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Has 2008 adjusted your expectations for investments?
Old 12-23-2008, 05:31 PM   #1
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Has 2008 adjusted your expectations for investments?

Before this year, I was very focused on accumulating a lot of equity mutual funds, building up the IRAs and 401ks was a priority, generally putting a lot of money in the market while making the normal payments on the mortgage, student loans, etc. I have many years to go so losing money in the market isn't a problem today, but it still hurts. I had been prepared for a 20% drop in a year but not the 50% drop we saw at one point.

Going forward, I am looking at taking a more balanced view of putting additional money into the mortgage and adding TIPS to my investments, in addition to still buying some stocks (although a lesser percentage of my overall portfolio). I think that stocks are still likely to deliver a higher return over the long run, but I am less willing to stake my success or failure on something so volatile. Maybe better to take less risk with lower return and focus on things that are within my control, such as LBYM. Seems silly to work so hard on controlling spending when it can disappear in the market just as quickly. Has anyone else noticed a similar change in perspective?
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Old 12-23-2008, 05:53 PM   #2
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My expectations are returns of 9% over a 20-30 year period.

That might be -50% one year
then +12%.+25%, +33% another two or three years.
Followed by a low year of -20%
followed by +12%.+25%, +33%

the short term volatility over 3-7 year periods will never go away.

I would like to get from 100% equity to 90-10 or 80-20... but I will not make the move until I recapture my gains from current market (I have 18 years until I might FIRE), so I can give market time to help me.
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Old 12-23-2008, 09:12 PM   #3
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Has anyone else noticed a similar change in perspective?
No. I still expect (but do not rely on) dividends to increase an average of 7-8% or so in the long run, thus slowly but surely raising my standard of living. The market value of my stocks is much less important to me than the quality and reliability of the earnings and dividends of those companies. The large price swings represent opportunities to trade relatively over-valued stocks for relatively under-valued stocks rather than causes for alarm.
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Old 12-23-2008, 09:18 PM   #4
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I suspect my historical 70/30ish allocation will be more like 55/45 after recovering some losses. I've re-examined things and I think I don't need to take quite as much risk as I thought, assuming now that I'm stuck at work for another 3-5 years longer than I thought 14 months ago.
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Old 12-23-2008, 09:41 PM   #5
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I had a fairly conservative asset allocation to start with (65/35 stocks/bonds for a 34 year old), and I will likely keep that asset allocation unchanged for the foreseeable future. I still don't plan on prepaying the mortgage. In the end, this year has not been overly damaging to our ER plans because, despite some heavy losses, we have saved an extraordinary amount of money YTD and it seems like we will end the year with a portfolio just 5% smaller than what it was on 01/01/2008. Going forward I am still using a 7% annual return in our portfolio projections.
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Old 12-24-2008, 07:32 AM   #6
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I never put the money I cannot live without in risky investments like stocks. For example, for saving for college tuition for my kids, I'm using MD's prepaid tuition plan [which is portable]. For retirement [I'm 33] we put the money we absolutely need in TIPS/bonds and then some in stocks. If stocks don't do as expected or worse, I'm still good.

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Old 12-24-2008, 09:02 AM   #7
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Originally Posted by soupcxan View Post
Before this year, I was very focused on accumulating a lot of equity mutual funds, building up the IRAs and 401ks was a priority, generally putting a lot of money in the market while making the normal payments on the mortgage, student loans, etc. I have many years to go so losing money in the market isn't a problem today, but it still hurts. I had been prepared for a 20% drop in a year but not the 50% drop we saw at one point.
Using the VG portfolio analyzer, a portfolio of 100% stocks, historically, had its worst year in 1931 of -43% and its best year was 54% so this last year is not completely out of whack. Historically, losing years happen 29% of the time for a 100% stocks.

Of course knowing what the odds and ranges are and experiencing them are two different things. If you can stand a 20% drop then you need to have a less volatile mix.
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Old 12-24-2008, 09:45 AM   #8
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I am definitely disgusted with the economy and with market events!!

(Whew, that felt good. )

I don't expect my investments to do very well at all in 2009. But, I am not really planning to change my financial plan. I will be retiring next November.

I am at least half expecting inflation greater than we have seen in the U.S. in our lifetimes, starting sometime in the next five years. Whether that happens or not, I don't see any reason to take money out of stocks. I don't know what else I could do in facing extremely uncertain economic times, other than to diversify with a moderately conservative AA. I believe that I have done that, with a 45:55 (equities:fixed) portfolio AA, and a paid off house.

Nothing so far has persuaded me to tweak my financial plan. I am not thrilled with my portfolio's performance, but it has been better than some. The dividends have come through reliably through all of this. I just don't believe market timing works, at least not for me. I still love my Wellesley even though it has declined like other funds.

I have begun thinking about various worst case scenarios and how to deal with them as far as altering lifestyle expectations. That's about it. Time to hunker down and weather this economic storm.
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Old 12-24-2008, 12:30 PM   #9
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I am a very conservative person, and all my conservative decisions (pay off mortgage, save money and put it in guarenteed investments "CD's"), have served me well. Investments into the market (401k and some after tax money) have been an absolute joke throughout my saving/investing career.

So to answer your question regarding "Has 2008 adjusted your expectations for investments", Nope not a bit. My feeling about investments has never been all that positive.

I will continue to max 401k investment each year, just in case my conservatism ends up being wrong, but all my extra savings will continue to go into other "non stock market" investments I believe in. If my neighbors put their land up for sale, I will be all over, to increase the size of my doomstead.
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Old 12-24-2008, 01:53 PM   #10
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This market sucks... but it was bound to happen methinks with the way things were. Too much fuel in the fire.

I've tried to be conservative with my return expectations (around 6-7%), so I had some room for downside. But the last 12 months have been hateful. I'm targeting a 70-30 equities to debt split. I'm 33 in March, and I want to be able to tell Corporate to go get bent by 40, at the latest. I guess the only adjustments have been to be ever vigilant of our annual spend rate.
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Old 12-24-2008, 02:11 PM   #11
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"Has 2008 adjusted your expectations for investments"

Not a bit. I expect investments to have a positive return after inflation.
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Old 12-24-2008, 02:35 PM   #12
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I expect market returns going forward to exceed 10% for the next decade or so.
Given that it is relatively easy to find dividend yields in the 5-7% it doesn't take a lot of share price growth to hit that goal. It isn't all rosy I think the systemic problems revealed over the last year, mean that overall earnings growth will probably barely cover population growth when measure from 2007 to 2017.

Of course, I've been playing an economist online for more than 20 years and my track record is nothing to brag about
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Old 12-24-2008, 08:42 PM   #13
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4-5% real over my lifetime and beyond (hopefully at least 30 years). No idea over the next decade, but I suspect some good times in there too since many companies are undervalued (I hope). Not to mention the upcoming invention of cold fusion and transporter technology.
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Old 12-24-2008, 08:54 PM   #14
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Not to mention the upcoming invention of cold fusion and transporter technology.
Can you tell me what company or companies are inventing those, I would love to get in on the ground floor
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Old 12-25-2008, 08:48 AM   #15
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I suspect my historical 70/30ish allocation will be more like 55/45 after recovering some losses. I've re-examined things and I think I don't need to take quite as much risk as I thought, assuming now that I'm stuck at work for another 3-5 years longer than I thought 14 months ago.
That's pretty much my answer too (from 75/25 to 60/40 for me). Without rebalancing, I've drifted to 70/30 already, and that's fine with me...
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Old 12-25-2008, 05:15 PM   #16
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No. I have been expecting ~6% at best. From 2000 until 2008, my annual rate of return was about 3x that, which I always thought was higher than I should expect--and it was.

I have started to build a ladder of 5 year CDs. Should it be a 5 year ladder or a 7 year ladder or a 10 year ladder? I don't know yet. I am still working. When I pull the plug, harvesting will be revisited.
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Old 12-25-2008, 09:26 PM   #17
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My expectations for long term (10-15 yr) returns were 5% pre-tax when I did any retirement calculations. I am not going to let 1 horrendous year destroy my long term investment and financial plan.
I am very lucky that I donned my chicken feathers and adopted a 50-50 AA in early summer 2007 at age 48, right after FIRE. I took a fair amount of heat from some local friends, along the lines of "are you nutz?"
Even with that balanced position, I am still -26% YTD overall. A real lesson for me.
I expect the unexpected from here forward.
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Old 12-25-2008, 09:37 PM   #18
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Nice footwork, freebird.
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Old 01-03-2009, 04:38 PM   #19
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My expectations have been squashed, exactly twice since I graduated college. The tech bubble in 01 (lost my first 'real' job) and the housing bubble in 07 (kept the job, knock on wood). I guess my expectations weren't that high to begin with. But with my retirement horizon at about 30 years, 7-8% ROI on my pre-tax investments would suffice. That would ensure about 3 'doubles' using the rule of 72.

Then again, rampant inflation could smash all of this. Inflation and high health care costs are the enemy of ER if you ask me!
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Old 01-04-2009, 05:24 PM   #20
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Nice footwork, freebird.
Pure dumb luck on the timing, coupled with the good sense to heed Bogle's age = bonds advice. I had just reread one of his books and decided that fence straddling (50/50) was my new comfort zone. Kinda like a simple coin toss, but in this case (2008) it was heads the market wins, tails the market wins.
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