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08-01-2007, 05:51 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Jul 2007
Posts: 1,085
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Hello and a question
Hello everyone!
I am 45 and expect to FIRE within 5 years. One concern I have about RE is how I would handle the market volatility. The past week or so has seen stocks fall sharply. Since I'm working and have a paycheck coming in, I can tell myself that I'm still making money at my job and the market will rebound anyway, so I don't really worry about market swings. I'm concerned that when I retire, I'll have a tendency to micromanage my portfolio and over-react to market swings. Knowing that I have money coming in gives me a certain sense of security. And when you RE, all your eggs are in one basket, so the speak. If the market goes down , say 10%, that's 10% less I have to live on. Even though I know intellectually that the market will rebound, it might be hard not to overreact. Have others had this problem?
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08-01-2007, 06:19 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 49,328
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Quote:
Originally Posted by David1961
And when you RE, all your eggs are in one basket, so the speak. If the market goes down , say 10%, that's 10% less I have to live on.
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David, your statement above implies your portfolio is in lock step with the market. In my case (FIREd, living off my nest egg) when the market goes down 10% my portfolio doesn't also decline 10% due to how my assets are allocated.
Find your risk tolerance, allocate your funds accordingly, keep a few year's living expenses in cash to ride out typical market downturns, have a glass of wine and enjoy life.
__________________
Numbers is hard
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08-01-2007, 07:29 AM
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#3
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Recycles dryer sheets
Join Date: Jun 2007
Location: Oklahoma City
Posts: 328
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Yeah, Normally the closer you get to retirement the more conservative your investments become to avoid volatility. "Full-in" market startegies are generally for those who are in the accumulation stage and have lots of time to recover from any downturns -- and also dollar cost average into the downturn (putting new money in when the market is low)
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08-01-2007, 07:45 AM
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#4
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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David, welcome.
To expand on REWahoo's sound advice, you might find Lucia's Buckets of Money to be an interesting read. It has its adherents and opponents here, but I have found its principles to be very sound and reassuring.
As an addendum, pegging your assets to the total market is not necessarily a bad thing, as along as you spread it among stocks, bonds and cash according to your personal tolerance. Authors like Solin and Bogle have strongly advocated exactly that approach and have explained their positions in respective books. The idea is that you need to give it time, like 15 years. In the end, few actively managed funds will beat the market index.
Lots of ways to approach it, so read up and post any questions you might have.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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08-01-2007, 08:25 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Feb 2005
Location: Lou-evil
Posts: 2,025
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Hey David. Just to add to what Rich suggested and to potentially give you a jumping point:
http://www.early-retirement.org/foru...ney-16531.html
A thread covering the Ray Lucia "Bucket Theory". Some love it and some don't see it as a breakthough theory. But just in case you are interested, you can browse through. Maybe mathjak will chime in about his thoughts as he seems to practice it.
__________________
"These walls are kind of funny. First you hate 'em, then you get used to 'em. Enough time passes, gets so you depend on them"
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08-01-2007, 08:59 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 2,155
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Quote:
Originally Posted by REWahoo
David, your statement above implies your portfolio is in lock step with the market. In my case (FIREd, living off my nest egg) when the market goes down 10% my portfolio doesn't also decline 10% due to how my assets are allocated.
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True statement. But don't ignore the other side of the coin. When the market goes up 10%, the portfolio doesn't not increase by 10% either. That's the price one pays for stability.
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08-01-2007, 09:20 AM
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#7
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Moderator Emeritus
Join Date: Jul 2005
Posts: 2,811
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David,
Welcome to the board. I see you have already gotten involved in one of the major topics frequently discussed here; how to deal with your nest egg.
As the others have already stated, the key is really balancing your allocations into a variety of financial instruments. Usually, equities, cash and bonds. Index funds of these instruments will keep the volitility even less. The key is to NOT put all your eggs in the same basket. 100% equities is a very bold portfolio and only for those willing and able to not sweat market down swings. Most of us have variations of the basic buckets of equities, bonds and cash. As you approach retirement the mix of these could change somewhat to rebalance as you enter retirement but with the knowledge that your nest egg has to continue to grow through your retirement or you could run out of $ before you die. The hard questions to answer are how much and where to put it.
All markets will swing over time. Cash interest rates will swing, equity values will swing and bond rates will swing. You just don't want them all to swing the same direction at the same time.
Good luck and welcome to the board.
__________________
Work? I don't have time to work....I'm retired.
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08-01-2007, 10:09 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 49,328
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Quote:
Originally Posted by Sam
When the market goes up 10%, the portfolio doesn't not increase by 10% either. That's the price one pays for stability.
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Yep. But it sure beats having to pay for all those Lunesta prescriptions...
__________________
Numbers is hard
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08-01-2007, 10:11 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 2,155
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You mean you can't sleep when your portfolio increase by 10%?
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08-01-2007, 10:13 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 49,328
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Quote:
Originally Posted by Sam
You mean you can't sleep when your portfolio increase by 10%?
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Yep. Weird, isn't it?
__________________
Numbers is hard
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08-01-2007, 10:43 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 7,608
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The other thing you should do is look at the market performance of stocks and funds that are doing relatively well right now. Having these in your portfolio can make you less dependent on market swings.
__________________
For the fun of it...Keith
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08-01-2007, 11:00 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 49,328
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David, looks like the folks over at Vanguard also responded to your question:
Vanguard − Spend wisely in retirement to cope with market swings
__________________
Numbers is hard
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08-01-2007, 01:56 PM
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#13
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,831
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Quote:
Originally Posted by Sam
You mean you can't sleep when your portfolio increase by 10%?
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I can't speak for REWahoo! or his portfolio, but when our portfolio jumps by 10% my spouse is so excited that I have no interest in sleeping...
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Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
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08-01-2007, 02:08 PM
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#14
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 2,155
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I don't know. It hasn't happen to me, yet.
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