Greece as a reason stay out of U.S. equities makes no sense to me at all. It makes me wonder how long it will be before you overreact to the next scary news headline and let it affect your investing decisions. That's why I think you're a good candidate for a balanced fund.

I remember that time. One little country like Greece could have toppled the Euro according to the talking heads. And it wasn't until Draghi came aboard and vowed to do anything it takes that everything calmed down. So I think the fears "about a little country" were real.

I mean who would have thought that the downfall of one single company like Lehman..not even a country..could destabilize the whole friggin world.

[Animorph]

I like the balanced fund idea. A lump sum wouldn't be too bad with that.

Otherwise, I'd lump sum back in at what you would consider a conservative AA, say 20% stocks, and then DCA up to the AA you really want.

[donheff]

Reading through this I thought I might find myself frozen in the OP's situation. Having sold low I would be petrified that I was now buying high and ready to rinse and repeat. For some reason the idea of a conservative balanced fund sounds less scary although I recognize that a 60/40 or 40/60 simple portfolio is not much different. Maybe it is the advantage of not seeing the equity funds out there by themselves in plain view plummeting in a downturn that makes that approach feel better.

[REWahoo]

Quote:

Originally Posted by donheff For some reason the idea of a conservative balanced fund sounds less scary although I recognize that a 60/40 or 40/60 simple portfolio is not much different. Maybe it is the advantage of not seeing the equity funds out there by themselves in plain view plummeting in a downturn that makes that approach feel better.

+1

I think the fact I'm primarily invested in balanced funds (a mix of Wellesley and Wellington) is what helped me sit on my hands and resist selling back during 08/09. Had I been able to see the equity component of those funds in freefall I might be in similar shoes to the OP.

[panacea]

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Originally Posted by LOL! This article was written with you specifically in mind: Missed the big market rally? Here’s what to do now. - The Washington Post What do you think after reading it?

Good article- advice hits the nail on the head about ignoring "the sky is falling" stuff we see on TV and read in papers and magazines. It's easy sometimes to get caught up this noise that is designed to keep their viewers/readers dependent on them for ratings... and forget that our own time horizon is too long to worry about the once in a lifetime disasters that arise around the world every 3-6 months.

[racy]

Quote:

Originally Posted by Vincenzo Corleone Hi, ... I made a mistake - I let my emotions get the best of me and I moved all the money in my retirement accounts that were invested in stock mutual funds into short-term bond funds, where the money has been sitting since. In the news, all I kept hearing .....

My advice: stop listening to the news. However, if you cannot then consider the financial news from this source: The Onion - America's Finest News Source