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Old 07-07-2008, 10:58 AM   #61
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With the recent downturn of the market, along with an uncertain future, what do you plan to do with your portfolio tomorrow? Futures call for another significant down day on Monday, July 7.

At 55, and desperatly wanting to ER, I'm considering pulling out of the market and going to cd's for a while.

your thoughts?
There will always be uncertainty in the market, unfortunately that is just a fact of life. I tend to think that there is always a trend within the marketplace; whenever there is a trough there will be a peak at some point. Unfortunately the time to get from one to the next can vary considerably. Being a risk-averse person myself, I generally would just wait it out until my peak comes again, but that depends on a couple of things. While the market is at a downturn right now, if I put my money in say... 30 years ago, I might still be ahead. That is, after I take into account the time-value of money and everything else that truly affects the value of my assets. So if I turn out to be ahead, that is a good thing, I could sell, buy low sell high right? And using the same time frame and using the Dow as a reference point in all of this, I can see that the market has been steadily increasing overall, and appears to have leveled out over the past approx. 10 years, I might say it looks as if the time has come for a downturn. So maybe I would pull out of the market because of this.

But I think it just depends on your situation and your attitude toward risk. I wouldn't want everyone to fell the same as me and pull out of the market; we certainly don't need to have another stock market crash.
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Old 07-07-2008, 12:33 PM   #62
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Is anyone planning any sales to harvest losses? I've got this mutual fund that's down almost $4K.

Here's an article in case anyone else (besides me) is new to this and wants to learn more.

"After using capital losses to offset gains, you can use up to $3,000 a year of losses to offset wages or other income. Losses exceeding capital gains and $3,000 of other income can be carried over for use in future years." Time to Harvest Your Capital Gains? - US News and World Report
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Old 07-07-2008, 02:16 PM   #63
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FWIW, I've spent the past 25 years working for investment management firms that spend tens of millions of dollars/year on research trying to determine which stocks are under- and over-priced (you would not believe the inconsistent research that comes out of investment banks). There are thousands of other investment management companies doing the same thing.

My conclusion: nobody can consistently identify market tops and bottoms--period. My approach is to ignore the trailing and forward PE ratios, the VIX, the put/call ratio, the moving averages, the TED spread, the Baltic Dry Index, the head and shoulder chart patterns, and the other metrics everyone on Wall Street uses to predict the future and stick with my predetermined asset allocation.
So the technicals don't turn you on I see. How about valuation measures, they don't mean anything either? You would continue to hold stocks even if the current, trailing, and forward PE's were all 100?

If your favorite pair of shoes went from $100 to $1000 in a year, you'd still buy the same shoes?
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Old 07-07-2008, 02:27 PM   #64
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So the technicals don't turn you on I see. How about valuation measures, they don't mean anything either? You would continue to hold stocks even if the current, trailing, and forward PE's were all 100?

If your favorite pair of shoes went from $100 to $1000 in a year, you'd still buy the same shoes?

I think there is some validity to technical analysis, but there are many, many firms spending many millions of dollars to obtain an edge. I won't try to compete with them.

On valuation, you could spend a lifetime waiting for trailing PEs to come back to the historic long-term average. Here are many people who argue that PE ratios need to be considered in the context of lower taxes, greater liquidity, lower trading commissions, and lower inflation. I don't know the right answer, so I hold a diversified portfolio of equities and bonds and rebalance (ie, sell appreciated assets and buy depreciated assets) periodically.
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Old 07-07-2008, 02:46 PM   #65
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if you think your smart enough to know when to dump your equities, why didn't you do it last fall?
This great answer got lost in the shuffle...and it applies to several subsequent posts just as well.
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Old 07-07-2008, 02:58 PM   #66
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Some dude on CNBC(yes I turned it on) with UBS just said he projects the S&P 500 will rally 25-30% by the end of the year. I'll send him a case of his favorite wine if he is correct. Just noticed where the DOW has dropped about 50 while he puked out his forecast.
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Old 07-07-2008, 03:03 PM   #67
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...I don't know the right answer, so I hold a diversified portfolio of equities and bonds and rebalance (ie, sell appreciated assets and buy depreciated assets) periodically.
After many years of tinkering I've basically come to this point also. In setting up that diversified portfolio, it helps a lot to run FIRECalc simulations and look at those portfolio temporary lows during bad times to make sure you can live with the results. Those 100% safe withdrawal results can mask some wild rides, look at the spreadsheet!
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Old 07-07-2008, 03:08 PM   #68
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Some dude on CNBC(yes I turned it on) with UBS just said he projects the S&P 500 will rally 25-30% by the end of the year. I'll send him a case of his favorite wine if he is correct. Just noticed where the DOW has dropped about 50 while he puked out his forecast.
He didn't predict that rally because he really believes it might happen.

He just did it for a chance on a free case of wine.
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Old 07-07-2008, 03:37 PM   #69
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In setting up that diversified portfolio, it helps a lot to run FIRECalc simulations and look at those portfolio temporary lows during bad times to make sure you can live with the results. Those 100% safe withdrawal results can mask some wild rides, look at the spreadsheet!
I don't see how the FIRECalc results could be of much use. It uses historical data, and by most accounts we shouldn't expect to be anywhere near historical returns in the coming decades. I am not talking about a pessimistic view or being extra conservative.

There are many who believe that the bull runs of the past will not be replicated in the future. I even look at this year, and I see stocks are down and bonds are either flat or down. I don't see years like that in the historical data. At least with a bad or flat stock market the bonds would produce some gains. Nope, at least not for us.
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Old 07-07-2008, 04:04 PM   #70
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I think there is some validity to technical analysis, but there are many, many firms spending many millions of dollars to obtain an edge. I won't try to compete with them.

On valuation, you could spend a lifetime waiting for trailing PEs to come back to the historic long-term average. Here are many people who argue that PE ratios need to be considered in the context of lower taxes, greater liquidity, lower trading commissions, and lower inflation. I don't know the right answer, so I hold a diversified portfolio of equities and bonds and rebalance (ie, sell appreciated assets and buy depreciated assets) periodically.
All good points, thanks
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Old 07-07-2008, 04:11 PM   #71
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There are many who believe that the bull runs of the past will not be replicated in the future. I even look at this year, and I see stocks are down and bonds are either flat or down. I don't see years like that in the historical data. At least with a bad or flat stock market the bonds would produce some gains. Nope, at least not for us.
I added the red above. Statsman, have you really looked closely at the spreadsheet put out by FIRECalc? One of the worst periods was 1966 to 1982. Both bonds and stocks did poorly in some years in the 1970s.

What I did was to take the spreadsheet (from version 2) and for each data set (retirement year simulated) calculate the worst value using the MIN function. Then using the MEDIAN function find the median low for the portfolio. Then select all the cells and using the conditional formatting to color all those cells below that median low. This will illustrate some of the tough times these portfolios can go through.

A sense of this is given by the year-by-year portfolio balance chart in Version 3. I'm not referring to the portfolio failures but just to those lines that dip down and then drift up again.
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Old 07-07-2008, 04:22 PM   #72
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I added the red above. Statsman, have you really looked closely at the spreadsheet put out by FIRECalc? One of the worst periods was 1966 to 1982. Both bonds and stocks did poorly in some years in the 1970s.
From 1970-2007, I have yet to find a year where both the S&P 500 lost and so did bonds. 1994 was close (bonds negative, S&P500 positive), and so was 1973 (bonds positive, S&P500 really negative). The current economic environment is far closer to 1973-74 than 1994. A repeat of 1973-74 would be brutal.
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Old 07-07-2008, 05:48 PM   #73
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I don't see how the FIRECalc results could be of much use. It uses historical data, and by most accounts we shouldn't expect to be anywhere near historical returns in the coming decades. I am not talking about a pessimistic view or being extra conservative.
I am curious why do you think the next 30 or so year will be significantly worse than the last 130 years of stock market performance.?

Quote:
From 1970-2007, I have yet to find a year where both the S&P 500 lost and so did bonds. 1994 was close (bonds negative, S&P500 positive), and so was 1973 (bonds positive, S&P500 really negative). The current economic environment is far closer to 1973-74 than 1994. A repeat of 1973-74 would be brutal.
Year to Date Vanguard Total Bond fund +1.11% (Admiral)
From 6/30/07 to 6/30/08 up 7.33%
A very good proxy for a balanced portfolio psst Wellesley -5.00% YTD 1 year -1.86% (My Unclemick is looking smarter every day.)

Now it is possible that this year may end with both bonds and stocks down, but if that happens, I'd willing to bet that it is because the market rallies a bit but doesn't end up positive.
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Old 07-07-2008, 06:06 PM   #74
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I am curious why do you think the next 30 or so year will be significantly worse than the last 130 years of stock market performance.?
Historical and Expected Returns - Bogleheads
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Old 07-07-2008, 06:22 PM   #75
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I am curious why do you think the next 30 or so year will be significantly worse than the last 130 years of stock market performance.?

.
I think it will be worse because the US spent 1850 to 1990 building this country into the manufacturing superpower of the world and the last twenty years frittering it all away.
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Old 07-07-2008, 06:39 PM   #76
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From 1970-2007, I have yet to find a year where both the S&P 500 lost and so did bonds. 1994 was close (bonds negative, S&P500 positive), and so was 1973 (bonds positive, S&P500 really negative). The current economic environment is far closer to 1973-74 than 1994. A repeat of 1973-74 would be brutal.
I think you are thinking of bond nominal returns, before inflation. If bonds return 4% but inflation was 8% the real return is -4%. And this doesn't even take into account taxes which will eventually have to be paid even if your bonds are in a retirement account.

FIRECalc specifically takes inflation into account. If we had deflation you could have small negative nominal returns in stocks and bonds but because your purchasing power went up it's possible that the FIRECalc numbers will actually increase -- take a look at the early 1930's.
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Old 07-07-2008, 10:29 PM   #77
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I think it will be worse because the US spent 1850 to 1990 building this country into the manufacturing superpower of the world and the last twenty years frittering it all away.
go read some history

the economy in 1850 was pretty bad because after the Second Bank of the United States lost it's charter. the states defaulted on their foreign loans which were mostly from the British Empire. These loans were used to build the Erie Canal and other infrastructure. George Peabody who started the company that eventually became JP Morgan made some contributions to political campaigns of politicians that promised to repay these loans and most were eventually repaid.

Until the 2nd world war the US used to suffer regular depressions. in fact the Depression of 1873 was called the Great Depression until 1939.

the industrial revolution happened in the US because of the huge immigrant influx due to European events like the Irish Potato Famine and the US was the China of it's day. cheap manufacturing and IP theft.
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Old 07-08-2008, 07:21 AM   #78
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A very good proxy for a balanced portfolio psst Wellesley -5.00% YTD 1 year -1.86% (My Unclemick is looking smarter every day.)
I bet he wishes he owned it.
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Old 07-08-2008, 07:33 AM   #79
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go read some history

the economy in 1850 was pretty bad because after the Second Bank of the United States lost it's charter. the states defaulted on their foreign loans which were mostly from the British Empire. These loans were used to build the Erie Canal and other infrastructure. George Peabody who started the company that eventually became JP Morgan made some contributions to political campaigns of politicians that promised to repay these loans and most were eventually repaid.

Until the 2nd world war the US used to suffer regular depressions. in fact the Depression of 1873 was called the Great Depression until 1939.

the industrial revolution happened in the US because of the huge immigrant influx due to European events like the Irish Potato Famine and the US was the China of it's day. cheap manufacturing and IP theft.
Also, the Depressions were far spread over countries, as the "Great Depression" of 1873 was pretty much the entire Western hemisphere going into an economics downturn. With the interdependence of countries now and the vast expansion in human capital, I feel the ups and the downs will be slightly less than before, I just don't see the same "Great Depression" coming, but don't see a boom like the 94-00 either for a long time.
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Old 07-08-2008, 07:33 AM   #80
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I bet he wishes he owned it.
That reminds me. It's about time to move another chunk of my mom's inherited IRA money from the Vanguard MMF to Wellesley.
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