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

[FUEGO]

Quote:

Originally Posted by NW-Bound 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/foru...oss-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.

[NW-Bound]

Yes, it is easy to forget the effect of inflation. I just looked it up to find that the inflation from Oct 2007 to Feb 2012 is 9%!

So, although in nominal amount I had more, but taken inflation into account, I am still below my previous high of Oct 07.

Because I still had the habit of looking solely at my total like when I was still in accumulation mode, I do not know my net withdrawal since Oct 07, other than that I have had a net outflow as I overspent my part-time income in the past 5 years. So, considering that, I don't do too bad.

Back on the OP's linked article and his question as to how this Great Recession has affected our plan, the following is my perspective.

I did not plan to quit working completely until my children got out of college. If I were, the higher expenses in the past few years would cause me some worries, no doubt about that. So, having a part-time income in those bad years really helped calm my nerves.

Secondly, now that the college cost is over, I have the luxury of completely stop working any time I like. But the uncertainty of the days ahead means that I should be planning on no more than 3.5% WR. The SS, when I become eligible, will be my safety cushion, even if it might be cut back from currently promised level.

Thirdly, I am still maintaining a 70% equity AA, and with a high foreign stock component. I was not sure what to do before, but this AA is now my firm resolution. I may shift from cyclical stocks into defensive stocks, depending on my crystal ball, but I do not see myself abandoning equities.

Fourthly, if my stash gets decimated again, I am fully prepared to reduce my standard of living in order to lower the WR. Most of what we really spent on are "wants", not "needs". I will keep a closer look on my expenses, in order to be "mobile and hostile", like unclemick likes to say. I do not need to spend that much money to be happy, but in the best case, if the money is there, I will think of something to do with it.

In short, I never had a plan before, other than trying to be LBYM. Now, I think I do.

[Lsbcal]

Quote:

Originally Posted by NW-Bound Yes, it is easy to forget the effect of inflation. I just looked it up to find that the inflation from Oct 2007 to Feb 2012 is 9%! So, although in nominal amount I had more, but taken inflation into account, I am still below my previous high of Oct 07. ...

I key on one number: the percent above or below my inflation adjusted starting portfolio (liquid assets) value. When it is down a lot I worry and tell DW to spend less (she still goes to Macy's). When it is up I worry a little that it might go back down eventually and should I spend more or not? DW just keeps going to Macy's.

[FIREd]

Quote:

Originally Posted by NW-Bound 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.

I did. But back in 2008 young FIREd had:

1) a lot less to lose than most of you.
2) an income high enough to replace half of his portfolio under 2 years.
3) seemingly many years to go before being able to FIRE.


Would I be so brazen today? Probably not. My net worth is several times higher than what it was in 2008. I'll have a lot more to lose next time, which probably accounts for my somewhat conservative AA:

1/3 cash, CDs and i-bonds
1/3 equities
1/3 real estate

Roughly.

[KMyer]

The Financial Crisis of 2008 turned out to be a blessing in disguise since I was able to continue investing agressively in equities the whole way through the crisis. It sure didn't feel that way at the end of 2008 when I saw that my E-Trade portfolio had a negative investment return of 65% for that year. It made me question why I was investing and not just spending the money.

Fortunately the financial stocks and auto stocks that hurt me in 2008 helped my portfolio have a 99% investment rate of return in 2009. It has been a wild roller coaster ride but it has all turned out ok since I am still relatively young, working. and investing. I've had an average annual rate of return of 11.92% since 01/01/2008 per Quicken. I am still 100% in equities but have definitely diversified my holdings into other industries.

[Danmar]

OK I think I must have one of he most extreme stories. Retired 2006 and more than 100% in equities if you ignore my large pension.Uncashed in the money employee options represented about half my non- real estate, non pension assets. These went to zero in early 2009. In total, my investable assets were down by 75%. Suddenly retirement looked much different than planned. There was nothing I could do but wait it out. Tough emotional times. Anyway things came back with a vengeance, all options now cashed, retirement plans intact. Lessons learned? A little more conservative in spending. Not much else really. We are lucky. Life is good.

[youbet]

Quote:

Originally Posted by RetirementColdHardTruth 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.

Are you accumulating individual TIPS now? They really seem expensive. I think I saw the last ten yr issue sell at a negative real interest rate. Wow.........

[obgyn65]

Pretty amazing stories. Thanks for sharing, everyone.

[panhead]

This was an interesting thread to read and I had to go back and look to see what it was I actually did. I got laid off in may of 2009. Before that, I looked at my vanguard account and what I was doing and then it came back to me. As always, with every check, I was investing money across my different funds, using contributions to keep things in balance. As my records show, I kept throwing cash at the funds, it kept disappearing, I kept throwing more cash at it, it kept going away. I remember now getting very dismayed at this and wondering why I was throwing good cash after bad, but I kept doing it, as we all tell ourselves, we are buying shares at a discount. After I got laid off, the markets were starting on the mend, and I had some very big family issues to deal with. This is probably the first time I went back to take a look at this time period. My vanguard account kept falling although I was throwing money at it, but nothing like the accounts I wasn't contributing to, like my old 401ks from past employers, these at one point were both down over 35%. I never lost my resolve, but remember, I had a paycheck coming in and the amounts I was dealing with, although large, aren't nearly what they are today. If it happened again today and I was working, I know I would react the same. If I was retired, I certainly wouldn't sell, but I might hunker down around my cash cushion for a year or two instead of actively buying more equities by rebalancing from my bond allocation. Dunno, if it happens when I'm retired, I'll let ya know!
Cool thread tho, since I was working it didn't affect me much, once I was laid off I just saw my balances start to increase. It's much more interesting (and educational) for me to see how the people who were retired acted thru this, especially the younger ones without a pension.....

-Pan-

PS: Oh yeah, just like some of the others have said, I am at a new all time high net worth number! Hopefully the good times will keep rolling for a while at least...

[Hamlet]

I was 100% equities pre-crash, and I continue to be near 100% equities. I am 39, and intend to retire at 50-55, depending on market performance and my procreative rate (I have one 11 month daughter, may possibly have one more child if all goes to plan).

My wife and I continued to buy through the dip, maxing our 401k's and Roths.

Lessons--

1. I will have a few bonds when I enter retirement. My risk tolerance is high, but I did feel a little nervous for awhile there.
2. I should have tax harvested better. I just harvested enough for a few years, when if I had been clever I could have harvested huge amounts.
3. Keep a larger emergency fund. Nothing gives peace of mind like a year's worth of expenses in the bank.

[NW-Bound]

I had several years of expenses in what I called cash, like I-bonds and short-term fixed income. And I still had part-time income, which covered 75 to 100% of expenses.

And I still got nervous. Not scared, but apprehensive.