The financial crisis of 2008, uncertainty, and change in plans

[freebird5825]

Pre-FIRE, AA = 60/40 in accumulation mode.
Fall of 2004 - recipient of survivor pension and health care along with my own salary. Tax consquences of "becoming single" were atrocious. So I maxed out my TSP 401(k) and continued DCA at higher levels.
FIREd in April 2007 - converted my TSP into an immediate fixed annuity, migrated my AA to 50/50 by even further by reducing the number of funds (inherited) and increasing my DCA into TE bond funds.
Fall of 2008 - market caused my AA to drift to 45/55, then 40/60. I learned my true risk tolerance was much lower than I had originally thought. No panic, just a good reality check.
Spring of 2009 - did a high dividend stock index fund purchase on a dip, realigned my portfolio holdings a bit more.
2010 to present - diversifying my TE bond fund holdings a bit. Letting my stock funds ride. Bought a few individual dividend paying stocks.

Today...sitting on a chicken feathered AA = 35/65.

 

[Lsbcal]

...(snip)...
The one flirtation I made with timing was last August when the dip occurred. I exchanged about $200K in a VG bond fund for the VG total market and exchanged it back (to return to my current AA when the market recovered to the pre-August level. But I recognize that could easily have gone the other way.

I have a habit of imagining it "going the other way". So that's why I have a don't buy the dips methodology. Last October must have been a nice ride for you.

I would not risk a large portion of my portfolio on such actions but would consider slowly shifting my AA more towards bonds as the PE10 gets way out of whack and vice versa.

Now if someone could find the thread that addressed when to make such a shift...

The PE10 is distorted by wild earnings swings of recent years. It's standard deviation is much higher then historical norms. Something to think about when using it alone as a timing methodology.

 

[donheff]

The PE10 is distorted by wild earnings swings of recent years. It's standard deviation is much higher then historical norms. Something to think about when using it alone as a timing methodology.

Yeah, I just read a bogle heads thread on the topic and concluded that I don't want to go there.

 

[Keim]

Wife and I simply did our best to hold on for the ride. I lost my job 2 weeks before the crash. Was fortunate to find another about 2 months later. Was too busy learning a new job to pay much attention to the market. With the job uncertainty, we did need to cutback on filling our IRAs. Needed the cash cushion.

I didn't even come close to spotting the bottom. The only thing I know about the market is that I don't know anything about the market.

Longterm the recession caused me to learn more about investing, and better diversify.

 

[FUEGO]

Trying to adjust for value would be problematic, but it sure would be interesting to see each of those lines with a lead-in for someone who was dollar-cost averaging in for 25 years prior to the peak. That is different from winning the lottery or gaining an inheritance and dumping it all in at one swoop at the peak (which is what I think charts like this show us). I'm guessing they would not look so scary, but I don't really know,

Absolutely! The often cited abysmal Japanese stock market performance since the 1989 crash would not look so nearly bad if you looked at the 25 years leading up to 1989. For example, the Nikkei roughly quadrupled in the five years before the 1989 crash. A 1985 100% Japanese equities retiree would have seen 300% returns leading up to the 1989 crash (when they would have lost all those gains over the next 23 years).

 

[youbet]

I didn't know it was the bottom.

I'm glad there was somebody else! I was starting to think I was the only one who can't reliably call peaks and bottoms while they are occurring.

 

[REWahoo]

I'm glad there was somebody else! I was starting to think I was the only one who can't reliably call peaks and bottoms while they are occurring.

We can all do it quite well - in hindsight. It's the current and future stuff that is a bit more problematic.

 

[W2R]

We can all do it quite well - in hindsight. It's the current and future stuff that is a bit more problematic.

That is so true!

During the 2008-2009 crisis, quite a few times I was sure that the market just couldn't drop any further. And then it did. What a great lesson that was.

 

[ziggy29]

We can all do it quite well - in hindsight. It's the current and future stuff that is a bit more problematic.

I wonder why Doctor Who doesn't travel back to October 2007 so he could short the hell out of the market. Or better yet -- buy puts.

 

[MichaelB]

I wonder why Doctor Who doesn't travel back to October 2007 so he could short the hell out of the market. Or better yet -- buy puts.

'Cause Jean-Claude Van Damme from Timecop would catch him and put him in jail

 

[jclarksnakes]

I just follow the market from one day to the next with no idea where it will be tomorrow. Totally clueless about market timing. I am just barely smart enough to understand that if I could accurately time the market I could profit from that ability.

 

[FinanceDude]

The biggest bubble right now is in commodities. When the fed quits printing money like a counterfeiter, there will be a price to pay to "mark to market" the US dollar........

 

[haha]

For you folks that knew the bottom was the bottom at the actual time it was the bottom (there's a mouthful!), how did you do it? Your own data? Pundits? Sounds, or lack of sounds, coming from W2R?

I suspect you are being facetious, but in case not I'll give my opinion. There was absolutely no way to know! I was in investor in both 1974-1975 falls, and 1981. Things turned up only when value was overwhelming.

Other than some very down industries, buying in 2009 was a bet on Bernanke being willing to ruin the country's balance sheet to bail out banks and the stock market.

Maybe we could have known this by going back and reading his writings about the depression, but it was still a bet that his stunts even if undertaken would work.

The market recovery started from fair value, not deep undervalue. It is not necesssarily over.

Ha

 

[donheff]

'Cause Jean-Claude Van Damme from Timecop would catch him and put him in jail

A learning experience. I was about to post "that wasn't Van Damme." Then I looked it up. I will have to remember that next time I pop off on a political topic.

 

[easysurfer]

What a great statement! I like it and will use it in the future if you give me permission.

Thanks for the compliment. Sure, be my guest in using it in the future.

 

[RetirementColdHardTruth]

Picking the bottom was really not what I did, but as the dow Hit 8k on the way down I started selling my bonds and converting to Total Stock market index in 1,000 chunks every 2 days. Eventually I was all in with no more money other than standard SEP monthly inputs. I expected it to take 5 or more years to get back to 8k on the dow but I was pleasently surprised when it was back in months. I never hit the low point exactly but was buying all the way to the bottom. When the dow hit 12500 the first time since the mess all started I rebalanced my portfolio to my AA and took some of the massive gains and paid off the mortgage. Since then I have been placing the mortgage payment into the market along with 401k contributions maxed out as now I work for a company instead of myself. During the down turn max SEP contributions sure added to my overall sucess. As started in other posts I will hit FI with a 3.4% WR in 6 years given a 6% average gain that should be more than acheivable. The downturn did me well. The key now is to preserve the wealth with letting less ride on market and bonds and take the lower returns by having more in individual TIPS.

For me it worked out well, but it just could have easily gone the other way and I chalk it up to pure luck after seening that chart with the great depression overlayed with current crises.

 

[NW-Bound]

...A fair number of us (especially the active stock picker) were urging people to buy in late 2008. I wrote a several paragraph post about why Apple was screaming bargain in the 80s. Sadly I didn't have any money at the time, so I all I could do was a write a long date put option on the stock (and got paid handsomely). But anyone who followed my advice would have got a nice boost for their retirement .

I ran out of money by Jan 2009 to buy stock and realized I had wrote some many put options that I was in trouble if the market continued down. My key learning from the crisis was to lock some money away in CDs (Thank you to the board for telling me about all the great PenFed CDs).

In the spring of 2009 there didn't seem to be much activity on the board regarding the market and I think by and large the low past pretty much unnoticed until the big jump in March.

I just looked back through the annals of this forum, and found this "fun" thread in early 2009, started by dex who has been absent for a while.

http://www.early-retirement.org/forums/f28/2008-net-worth-change-and-years-to-recoup-loss-41569.html

In this thread in Jan 2009, we licked our wounds and compared our losses for 2008. Some people lost as much as 40%. Mine at 26% was not all that bad, though more than some.

I also reported then that I still had 50% in cash. I double checked against my record, and that was correct. But furthermore, my record also showed that my cash level was a lot lower at 24% in Jan 2008. As I usually have little bond, cash at 24% means fully invested in equities for me.

What happened was that I was selling in early 2008 to harvest losses, and then buying back lower in late 2008, and early 2009.

I think that around Jan and Feb 2009, we were so numb from the pain that people did not want to talk about it much anymore, as the market was still dropping. In fact in the above thread, I lamented that I lost 4.3% in one week, while being 50% in cash too! Holy cow!

PS. By the way, I use I-bonds as the place to lock away the cash that I keep as "money of last resort". As I have had these I-bonds for a while, they have accumulated a bit of interest, and another deterrence for me to tap it is the tax liability if I redeem it. Then, the remaining cash is in another stable value fund that I would "deploy" as the last round before the enemy overruns the foxhole. Well, I never deployed that last round either in March 09. Too scared to throw it all in!

 

[clifp]

So NW when did you get back in the market, in big way?

If you read this thread I think my characterization of grim determination, but not panic is accurate. Dex talked about taking 4 years to get back to his end of 2007 levels, only off by a year. I said when (not if) the Dow hits 12,000 I'd take a 100K of the table. (I did this when it hit 11,000 or more accurate when the 5% PenFed CD appeared). Ha thought nominal value might coming roaring back which it pretty much did.

And of course NW said buy buy every post, awfully good advice in hindsight.


None of us predict low inflation and super low interest for an extended period of time, but overall you can't read the thread and not be fairly impressed that as group we avoided selling at the bottom or giving up on equities, which is why the crisis didn't destroy our retirement plans.

Buffett said temperament is more important than intelligence in investing, he is right.

 

[NW-Bound]

I was acting brave in calling "BUY BUY BUY" only because I was unloading early in 2008, hence was at 50% cash.

I looked at my records again, and I bought steadily from Oct 08 through end of Jan 09. The market continued to drop like a rock through Feb 09, and I got scared and stopped buying, because I lost money with each purchase.

Yes, I did well going in, but then as the market rebounded, I started taking money out for just a bit of gain, when people kept talking about double dip. When it looked like a sure thing, I then bought back in late 09 at a higher price.

So, I could have done a LOT better if I just stayed in after the bottom in March. Looks like some people did, like our young friend FIREd, and they came out doing very well.

PS. Looking closer at the S&P, you can see that the market was very cruel, in that it had a false bottom in Nov 2008 at 800, then rebounded to 931 at year end. It gave people a false hope, before dropping to the true bottom at 683 in March 09. That final month of Feb 09 was the most frightful month. It was the true capitulation, and if a trader can read the crowd's mind and act against it, that would be the time to go all in. No, I was not that good.

People tend to have short memories, even posters here. I still remember we sure felt like it being another Great Depression. We had threads testing people's knowledge of the GD, the Dust Bowl, etc...

 

[clifp]

PS. Looking closer at the S&P, you can see that the market was very cruel, in that it had a false bottom in Nov 2008 at 800, then rebounded to 931 at year end. It gave people a false hope, before dropping to the true bottom at 683 in March 09. That final month of Feb 09 was the most frightful month. It was the true capitulation, and if a trader can read the crowd's mind and act against it, that would be the time to go all in. No, I was not that good.

People tend to have short memories, even posters here. I still remember we sure felt like it being another Great Depression. We had threads testing people's knowledge of the GD, the Dust Bowl, etc...

Well the Great Depression was very apt analogy. Hell if I knew how bad the financial crisis was in Jan 2009., I wouldn't have been so pollyanny. Yes Feb 09 was just an awful month, I remember thinking morale will improve when the beating (market losses) stop. I had no cash in Feb 09 so I did nothing.

I cheered myself up by reminding myself that it was only a decade from the start of the Great Depression to WW2 which took us out of the Great Depression, and the Taliban and Al Qaeda weren't nearly as fearsome as Japan and the Nazi.

 

[FUEGO]

I just looked back through the annals of this forum, and found this "fun" thread in early 2009, started by dex who has been absent for a while.

http://www.early-retirement.org/forums/f28/2008-net-worth-change-and-years-to-recoup-loss-41569.html

In this thread in Jan 2009, we licked our wounds and compared our losses for 2008. Some people lost as much as 40%. Mine at 26% was not all that bad, though more than some.

I think I had about the worst 2008 in terms of portfolio losses at -37%. But since we were still working and investing more money, our net worth only decreased 17%. I predicted it would take about a year to recover my 17% losses, and it took under six months (ie by June 30 2009 my net worth had far surpassed what it was on Jan 1 2008).

Today we are sitting at around 3x what our net worth was back then on Jan 1 2008 (pre crash high water mark). Definitely not a bad 4 years in hindsight!

 

[audreyh1]

I think I had a pretty bad 2008. Let's see.....

Portfolio -27.2% Actually not as bad as I thought - it felt way worse!!!

I got hit by some of my bond funds as well as my stock funds. I didn't realize until then that my bond allocation was super light on conservative treasuries. Fortunately, I had a relatively large cash position (10%). And the bond funds recovered VERY rapidly once the credit crisis had abated. Still - once things recovered I made sure I had a bit more of a conservative bond ballast in my bond allocation.

2009 portfolio up 31.0%
2010 portfolio up 12.9%

By end of 2010, the portfolio was 7.6% above the Jan 1 2008 value. So it was sometime in 2010 - perhaps some time in Q4 2010 - that the portfolio recovered.

Portfolio was around 55% stock funds, 35% bond funds, 10% cash.

Audrey

 

[Lisa99]

The 2008 slide helped us to be able to retire about four years early...weird but true.

We had all of our investments with Ameriprise. When the slide happened we got hit hard. Then when the turnaround started and the market was going gang busters our accounts were not recovering.

In 2008 we had about a 20% loss, then in 2009 we had a tiny gain (like 1 - 2%).

I started questioning whether the advisor was working in our best interest or had us in funds to earn commissions. By 2010 I was disgusted and looking for investing options.

Found this board in Aug 2010, moved all of our investments to Vanguard and between 2010 and today our portfolio has almost doubled (granted, we've been putting A LOT of money into the market now that I'm comfortable with our investing strategy), but regardless we're on track to retire in 2016 rather than 2020.

 

[Lsbcal]

We have not fully recovered from the Oct 2007 high. This is in terms of our inflation adjusted liquid assets (excluding real estate). A simple 60/40 portfolio with the equity in the SP500 and 4% spending would be down in inflation adjusted terms around -10% from Oct 2007.

I'm only mentioning this so that those who think everyone but them is back to the old high (or above) should relax. Much depends on your spending level and how you do your accounting. Also if you're retired, maybe you shouldn't be pushing to see that net worth growing and growing. Might be a sign of holding back too much. Of course, it's nice to see an expanding account -- cannot really knock that.

 

[EvrClrx311]

I find a few things unusual about the first few paragraphs of this article:

Apparently a decade ago (2002, well after the dotcom bubble burst) a 55 year old named Jonnie had her eye on retiring at 62 (so 2009ish). The implication is that she was on pace for it, and her quote later of "no one else is going to do it for you" in regards to investing makes you think she never stopped investing.

So now that the market is back up and actually higher than 2002... how is it that she needs to work another 5 years to retire?

Only explanation I can think of is that she was riding almost entirely in equities after seeing the golden 90's at work and sold them all and moved to cash at the absolute worst time (probably in early 2009, when the market had lost 50%). She could have been sitting in equities, outside her comfort level, thinking she just needed a couple more good years to finally call it quits... but then Murphy reared its head.

If she had stuck to her guns... she'd probably be retired right now. It's not the market that has prevented her from retiring, but more likely it was her poor planning: 1) being invested too heavily in equities, so close to 65 ... followed by 2) bailing on them at the worst time.

Each by itself would have been corrected with time, but adding the two together magnified the potential damage... just another example why everyone should have a plan they feel comfortable with so if the worst case happens you're not in a situation where you could do more damage by changing plans mid-course.