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Old 09-27-2008, 07:07 PM   #21
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I was wondering if we should be beefing up our cash reserves by directing new taxable savings to cash.
I think that might be a prudent thing to do. I'm planning to do likewise. Just in case.
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Old 09-28-2008, 11:03 AM   #22
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My pantry is starting to look like my grandmother's pantry
So you've got a tin of baking powder in there thats from the 1920's, like Martha does?

We're letting cash accumulate in the money market. I think we'll have a chance to use it one way or the other over the next year.
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Old 09-28-2008, 11:29 AM   #23
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I started redirecting all future 401k contributions to the stock market a few months ago. Other than that I'm staying the course.
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Old 09-28-2008, 11:47 AM   #24
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So you've got a tin of baking powder in there thats from the 1920's, like Martha does?

Not quite. But I got plenty of reserves. I have 10 lbs of sugar, 50 lbs of flour, 15 lbs of rice, 15 lbs of pasta, plenty or beans, lentils, tuna, oil and potatoes... Even the cats have their own stash. With the gas/diesel shortages down here in the southeast, I have noticed that the shelves are getting emptier in the grocery store.
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Old 09-28-2008, 11:48 AM   #25
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I made no changes in my financial plan and have followed it. I am sliding into my final year of work prior to retirement. Since I am this close to ER, my asset allocation is pretty conservative. Believe me, that really helps a lot.

Yes, I have stayed the course.
OK, OK, I admit it. There was ONE little bitty change. I last uploaded my excess savings from my bank to my Vanguard MM account over two months ago.

I have been procrastinating and the money I have been saving from my salary since that time is sitting in my FDIC insured savings account. Peace of mind. I will upload it eventually but I like having at least some $$$ spread around like this.
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Old 09-28-2008, 12:32 PM   #26
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This hasn't shaken my buy and hold approach, but in order to make it feel like I'm doing something I'm going to hold recent rebalancing proceeds in cash rather than reinvesting immediately. Probably not really necessary on a functional level, more of a psychological trick to keep my brain from racing around thinking "shouldn't we be doing something".
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Should one necesarily "stay the course"?
Old 09-28-2008, 12:56 PM   #27
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Should one necesarily "stay the course"?

Since conditions are not static, why should investments plans be? I see the idea that anything you do will be emotionally driven and counterproductive, so do nothing. But what successful enterprise operates that way?

The recent credit stress has shown that firms that can proactively adapt to new circumstances like Goldman and Morgan Stanley survive, while more inflexible ones disappear either into bankruptcy or the grasp of a better firm.

If we were doctors would we keep right on with our treatment plan as the patients temperature rose?

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Old 09-28-2008, 01:03 PM   #28
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Maybe a better analogy would work Ha. When you're running a business you can have pretty good control over quality, set a strategy and then run it. When you're investing in businesses that dont even tell you the truth about what they're doing half the time, its a little harder.

On the other hand, the agile, mobile, hostile approach to buying beaten up stuff when its on sale and dumping it when it costs too much can add a whole lot of advantage.

But freaking out and selling your investments when we're at a market bottom because you dont know whats going to happen? Not a good idea.
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Old 09-28-2008, 01:25 PM   #29
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Maybe a better analogy would work Ha. When you're running a business you can have pretty good control over quality, set a strategy and then run it. When you're investing in businesses that dont even tell you the truth about what they're doing half the time, its a little harder.

On the other hand, the agile, mobile, hostile approach to buying beaten up stuff when its on sale and dumping it when it costs too much can add a whole lot of advantage.

But freaking out and selling your investments when we're at a market bottom because you dont know whats going to happen? Not a good idea.
Agree. Never a good idea to freak out.

But tax loss capture and switch strategies may be helpful.

There may even be situations where a pure capital preservation strategy would be smart at a time like this. Say you retired 5 or 6 years ago and are not really employable in the current economy. Say you had $2.5 m last October, enough to fund your retirement quite well. Say you are now down to $2m, still enough to stay retired, but very vulnerable to another 20 % loss. We know that another 20% would not be off the charts at all. Should we perhaps do some equity selling in favor of some 5% CDs?

I don't think the answer is not a no-brainer.

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Old 09-28-2008, 02:25 PM   #30
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On the other hand, if you slide some assets into cash and we have a 20% rebound, you'd be pretty pissed.
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Old 09-28-2008, 02:38 PM   #31
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On the other hand, if you slide some assets into cash and we have a 20% rebound, you'd be pretty pissed.
Maybe. But whether you would feel bad or not isn't really the question if you are attempting to be rational. The situation I described is not balanced. A further 20% loss might immediately wreck the retirement. A simialr gain would be nice but is not absolutely necessary.

Remember, this is all hypothetical.

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Old 09-28-2008, 03:02 PM   #32
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Hypothetically and rationally speaking, I cant guess whether we're facing a 20% downdraft or a 20% rebound. I cant even weight the likelihood of one vs the other.

People might see the bailout very favorably and we could see a 100-150 point rise in the s&p 500 in the next 2 weeks. But then reality might sink back in.

I do think that the next 3 years wont be 2003-2005. But I dont know if they'll be like 2005-2008 either, or worse.

If we did get a 15-20% pop, I'd probably slide myself to a little more of a conservative perspective. If we dropped another 15-20% I'd probably buy more select equities.

But standing right here, right now, I cant see anything actionable other than maybe dumping a few obvious long term losers and holding a little more cash.
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Old 09-28-2008, 04:00 PM   #33
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I do think it makes sense to question your strategy when new information comes in. If this really was the death of capitalism and risk premiums for equities were drastically slashed for unfixable systemic reasons, then I might change my investments to cash or an annuity and go back to work.

Although this crisis is surprising now, it's definitely not unprecedented in terms of confirmed devastation. The great depression was certainly worse than what has happened here so far. And I had planned for surviving the great depression in my retirement planning by using firecalc. Maybe this crisis will be worse after it plays out but betting on that would be awfully cynical.

The "agile mobile hostile" approach that works for small businesses isn't really relevant here because my investment strategy is not that mobile. Development of my current investment approach was based on many years of financial research, most of it done by others (e.g. trinity study, John P Greaney, this board, etc). I don't have that kind of support to make an agile mobile hostile pullout now. It will be years before the financial planning research accommodates this new information that the crisis revealed, and it may very well come out that the best plan is to do as always before. I'm sticking with my well-researched plan instead of trying something untested based on gut.
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Old 09-28-2008, 04:20 PM   #34
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My view is that in the current environment I am not going to try to be a hero. I am not going to panic either and go all cash. But I want to make sure that we have enough liquidities to make it to the other side of this thing with the least amount of damage to our long term goals and without having to liquidate our long term assets (stocks, RE, retirement accounts). If it means redirecting taxable contributions to cash for a few months instead of plowing everything in the stock market, then so be it. The market could go up from here or it could go down from here, I don't know. But if we have enough cash set aside, what the market does in the short term will matter considerably less.
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Old 09-29-2008, 09:35 AM   #35
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No change in AA or contributions.
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Old 09-29-2008, 11:41 AM   #36
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Stay the course

10 years away, I did move out of equities in my 401k, and into a gauranteed money market Fund in my plan(10 year avg of 4.5%) mid-septmber. I gave it alot of thought, took as much emotion out of it as I could. My rational was why take on certain risk in the current market and put 20 years of sacrafice and savings on the line. As the financial system settles down and starts to make sense of all of this, I will start DCA.
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Old 09-29-2008, 12:03 PM   #37
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Thanks for everyone responding - interesting opinions here. Overall it sounds like a lot of us still accumulating for FIRE are sticking to their previous plans and DCA'ing into the market despite the recent downturn (like DW and me).

Another follow-up question: for those who are moving either new contributions or existing assets to cash, do you think this means your original AA was incorrect or that the risk was greater than you expected?

Since DW and I already have a emergency fund that could sustain us for 6-9 months I don't think I can justify keeping more cash without considering it market timing or adjusting my risk profile and associated AA.

Thoughts?
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Old 09-29-2008, 01:28 PM   #38
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I must add that I already have a fairly conservative asset allocation, about 65% stocks / 35% bonds & cash. I have had that asset allocation for years and I haven't changed it in response to the current crisis. I am very comfortable with that AA (I am 34). The problem of course is that, in order to minimize my tax bite, most of my bonds/cash are in tax-deferred accounts where they can't be touched in case of a short term liquidity problem. Our EF (in taxable accounts) can only sustain us about 1 year, which would be just fine in any garden-variety recession. But if this thing turns into a prolonged, deep recession, I think that a 1-year EF is not going to cut it if we lose our jobs in the early stage of the recession. So my problem is not one of risk mismanagement, it is one of liquidity. I will compensate for the increase in my taxable cash position by investing more of my tax-deferred money in equities for a while. Overall there will be no change to my AA but it will make my portfolio less tax efficient temporarily. Just more liquid assets that can be tapped in case of an emergency.
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Old 09-29-2008, 01:30 PM   #39
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Since DW and I already have a emergency fund that could sustain us for 6-9 months I don't think I can justify keeping more cash without considering it market timing or adjusting my risk profile and associated AA.

Thoughts?
I think you're OK as you are, but I also think that it's prudent to have 12 months worth of living expenses in your emergency fund. And I wouldn't think it would be considered market timing for you to bump up your cash reserves at least to this level.
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Old 09-29-2008, 05:13 PM   #40
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I also think that it's prudent to have 12 months worth of living expenses in your emergency fund. And I wouldn't think it would be considered market timing for you to bump up your cash reserves at least to this level.
Agreed.

DH and I were slowly building up our e-fund and have decided to accelerate the process instead of paying off our HELOC. (So we're doing this with debt servicing money, not with DCA money). Our thought is that if this is a prolonged recession we'd rather have the liquidity, which would buy us time to figure out what to do. If it turns out to be a relatively short recession, we can take the excess cash we've saved and pay off the HELOC in a lump sum. I was originally gunning for a 6 month emergency fund; I redid our budget today to get us to 12 months' expenses ASAP. We'll ladder this in CDs and then can easily divert money from the ladder into equities/debt repayment as the CDs come due.
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