Why Bear Markets Hurt So Much

[Frugality_of_Apathy]

Bear Markets only hurt me because they love me so much.

Or maybe I have battered investors syndrome?

[FIREd]

Quote:

Originally Posted by Want2retire Thanks, but I am not considering adding any? Today I have exactly the percentage (well, within less than half a percent) of Wellesley called for by my investment plan. Despite the big dividends it doesn't seem to be doing any worse than the rest of my portfolio up to now. While everything else has been plummeting, Wellesley is what has given me peace of mind as it slowly drifts downward at a more gentle and tolerable pace. Do you expect it to experience some sort of delayed effect for some reason that I don't know about? The reason I am asking is that I am not the only one on the board with a substantial chunk in Wellesley, and OldBabe warned me about the exact same thing just a few hours ago. If Wellesley is in trouble, then I think another thread should be started to warn all the others here who are in the same boat. (?) I do own it with a long time horizon in mind. It is mainly for dividends, and actually has paid out more this year than last, I believe. So, I am not sure what you and OldBabe are expecting to happen that hasn't already happened but would like to know.

Bestwifeever has it right but after rereading my post I can see how it could have been misinterpreted. I am not saying anything negative about Wellesley. I own it, I love it, I am buying (lots) more of it right now. What I was saying is that Wellesley already represents 30% of your portfolio (I think). Corporate bonds represent up to 60% of Wellesley. So 20% of your overall portfolio is already invested in corporate bonds which is already pretty substantial. So my question was, do you really want to buy more [corporate bonds]? I just wanted to make sure you didn't inadvertently overweight them.

Gosh, I hope I didn't start a Wellesley panic!

[W2R]

Quote:

Originally Posted by bamsphd Now, with our greater losses and lower salary, we are down by almost 10 years of salary!

I am so sorry to read this!!! How awful. Thank goodness you did not retire last year. All I can say is that this too shall pass (and I hope it passes sooner rather than later).

[W2R]

Quote:

Originally Posted by FIREdreamer So my question was, do you really want to buy more? I just wanted to make sure you didn't inadvertently overweight them.

No!! I don't. Wellesley is now 30% and will always be 30%. My asset allocation has 55% bonds/cash/fixed, and the bond portion of Wellesley is only about 19% of my portfolio. So, I was talking about the rest of my bonds/cash/fixed.

Right now, I have another 18% in "G Fund" (TSP government treasuries fund) which I like as much as Wellesley. I have a tiny bit (3%) in VFSTX, Vanguard's Short Term Investment Grade Fund, and I am not impressed. But the rest of my bonds/cash/fixed is in money market. Eventually I should probably put more in bonds, because MM just isn't keeping up with inflation.

But, not now! Sorry that I misunderstood what you were saying, by the way. I love my Wellesley, too.

[Zoocat]

Quote:

Originally Posted by Want2retire No!! I don't. Wellesley is now 30% and will always be 30%. My asset allocation has 55% bonds/cash/fixed, and the bond portion of Wellesley is only about 19% of my portfolio. So, I was talking about the rest of my bonds/cash/fixed.

W2R, I was only pointing out the % of financials in bonds and stock in Wellesley. I have no knowledge of whether these are good ones or not. I'm sorry if I alarmed you.

[W2R]

Quote:

Originally Posted by Oldbabe W2R, I was only pointing out the % of financials in bonds and stock in Wellesley. I have no knowledge of whether these are good ones or not. I'm sorry if I alarmed you.

No problem! I am just a little on edge about this market, I guess, plus I apparently read more into what you were saying than you probably said. I sure will be glad when we are out of the bear and back to a thriving economy. I guess we all will be.

I probably shouldn't even try posting when I'm doing other stuff! I just finished dismantling and cleaning a very icky 20 gallon fish tank, and moving a lot of heavy furniture around and dragging the rug to another room, all to make room for a treadmill that I might or might not buy tomorrow. I'm tired!

[audreyh1]

This one has been so brutal because there are so many forced sellers (financial companies raising cash to cover CDSs, leveraged hedge funds getting margin calls and redemptions, mutual fund redemptions).

The buyers - the BIG buyers, are simply waiting on the sidelines for the sellers to be done. When will they be done?

I heard a couple of dates today:
October 31 - end of year for 75% of mutual funds. I guess by then they have some
Nov 15 - last day for redemptions notice for some hedge funds (although I thought that was Sept 30).

But then again, the same commentator mentioned that he expected hedge fund selling to continue into the new year, so who knows.

But, in the meantime, the big buyers are all aware of these deadlines and sitting back and waiting for the sellers to be done. They have no motivation to step in before that.

Audrey

[Florida]

What I have found really hurtful in this bear market is that the stuff that you would never expect to fall like stocks or stock mutual funds is doing a very good impression of that.

Take Tips which are US Government bonds. They are down quite a bit over the last month. And the bond funds that hold Tips such as Vanguards and Pimcos are really in a freefall. (Market is anticipating deflation).

And foreign currency another 20% to 40% decliner.

Gold, silver and commodities down.
Oil especially. (Well at least we pay less at the pump). Not a very big consoliation for all this deflation that is being anticipated.

The only survivors seem to be cash (in the bank or the mattress) and Treasuries bills, bonds and notes.

Who would have ever figured.

[ziggy29]

Quote:

Originally Posted by Florida Gold, silver and commodities down.

Actually, it's not clear gold and silver are *truly* down.

Yes, the paper securities representing silver and gold are down. But try to get someone to sell your physical gold and silver bullion at anywhere near the "spot" prices. In reality, the prices of the physical metal have, if anything, gone *up* a bit in the last month.

That tells you what the market thinks of paper securities right now. If it really hit the fan, you want the gold itself, not a piece of paper that promises to represent the same amount of gold. That's what we're seeing here.

[Delawaredave5]

I think there's a lot of people "selling stocks to a level where they can sleep at night". I can't sell now, so I'm not sleeping.

I've talked with several 2 worker couples in seemingly stable jobs with 10+ years of working that are "hunkering down" on current expenses - two people I talked to canceled planned vacations.

BTW, I always get the tap water at Subway. Many Subways I am in raised their soda prices a lot - I think to make up for the "$5 footlong"....

[samclem]

Quote:

Originally Posted by Delawaredave5 BTW, I always get the tap water at Subway. Many Subways I am in raised their soda prices a lot - I think to make up for the "$5 footlong"....

Trombone Al found a way to get Subway Sandwiches on the cheap, but it caused such a rukus here that it is no longer mentionable (though it was one of the funniest threads I can recall).

http://www.early-retirement.org/foru...f-30178-2.html

[bigla]

I retired 5 years ago at 55 with a small pension. My DW has been retired with a disability pension and SSD. We have needed to take out 2-3%/yr from our retirement portfolios to enjoy this time in our lives. Needless to say, we will curtail some of our activities now to cut future withdrawals during these bad times. Fortunately, about 2 years ago, I moved 5 years of withdrawals to a IRA MM. Nonetheless, this downturn has depressed my wife and I greatly even though I know in my head this will eventually end. We have lost 25+% of our portfolio and worry whether he will have enough to last a hopefully long life. These are very scary times.

[haha]

Quote:

Originally Posted by samclem Our allocation is 85%+ in equities, so we've taken quite a hit. Still, I haven't sold any shares (been living on our pension and my income from PT work) so I really haven't felt like we have been hit hard. I just don't have a "mark-to-market" mentality: I really don't feel like I've lost anything until I have to sell shares i bought at $20 for $15.

Not only do not have a mark to market mentality, you wisely avoided a mark to market need.

But the typically promoted plan of total return asset liquidating funding of retirement is flawed. Without your pension and part time work it would be merely a question of how long until the cash runs out. But having confidence in these schemes depends on disregarding some of the relevant evidence. Big elephant in the room #1 is Japan's negative return now now persisting almost 25 years. Big elephant #2 is the the very poor performance by almost all asset classes, and the high correlation between them, in this current downturn. This wasn't supposed to be possible either.

What we have left to depend on is what we always had but allowed ourselves to be distracted from by gurus and scoundrels.

Safety comes from regular cash flows that can be expected to have a high degree of persistence, and are sufficient to fund our normal spending needs.

Without that it could be much harder to remain calm.

Ha

[chinaco]

We have a massive paper loss in equities. WE are holding some bonds... those have some losses also (but not much). They are holding their value.

Besides the loss in portfolio value, I am wondering if I will have to delay ER. I still have a few years before the planned time... But we are not in the financial shape we were.

It is a wait and see situation. The last bear was V shaped and drifted down over 3 years... took 4 years to move back up.

This is more of an L shape combined with a world-wide recession. It might recover in 5 years... could take 10. But where will we be? Where we were in 2000 before the tech bubble burst on the DOW and S&P. No growth for 15 years.

What has happened to us is that we have been herded into 401ks as companies have disbanded pensions. Now the government has let the greedy @$$holes on wallstreet (and other financial institutions) manipulate the markets to beat us out of our retirement savings.

We are the suckers that the hedge funds and other are feeding on!

[Alan]

Quote:

Originally Posted by chinaco What has happened to us is that we have been herded into 401ks as companies have disbanded pensions. Now the government has let the greedy @$$holes on wallstreet (and other financial institutions) manipulate the markets to beat us out of our retirement savings. We are the suckers that the hedge funds and other are feeding on!

I believe you are quite right. Companies wanted to get out of providing pensions because they are expensive and even with trained professionals in charge the funds couldn't make enough money to maintain their obligations and needed regular injections of cash from the company when markets under performed. So they threw the burdon onto their employees

[donheff]

Quote:

Originally Posted by haha Big elephant in the room #1 is Japan's negative return now now persisting almost 25 years. Big elephant #2 is the the very poor performance by almost all asset classes, and the high correlation between them, in this current downturn. This wasn't supposed to be possible either.

I hadn't gotten the impression that the current downturn is deeper than any historical downturn yet. I assumed we would get several of these during the course of a 30+ year retirement. I can see that if a major downturn hits just after or prior to ER it may be cause for rethinking either your start date, your SWR or both. But is there reason to assume that we are starting an a-historical depression now that will exceed everything that has come before? If things return to normal (or slightly lower) in a couple of years does everyone plan on working forever anyway? What ever happened to Guyton approaches or other plans for dealing with a downturn?

[Alan]

Quote:

Originally Posted by donheff I hadn't gotten the impression that the current downturn is deeper than any historical downturn yet. I assumed we would get several of these during the course of a 30+ year retirement. I can see that if a major downturn hits just after or prior to ER it may be cause for rethinking either your start date, your SWR or both. But is there reason to assume that we are starting an a-historical depression now that will exceed everything that has come before? If things return to normal (or slightly lower) in a couple of years does everyone plan on working forever anyway? What ever happened to Guyton approaches or other plans for dealing with a downturn?

I think that one of the reasons that bear markets hurt so much is that emotions take over and once markets are plummeting there is always the perception that this is the bear market that is the record breaker.

Of course that only applies to the "great unwashed", the members of this forum know better and are prepared for such markets.

[WilliamG]

W2R - I too wouldn't want to part with Wellesley! It is a nice middle ground between our pure bond/cash and pure stock. I also like that the managers will be rebalancing some, probably long before I get my own courage back!

Fyi, as diversification in the non-stock area we use Total Bond Market Index, IBonds and CDs to complement the dose of corporates in Wellesley. Will add some treasuries in taxable when rates get better. Total Bond has held up well as a fund, and although it has a third or less in corporates the rest is GNMA and treasury.

[haha]

Quote:

Originally Posted by donheff I hadn't gotten the impression that the current downturn is deeper than any historical downturn yet.

It isn't. Let hope it doesn't become so. That is the relevence of Japan.

I don't think it will. But I didn't really expect this either. Martin Whitman is in his 80s, he says he has seen nothing like this, jean Eveillard is 60+, he says the same. They woujld have missed 1929 of course. They may be speaking about the combination of depth and violence which is different, although I cannot speak to Japan in that reagrd.

Ha

[dex]

Quote:

Originally Posted by haha Safety comes from regular cash flows that can be expected to have a high degree of persistence, and are sufficient to fund our normal spending needs.

Nice post.

I think that the idea of annually withdrawing your expense needs from your investments is wrong.

Two things not emphasized enough is:
1. Having several years of expense budget in cash equivalents.
2. Cash flow - including SS, pension and dividends in the expense budget cash needs.

Right now 100% of my expense budget is from my savings.
At 63 apx 7% will be from my savings.

Those that are thinking about delaying ER should run the numbers with this in mind. It might not be as dire as you thought.