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Stock Market Decline-Tests your beliefs - Have a plan and work the plan
Old 08-16-2007, 01:43 PM   #1
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Stock Market Decline-Tests your beliefs - Have a plan and work the plan

I've been ER for over a year and I feel less worried about this decline than when I was working.
I think it is a good test for my planning an belief in my planning.

For the record I am only 18% of my net worth (excluding home - paid off) invested in the markets. I started averaging into the markets in March and as of yesterday I am down - 6.72%

I plan to continue to average into the markets for the next 12 months - at that time I should be invested about 50% in the markets. I will decide how to handle the other 50% after that - invest more or less agressively.

What influenced my investing? I though the markets were a bit overpriced but I decided to start investing slowly. I was a bit premature.

Why averaging in. There are a couple of factors. One is that there is the concept of the 4 year cycle in stocks - 4 years of a bull and then flat to a decline - the length depends upon economic factors.
Others:
Housing - of course
Liquitity - getting tighter around the world
Unemployment has been very low - it really can only go up from here causing more bad news.
Presidential cycle - If a president is running for office there usually some sort of financial pump into the economy - G. Bush is not running so I don't expect that.

Why keep buying - I don't know when the bottom will be but I'm guessing it will be over the next twelve to 16 months. Even after that the markets will most likely grow slower than over the past 4 years.

My long term plan is to be fully invested (excluding home) with about 3 years of living expenses in short term bonds.

So, I'm feeling good - expecting lower markets as a good time to buy.

If you are worried about what is going on then you should question what part of your planning is making you unhappy.

We all have gone into the markets knowing that they can and do go down so that is no surprise.
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Old 08-16-2007, 02:33 PM   #2
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I strongly suspect that the market is beginning to discount the idea of the Dems winning the presidency and retaining control of congress, hence the slide.

This is not a republican versus democrat flame. Personally, I don't really like either party very much. But the markets seem to prefer gridlock to the often-crazy schemes that either party will dream up if given the power to do so unfettered by checks and balances. We may not be in gridlock mode after next year.

May well point to upping your intl asset allocation...
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Old 08-16-2007, 02:42 PM   #3
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Originally Posted by dex View Post
So, I'm feeling good - expecting lower markets as a good time to buy.

If you are worried about what is going on then you should question what part of your planning is making you unhappy.

We all have gone into the markets knowing that they can and do go down so that is no surprise.
'xactly! I have auto DCA set up for once a month into a few different things, and usually about half way between those, if I have extra $$ that needs a place to go, I'll throw some of it in too. So with things going the way they are right now in the markets, I'm thrilled to be able to buy 'on sale'.

Granted, with a decent pension check every month, I'm not overly dependent on the market performance......but it's still MY money on the line. I understood the risk when I joined in, therefore I knew about the ups & downs. Sometimes you just have to hold on, close your eyes, hope for the best, and enjoy the ride! I'm an optimist, so I know it will all be good!!!
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Old 08-16-2007, 02:46 PM   #4
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I strongly suspect that the market is beginning to discount the idea of the Dems winning the presidency and retaining control of congress, hence the slide.

This is not a republican versus democrat flame. Personally, I don't really like either party very much. But the markets seem to prefer gridlock to the often-crazy schemes that either party will dream up if given the power to do so unfettered by checks and balances. We may not be in gridlock mode after next year.

May well point to upping your intl asset allocation...
Whenever the market goes up or down, the media feel obliged to come up with an explanation. I am not sure I believe any of them! Maybe investors are just mindless lemmings and jump on the bandwagon for no good reason at all.
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Old 08-16-2007, 02:51 PM   #5
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'xactly! I have auto DCA set up for once a month into a few different things, and usually about half way between those, if I have extra $$ that needs a place to go, I'll throw some of it in too. So with things going the way they are right now in the markets, I'm thrilled to be able to buy 'on sale'.
Sounds like a wonderful outlook on all of this.

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Originally Posted by Goonie View Post
Granted, with a decent pension check every month, I'm not overly dependent on the market performance......but it's still MY money on the line. I understood the risk when I joined in, therefore I knew about the ups & downs. Sometimes you just have to hold on, close your eyes, hope for the best, and enjoy the ride! I'm an optimist, so I know it will all be good!!!
Anyone who has plenty of money and no pension, but wants one, could buy a fixed, lifetime annuity and have the same (relatively) carefree outlook that you have. That is why I am thinking of taking 1/4 to 1/3 of my TSP (=401K) and buying one (with inflation built into it). It will supplement my small pension and provide me with plenty to live on, and will relieve the stress when this happens again after I retire.

Who needs stress in retirement? I want to relax, lower my stress, and enjoy retired life when I get there.
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Old 08-16-2007, 03:07 PM   #6
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Anyone who has plenty of money and no pension, but wants one, could buy a fixed, lifetime annuity and have the same (relatively) carefree outlook that you have.
I am 49, retired almost a year, and 100% in equities for a long time. It is not necessary
to pay insurance company fees to have a relaxed outlook. While my stocks have
dropped several hundred $K in market value the last few months, earnings have been
steadily rising and dividends have been increased. Since I live on the dividends,
market value is just something to watch in case an opportunity presents itself to
trade an over-appreciated stock for a lower appreciated one (more common with
markets like these). It is pretty easy to put together a portfolio of top quality
stocks yielding around 3.5%. I am sleeping fine these days.
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Old 08-16-2007, 03:14 PM   #7
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I am 49, retired almost a year, and 100% in equities for a long time. It is not necessary to pay insurance company fees to have a relaxed outlook. While my stocks have dropped several hundred $K in market value the last few months, earnings have been steadily rising and dividends have been increased. Since I live on the dividends, market value is just something to watch in case an opportunity presents itself to trade an over-appreciated stock for a lower appreciated one (more common with markets like these). It is pretty easy to put together a portfolio of top quality stocks yielding around 3.5%. I am sleeping fine these days.
That DOES sound like an attractive option! So, if you don't mind my asking (because honestly I don't know)... the dividends do not generally decline when the market tanks like this, or otherwise? And then do you re-invest the capital gains?
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Old 08-16-2007, 03:17 PM   #8
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That DOES sound like an attractive option! So, if you don't mind my asking (because honestly I don't know)... the dividends do not generally decline when the market tanks like this, or otherwise?
Dividends do not decline unless the dividend payers (e.g. the individual companies) cut them.

This happens infrequently when one is speaking of blue chip firms...

If one can live off the dividends of one's holdings this is an ideal situation!

An equivalent analogy is living off the coupon payments from individual bonds, if rates rise and you holding the bonds to maturity you don't really "lose" anything (other than opportunity cost) since you still get your coupon payments.
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Old 08-16-2007, 03:25 PM   #9
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Dividends do not decline unless the dividend payers (e.g. the individual companies) cut them.

This happens infrequently when one is speaking of blue chip firms...

If one can live off the dividends of one's holdings this is an ideal situation!

An equivalent analogy is living off the coupon payments from individual bonds, if rates rise and you holding the bonds to maturity you don't really "lose" anything (other than opportunity cost) since you still get your coupon payments.
Thanks - - this sure sounds like a stress-free way to manage finances in ER, so I should look into it. It might pay a lower % than otherwise, but it might be worth it to me.
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Old 08-16-2007, 03:31 PM   #10
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That DOES sound like an attractive option! So, if you don't mind my asking (because honestly I don't know)... the dividends do not generally decline when the market tanks like this, or otherwise? And then do you re-invest the capital gains?
Dividends of top-quality companies rarely decline, and usually keep increasing
right thru recessions. Look at the history of PG,

PG: Historical Prices for PROCTER GAMBLE CO - Yahoo! Finance

or GE, JNJ, ITW, KIM, GGP, VNO, WRE.

The one thing you have to watch is if the company drops their blue-chip status.
Enron did this voluntarily when they went from being a very good pipeline
company to a very bad new-age-cable-futures-whatever company. Mills did
it by staking the whole companies future on one project (and a few other
miscues). As long as the fundamentals hold up, and there are no management
cockroaches, things are usually OK.
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Old 08-16-2007, 03:36 PM   #11
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I strongly suspect that the market is beginning to discount the idea of the Dems winning the presidency and retaining control of congress, hence the slide.

This is not a republican versus democrat flame. Personally, I don't really like either party very much. But the markets seem to prefer gridlock to the often-crazy schemes that either party will dream up if given the power to do so unfettered by checks and balances. We may not be in gridlock mode after next year.

May well point to upping your intl asset allocation...

I've felt for several years now that political gridlock is actually a good thing. It forces compromise. We all tend to lean one way or the other politically, but just look at the times that one party or the other has complete control....what a mess! (both parties) As much as I'd like to see my party in control (you'll have to guess which one it is since I'm not trying to start an "us vs them" argument), I shudder to think how they'll eventually screw things up if the do get majority control. Gridlock is good!
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Old 08-16-2007, 05:12 PM   #12
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Dividends of top-quality companies rarely decline, and usually keep increasing
right thru recessions. Look at the history of PG,

PG: Historical Prices for PROCTER GAMBLE CO - Yahoo! Finance

or GE, JNJ, ITW, KIM, GGP, VNO, WRE.

The one thing you have to watch is if the company drops their blue-chip status.
Enron did this voluntarily when they went from being a very good pipeline
company to a very bad new-age-cable-futures-whatever company. Mills did
it by staking the whole companies future on one project (and a few other
miscues). As long as the fundamentals hold up, and there are no management
cockroaches, things are usually OK.
Thanks for the information. Sounds like something I should look into.
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Old 08-16-2007, 05:27 PM   #13
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FYI many of the ETFs that specialize in dividends (PowerShares et al) make a point to find companies that have a long history of maintaining / increasing dividends. Their strategy is aimed squarely at the "retiree living off dividends" type investor.
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Old 08-16-2007, 05:30 PM   #14
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FYI many of the ETFs that specialize in dividends (PowerShares et al) make a point to find companies that have a long history of maintaining / increasing dividends. Their strategy is aimed squarely at the "retiree living off dividends" type investor.
Good! Funds sound better to me than individual stocks anyway, at least at this stage in my "financial education" (a.k.a., scrambling to learn what I will need to know).
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Old 08-17-2007, 11:33 AM   #15
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Good! Funds sound better to me than individual stocks anyway, at least at this stage in my "financial education" (a.k.a., scrambling to learn what I will need to know).
Here's one of the more established ones, on sale now!

ETFConnect - Fund Quick Facts - iShares Dow Jones Select Dividend Index Fund - DVY
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Old 08-17-2007, 02:57 PM   #16
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I've been a buyer of DVY, however some people are wary due to about 40% in Financials.
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Old 08-17-2007, 03:18 PM   #17
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I've been a buyer of DVY, however some people are wary due to about 40% in Financials.
If some people weren't wary it wouldn't be cheap. If some people didn't hate the 6 horse he wouldn't be 10-1.

Ha
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Old 08-17-2007, 04:24 PM   #18
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I am sticking with my plan. While I am a little disappointed with the correction, I still sleep at night and am 100% confident of my ER target date.
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Old 08-17-2007, 07:19 PM   #19
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Nords, thanks! I am not ready to buy it right now anyway, but I can follow it and research it. Learning about this type of fund is good for me anyway.

Sorry for the delay in response, but since I last posted Frank and I drove to Huntsville, Alabama... to check it out as a potential ER location. So far, so good.
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Old 08-18-2007, 11:51 AM   #20
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Originally Posted by Want2retire View Post
Nords, thanks! I am not ready to buy it right now anyway, but I can follow it and research it. Learning about this type of fund is good for me anyway.

Sorry for the delay in response, but since I last posted Frank and I drove to Huntsville, Alabama... to check it out as a potential ER location. So far, so good.
The good thing about an annuity is that if you outlive your median lifespan, you start to win for every extra year you live. The bad thing is that you have to pay life insurance overhead. So you might have to live a couple of years more than expected just to break even. But all the investment risk gets factored in in the buying transaction.
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