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

[scrabbler1]

Because I left my job and ERed during the late 2008 slide, I had some nervous moments as well as some opportunities to change directions in my AA I might not have had otherwise.

The first nervous moment was having to wait longer than usual for my former company's quarterly evaluation of its stock price at the end of September. That was right around the time I was going to annouce my resignation effective at the end of October. The announcement took place a day later and was not nearly as bad as I feared it would be -it dropped only about 1% which was next to nothing when you think of how everything else was dropping at the time.

When I left the company at the end of October, I had about a 2-week delay between receiving my proceeds from my liquidated 401(k) and ESOP accounts and reinvesting them into their targeted Fidelity accounts and funds. The price on the big bond fund had been dropping, so I was hoping it would drop some more or at least not go UP while I was waiting.

I also had a chance to change the AA of the rollover IRA which at the time was about 53/47 in favor of stocks. When I met with my Fidelity rep, we spoke about this. While he did not offer any concrete suggestions, he did give me a few things to think about regarding the overall AA in both my retiement and non-retirement accounts. I decided to stay put with the 53/47 split and I do not regret that choice [my typical AA in the 401(k) had been 55/45]. I have since done some small rebalancings in both the IRA and taxable accounts, mostly in the IRA, so my basic "buy low, sell high" philosophy remains intact. Both the stock and bond portions of my portfolio have rebounded nicely, especially the stock side. And my NW is at an all-time high despite not having worked for the last 3 years.

 

[NW-Bound]

I was able to lighten up a bit in 2008, and bought some stocks at bargain prices in 2009. But then, I harvested the gains a bit too soon, and had to buy back again at a higher price in late 2009. Oh man, [-]market timing[/-] optimal rebalancing is tough.

Still, I now have more than at 2007 market top, but a big part of it was because of my part-time income that kept me from drawing too much from my stash.

Sounds familiar, we held pat during the great downturn and started buying more individual stocks in March 2009. I'm still kicking myself over all the Apple shares I bought then and then proceeded to sell them off too soon.

 

[Gumby]

My original plan was to RE in April 2010. The through the crisis I continued to contribute and rebalance. New date is April 2012. So the financial crisis moved my plans out two years. That doesn't seem so bad, but I must confess there were moments when it felt like I would never get there.

Same here. We let our investments ride and did not sell, but still needed to add two years on to our planned retirement date to compensate.

 

[MBAustin]

The downturn actually helped me with the decision to ER. When I looked at how our investments did during the downturn and calculated that even at the low point it could have supported our expenses with <4% WR, I realized that it was time to stop accumulating and let someone else have my j*b.

We've more than recovered all of our losses even though we have been spending from our portfolio for more than a year. One thing we did immediately when I ER'd was to stop reinvesting dividends and capital gains in our taxable accounts and use that income first, so while future growth is slowed, it doesn't deplete the principal we've accumulated.

 

[W2R]

In retrospect, the financial crisis was a good test of my asset allocation. I even bought instead of selling when the market was down. Who would have thought that such a timid, terrified, naive investor could be that brave? What a great thing to find out about oneself, and what a big confidence builder. Buying low gave my portfolio a little boost right before my 2009 retirement, and earlier this week my portfolio was the largest of my lifetime.

Delay retirement? Well, yes, apparently this was the case for a few. But I think that also, some of those who didn't adequately prepare for retirement blame the recession instead of their poor preparation, to save face.

 

[NW-Bound]

...earlier this week my portfolio was the largest of my lifetime...

and then, you posted a "Wh***" to taunt me, and might have suffered a bit of pull-back too.

 

[W2R]

and then, you posted a "Wh***" to taunt me.

Actually, it got higher than that a few days after my Wheee!!! thread. My all time high so far was on Thursday, the 15th. Yes, I keep track of my all time high and low (starting in the summer of 2008) in my Excel spreadsheet.

In 2008-2009, we patiently and sympathetically listened to so many that were despondent, selling low and going all cash, returning to work, and predicting doom and gloom forever.

So now that the market is high, I think it is time to feel good , smile, and celebrate.

 

[Moemg]

Delay retirement? Well, yes, apparently this was the case for a few. But I think that also, some of those who didn't adequately prepare for retirement blame the recession instead of their poor preparation, to save face.

I have to disagree . Say you had a million dollar portfolio in early 2008 and were just about ready to pull the plug when suddenly you had a $600,000 portfolio . Most people are prepared for losses but they losses in 2008-2009 were massive . Lot's of the board members made smart decisions to delay . Sure you can have a nice retirement on $600,000 but it's not the million dollar portfolio you wanted to enjoy the good life .

 

[NW-Bound]

During this past Great Recession, I was not planning on full retirement because my children were still in college. As I even enjoyed my part-time work, it made sense to "work a few more years" to help them, and to help my portfolio too.

Work was a bit sparse in 2008-2009, but then picked up, and I did not have to draw as heavily on my stash. I would not be truthful if I said that the part-time income did not have a positive influence on my holding a higher equity percentage than I would otherwise.

 

[LOL!]

I have to disagree . Say you had a million dollar portfolio in early 2008 and were just about ready to pull the plug when suddenly you had a $600,000 portfolio . Most people are prepared for losses but they losses in 2008-2009 were massive . Lot's of the board members made smart decisions to delay . Sure you can have a nice retirement on $600,000 but it's not the million dollar portfolio you wanted to enjoy the good life .

This is an interesting premise. If someone went from $1,000,000 to $600,000 this means they had a 40% loss. To get a 40% loss would mean they held at least 80% equities. If one is just about ready to pull the plug, what are the chances they held 80% in equities?

I wonder if anybody who did not sell and held firm during the Great Recession has any regrets about that decision? It seems that some folks who sold out have regrets, but the folks who did not, do not have regrets or they are not telling.

 

[rescueme]

...such a timid, terrified, naive investor...

Uh - where did the "pig squeal" come from? ...

 

[walkinwood]

The article says that she worked for JP Morgan. Maybe she had too big a chunk of her investments in company stock. Not unusual, unfortunately.

I felt this article was just a rehash of things already repeated too often.

We had the distinct privilege to ER just before the collapse. We saw our portfolio fall more than 25% (I've forgotten the exact number, but reported it in a post here). We went back to work for about 9 months in 2010 and our portfolio now is just above our initial ER value.

 

[yakers]

I have to disagree . Say you had a million dollar portfolio in early 2008 and were just about ready to pull the plug when suddenly you had a $600,000 portfolio . Most people are prepared for losses but they losses in 2008-2009 were massive . Lot's of the board members made smart decisions to delay . Sure you can have a nice retirement on $600,000 but it's not the million dollar portfolio you wanted to enjoy the good life .

Just a variation on this schedule, retired in March 08, had $770K in Dec 07, $625K in Dec 08, fall of 08 was a terrible time-already retired and portfolio headed south. But didn't sell anything and have recovered. Lost 18.8% in 08. made +18% in 09, 11.2% in 2010, and 3.8% in 2011, now have reached a nominal new high.
I am certain I would have been better off financially working a couple more years but those were some good years to be retired and I'm not giving them back.

 

[W2R]

Uh - where did the "pig squeal" come from? ...

From being so happy that we no longer have to watch our friends on the board freaking out, selling all, going to cash, and returning to work? I just love the fact that for once we can all be happy and not worry so much. We know the market goes down as well as up, but this respite can hopefully allow us to renew our strength and come back stronger during the next dip.

And yes, I was terrified in October 2008 but not enough to voice that much, or act on it. My AA was apparently just right for me. What a great test of AA right before retirement.

 

[W2R]

This is an interesting premise. If someone went from $1,000,000 to $600,000 this means they had a 40% loss. To get a 40% loss would mean they held at least 80% equities. If one is just about ready to pull the plug, what are the chances they held 80% in equities?

If they did, it seems to me that they had to be aware of the risks and the fact that their AA was exposing them to these risks. To me it would seem foolhardy for someone about ready to retire to be 80% equities, but then others are more risk tolerant and aren't bothered in the slightest by losing 40% or more. More power to them, but my risk tolerance was not that high when close to or in retirement, and it would bother me a lot (so my AA reflects that: 45:55, instead of 80:20). Until 3 years before retirement I was 100% equities, but like many I did my homework and adjusted my AA radically as I approached "D-Day" (or is that "R-Day"? )

I wonder if anybody who did not sell and held firm during the Great Recession has any regrets about that decision? It seems that some folks who sold out have regrets, but the folks who did not, do not have regrets or they are not telling.

I am pretty sure that most who did, recovered their portfolio value years ago. Mine was fully recovered before I retired in 2009 and quite a few other members posted their their portfolios recovered before mine did. It's been three years since then, to state the obvious.

 

[audreyh1]

From being so happy that we no longer have to watch our friends on the board freaking out, selling all, going to cash, and returning to work? I just love the fact that for once we can all be happy and not worry so much. We know the market goes down as well as up, but this respite can hopefully allow us to renew our strength and come back stronger during the next dip.

Very good point W2R! Maybe I'll quit cringing when you "wheeee....".

Audrey

 

[Moemg]

2008-2009 was a great time to be still working or receiving an unexpected windfall not so great for we recent retirees but we all bounced back and are enjoying retirement . !

 

[W2R]

Very good point W2R! Maybe I'll quit cringing when you "wheeee....".

Audrey

Thanks, Audrey.

 

[audreyh1]

Based on my personal experience I suspect you are correct. My gut and my mind were severely conflicted during those dark days but I knew the only chance I had of not being like one of those folks in the article was to ride it out.

I can't imagine what it must have been like retiring shortly before 2008!

I remember too well retiring in 1999. By some miracle, I had decided to average my investment sum into the market for 2 years starting in 2000, being quite nervous about the 1999 levels (1 year is usually the max recommended). This kind of got stretched out as the market kept dropping 2001-2002. I hadn't lost money in 2000 or 2001, but by 2002 my portfolio was dropping. Oct of 2002 is when I had my last chunk to invest, and it took all my teeth gritting and determination to just do it. I did. And what a relief when everything started to turn around in 2003. Whew!

By 2008, my portfolio had grown a great deal since 2000, so getting whacked - even though harder than in 2000-2002 - didn't seem nearly so bad, because I was starting from much higher levels.

Still - I ended up rebalancing 3 times as the market dropped though 2008. Ouch! Talk about catching falling knives! By the end of 2008/March 2009 I couldn't rebalance anymore because I had reached my "limit" in terms of min cash+bonds amount I felt I had to hold in my portfolio in case things stayed down for a long time. Again - that last rebalance felt like squeezing blood from a stone - it was so hard to do!

Afterwards, I was rewarded. I did widen my rebalance tolerance limits though - I don't like to rebalance often.

Audrey

 

[W2R]

Still - I ended up rebalancing 3 times as the market dropped though 2008. Ouch! Talk about catching falling knives! By the end of 2008/March 2009 I couldn't rebalance anymore because I had reached my "limit" in terms of min cash+bonds amount I felt I had to hold in my portfolio in case things stayed down for a long time. Again - that last rebalance felt like squeezing blood from a stone - it was so hard to do!

(emphasis mine) That's for sure! I bought equity funds three times in late 2008 but then by March 2009 I was emotionally exhausted - - all I could bring myself to do, was stay unbalanced and use some cash to buy bond funds. Even those turned out to be a worthwhile move, though.

Afterwards, I was rewarded. I did widen my rebalance tolerance limits though - I don't like to rebalance often.

For me, part of the reason why I rebalanced three times in Oct-Dec 2008 was that I was too scared to do it all in one step. I'd buy as much as I dared, thinking I had made great progress in rebalancing and then the market would drop more. I wasn't completely rebalanced until after the third one.

 

[NW-Bound]

This is an interesting premise. If someone went from $1,000,000 to $600,000 this means they had a 40% loss. To get a 40% loss would mean they held at least 80% equities. If one is just about ready to pull the plug, what are the chances they held 80% in equities?

Easily done without having 80% equities! From Oct 2007 to March 2009, Wellesley went down 27%, and Wellington down 40%. Dodge and Cox Balanced Fund, a fund spoken well by Bogle himself, went down 55%.

...but the folks who did not, do not have regrets or they are not telling.

Yes, I regret not going all in at the bottom.

At least, I regret selling some stocks I bought at the bottom too soon, way too soon.

Still, before we pat ourselves on the back and claim how courageous we were, we need to remember that history often repeats, and we may be tested again before we get interred. My hope is at that time, I will be older and may not care as much if I get poorer.

 

[Brdofpray]

Retired on schedule in March 2009. I don't invest in equities though.

+1, only I retired August 2009.

 

[audreyh1]

Easily done without having 80% equities! From Oct 2007 to March 2009, Wellesley went down 27%, and Wellington down 40%. Dodge and Cox Balanced Fund, a fund spoken well by Bogle himself, went down 55%.

That's true - bond funds got hit hard too. DODBX had eschewed US treasuries in 2008, in favor of corporate bonds. Ooops! The only assets that were unscathed were cash, US Treasuries and US Government-backed bonds. But fortunately the fixed income side of the equation recovered very quickly! Whew!

DODBX was down 33.6% in 2008, and up 28.4% in 2009 (which means at end of 2009 is was down 15% from end of 2007. By end of 2010, it was down 4% from end of 2010. It really doesn't do much good to look at peak and trough, although obviously people do it all the time. But that's super selective and really doesn't help with investing. Unless people went all into the market in October of 2007, they shouldn't use that as their benchmark!!!!!!!

Anyway - I think the people talking as if the 40% loss was permanent are people who cashed out at the bottom.

Audrey

 

[W2R]

Anyway - I think the people talking as if the 40% loss was permanent are people who cashed out at the bottom.

I guess it was for them. It breaks my heart to hear these stories.

 

[NW-Bound]

It really doesn't do much good to look at peak and trough, although obviously people do it all the time...

I look at my portfolio every day. Some people do not, either because they are afraid, or because they don't care. I do look, because I care and also because I want to see the market bottom so that I can [-]time it[/-] rebalance.

If one owns DODBX and happens to look, it is a rare soul to say that he/she wasn't scared by the 55% drop.


PS. I own a bit of DODBX, and did not even know that it dropped that much until later. Why? I was too busy watching other individual stocks dropping much much more. Caterpillar went from 80 to the low 20s! Yes, a much more severe and insane drop. Well, CAT is at 110+ now. Dupont went from 50+ to below 20. Dow Chemical went from 40+ to 7. Boeing, from 100+ to 40+, etc...

PPS. Most of the above have rebounded. The real losers were of course the previous high-flying financials, many of which got wiped off the map. Gone!