If you lost half what action would you take

[rhrihm]

If we lost 50% of our retirement savings I would be very upset. Probably for several days until something else came along and made me upset enough to forget. However, I would do nothing with regard to rebalancing or leaving the market. Fortunately, going into our fourth year of retirement we have no need to touch our savings. My pensions and my wife's social security give us a lot of breathing room.

 

[DaveLeeNC]

Ever single market drop in history has been followed by recovery to higher levels. We would just ride it out. That's what the Fixed Income tranche aka bucket is for.

However, back in 1969 it took about 20 years for the S/P500 to return to its 1969 (inflation adjusted) level. That is a long time.

dave

 

[gooddog]

We would do what we did last year, change asset class. Worked like a charm.

 

[Safe Harbour]

Ever single market drop in history has been followed by recovery to higher levels. We would just ride it out. That's what the Fixed Income tranche aka bucket is for.

It’s not a loss unless you sell. Good attitude!

 

[OldShooter]

However, back in 1969 it took about 20 years for the S/P500 to return to its 1969 (inflation adjusted) level. That is a long time.

dave

And what did it take for a position to recover its nominal dollar value including accumulated dividends reinvested? That is the way people usually look at this type of thing.

Ignoring dividends and then talking inflation-adjusted is a good way to get a result that is worse than worst case. Not sure what your point is in offering such a useless "fact."

The other thing people forget about these time-to-recovery scenarios is that during the recovery time the asset is on a generally upwards trend, so someone needing to sell faces an increasingly attractive market while receiving dividends along the way. The investor will have broken even well before the exactly precise, but totally meaningless, recovery point.

The behavioral finance people will tell you that focus on time-to-recovery is due to our evolved risk aversion. The similar "I'll sell when it gets back to where I bought it" is another result from our risk aversion genes.

As a classical philosopher once said: "What, me worry?"

 

[OldShooter]

It’s not a loss unless you sell. Good attitude!

Well, I would never say it that way, but I try to remember that the dips only mean that some of our money is temporarily unavailable.

 

[NW-Bound]

However, back in 1969 it took about 20 years for the S/P500 to return to its 1969 (inflation adjusted) level. That is a long time.

dave

It is absolutely valid and necessary to consider inflation-adjusted return, because it was exactly high inflation during this terrible period that caused the real market return to be so bad.

However, if we account for dividend, then it took less than 20 years for recovery. It was something like 12-13 years.

See the chart here: http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

Of course, someone who was working and in the saving/accumulation phase would come out well. It's the same during the "Lost Decade" of 2000-2010.

However, few posters here are still working and have fresh money to buy stock. The most they can do is to sell bonds to buy stocks, and when both stocks and bonds are lousy, you don't win by selling low to buy low.

Many posters here are aware that the high period of inflation of 1966-1982 was worse for retirees living off their investment return than the Great Depression. The reason for this was that there was a big deflation during the Great Depression, and that deflation helped.

 

[Tracer]

Not wanting to go off topic in the "2021 Investment Performance thread" but lets say we lost half in a down market.

How would you change doing business in your life and financial life? Could you stay the course or have to live differently for the long haul?

My action would be to stay the course and I always took that in to consideration if that scenario happened. The reason I believe I could is I have at this time 34X my expenses in cd's etc.. I'm not saying it is bullet proof but it was plan of attack so time will tell if it ever does get that bad.

A little rebalancing maybe. But selling is foolish. You realize a loss you can never get back. I have a couple of friends who did that and regret it to this day. Every time you drop a ball, it eventually hits the floor and bounces back up. In market terms, usually higher than where you dropped it from. Been through a few of these and that's always been the case.

 

[street]

A little rebalancing maybe. But selling is foolish. You realize a loss you can never get back. I have a couple of friends who did that and regret it to this day. Every time you drop a ball, it eventually hits the floor and bounces back up. In market terms, usually higher than where you dropped it from. Been through a few of these and that's always been the case.

Yes, sell is okay if yo need the money and or moving out of equities/bonds. I have seen it also they will sell hoping to get back in and loose many years of growth waiting to get back in (market timing). I see it like you, just stay in the game and don't get out, until you don't want to play anymore.

If things went down and stayed down for a while I might buy more equity funds because I have some money to throw back more money back in.

 

[aja8888]

A lot of my answer is based on my current age and what's going on around me.

At 77+ years old, my portfolio goals are aimed at low risk and capital preservation. I'm at 25% equities and the rest split between muni bonds, select and somewhat safe preferred stocks, and cash (all CDs matured). So if I saw a market drop of 50% it wouldn't mean a lot.....I'd just re-balance back to 25% and if interest rates go up, buy some CD's. We have enough to make it to the end, and then some.

A couple of months ago, one of my best friends had a severe stroke. He is wheelchair bound, probably for the rest of his life. My brother-in-law in California passed away this last Easter Sunday. We were really good friends for 25 years and played a lot of golf together. I already miss the weekend phone calls we routinely had.

I have had both hips replaced, had a bout with SVT (heart racing issue) and still seem to be pretty healthy overall (spent a ton on dental work last 3 years too!).

DW has advanced COPD and if she has two years left, her doctors will be surprised.

So it's not a big deal if my equity portfolio drops 50% as long as the "rest" is not affected.

I'm like Robbie right now, spend on what we want, which is really not much these days, and if something big pops up, we handle it somehow. In the end, my daughter will have a good inheritance as she is deserving of it.

We don't have a budget and I loosely track spending (no more Quicken use) with a small spreadsheet. No mortgage or loans at this age.

 

[Splash]

About 75% of our portfolio is in tax deferred accounts so I would do more aggressive Roth Conversions, I would maybe do some tax loss harvesting as a way to increase my Roth Conversions. Other than that, I would stay the course.

 

[MarieIG]

a) Worry - because that is what I do.

b) Put my head in the sand for a little while like an ostrich and not look at my accounts - because that is what I do.

c) Not spend on indulgences/big ticket items unless necessary (like a roof).

d) After pulling my head out of the sand and peeping about, buy, because that is what the dry powder is there for . . .