2008 Net Worth Change and Years to Recoup Loss

[hakuna matata]

We are down 16% from one year ago. Not bad considering. Our 401k programs took the worst hits as they are more aggressive. But we both turn 50 this coming year and thus increased our contributions to the $22k max, and will max out our Roth again. Figure I am in for it all now--hopefully the extra cash into our 401k will be well rewarded in the future.

I haven't seen the hit to our paychecks yet--but I am sure that will be tight until we adjust. But we are shooting for age 55 to retire and things are still on track.

 

[haha]

This thread is already apprearing humorous, with the guesses of multiyear periods to comeback. I am already a few bucks short of having half of my maximum drawdown recovered. Also, I harvested massive losses which will be entirely used in 2008 and save me considerable money on my 2008 tax bill.

What I don't(can't) know is whether this rally will continue, or die and return to a new low. My best gains are in taxable accounts and still short term, so I don't think I will be selling yet anyway.

Here is one guy anyway who believes that we have crawled out of the sewer.

http://seekingalpha.com/article/113...-barron-s-interview?source=article_sb_popular

In my opinion, there really is no way other than a small % allocated to issues subject to quotes to be careful in markets. We are halfway back, and during most of that time wise men counseled to go slowly, DCA, be careful, blah, blah. Investing might be one of those "Damn the torpedoes, full speed ahead endeavors."

It never feels good at the time that you fish for a low, but it often is good time to be adding money.

Ha

 

[barbarus]

Here is a guy that thinks we may rise briefly from the sewer long enough to gain a breath of fresh false confidence, then be sucked back down even further into the sewage.


Minyanville - Market Commentary, Investing Ideas, Global Finance, The Economy


I agree with him on the probability of government-sponsored hyperinflation.
I would never try to do the risky complex trading he is apparently doing for a lousy 5 or 6%.

 

[Delawaredave5]

I'm down 16%, looking at 12/31/07 vs. 12/31/08. This includes a fair amount contributions (which I don't want to compute or I will cry..........). Housing not included.

If I look at from "net worth high water mark" - I'm down 19%.

What a crap shoot when (if ?) I'll get back to those - could be a year, could be 10.

 

[Moemg]

I think it always a crap shoot when the market will recover but I think it will recover before the housing . I do not expect to see those inflated prices again for a long ,long time .My house is valued at 20% less than it was in 2006 but it's valued 25% higher than I paid for it in 2001 .

 

[haha]

I think it always a crap shoot when the market will recover but I think it will recover before the housing . I do not expect to see those inflated prices again for a long ,long time .My house is valued at 20% less than it was in 2006 but it's valued 25% higher than I paid for it in 2001 .

Nominal value may come roaring back. I admit I can't see USA getting out of this without a massive inflation at some point.

Ha

 

[NanoSour]

Net Worth increased by 23% mostly due to contributions.

401K up 3.4%
Investments up 2.5%

House has decreased by 17% since purchasing at the peak in 2005

As for 09, I expect a near repeat of 08. This falls under "expect the worst and hope for the best". I don't think the credit bubble has been fully factored in yet, and when the consumer starts to default on credit cards, that's when the next ax is going to fall. Till then, I plan on staying in cash for at least another year.

I know this seems like I'm trying to time the market, and maybe I am. But, the only good thing is I don't have any losses to recoup. Except our devalued currency.

GLTA

 

[Dennis]

Boy some of you must be pretty heavily weighted on the Equites side to be taking such hits... I didn't even think of going into ER until I was advised to have enough $ to live off a 40/60 if not a 30/70 was best portfolio.. Inturn, it lost about -5% last yr... but, I have as much in the bond side to fully fund +25% apy bills to "infinity and beyond" plans , thus if the equities loose even 100%, won't effect my retirement plans..

and my Home(s) are not considered as part of my Retirement Income sources, just to be left in my estate..as long as they stay paid for, they are just a Small Liability of expenses and some tax shelter and not an asset to count on..only as a last resort..and everything else is all but gone.. to keep me In a Private Nursing Home..

and keeping 3 yrs of COH , I'm not concerned until Yr #3 of that $ has to be used..but My Treas/USG bonds did their job again....Whew...it was close thos, they bailed me out of Hyld Corpsin 07' , but are moving back into Hyld corps and I'm alittle conserned about that, but they've been right for these many yrs, so it's their call ..since the whole Bond Thing is Far too complex for me..

 

[free4now]

I just ran the numbers and I lost 27% in 2008. That is also what Vanguard calculated as my personal rate of return. My net worth dropped by my spending as well. This was a result of a fairly aggressive allocation (20/80 to start, 35/65 by now) and having weighted my investments towards small caps.

I'm impressed that we don't have anyone reporting losses anywhere near the 40% that the indexes fell. Or the 50%+ that real estate has fallen in many areas. Maybe those people left the early retirement forum for the [-]work until death[/-] real estate investing forums

 

[FUEGO]

I'm impressed that we don't have anyone reporting losses anywhere near the 40% that the indexes fell. Or the 50%+ that real estate has fallen in many areas. Maybe those people left the early retirement forum for the [-]work until death[/-] real estate investing forums

I think I'm leading the pack as the biggest loser at -37% returns. Many folks on this thread are reporting net worth changes, not their portfolio results. When adding new contributions or counting non-investment assets, the change in net worth is dampened versus the portfolio returns.

I'm tilted towards small cap, value, and emerging markets, REITS, international small cap and value, and int'l REITs. Some asset classes were added close to recent lows. Not sure why my results are not worse than 37% with a 50/50 domestic/international portfolio of 100% equities. Rebalancing??

 

[haha]

I think I'm leading the pack as the biggest loser at -37% returns. Many folks on this thread are reporting net worth changes, not their portfolio results. When adding new contributions or counting non-investment assets, the change in net worth is dampened versus the portfolio returns.

By net worth I meant only net invested assets. Also, in my case the non-investment flows were out, not in. (Unfortunately!)

 

[clifp]

By net worth I meant only net invested assets. Also, in my case the non-investment flows were out, not in. (Unfortunately!)

For me my figures were liquid assets, and my investment flows were also outflows. I even ended up down playing poker in 2008, the first time in at least four years.

 

[Salaryman]

I think I'm leading the pack as the biggest loser at -37% returns. Many folks on this thread are reporting net worth changes, not their portfolio results. When adding new contributions or counting non-investment assets, the change in net worth is dampened versus the portfolio returns.

I'm tilted towards small cap, value, and emerging markets, REITS, international small cap and value, and int'l REITs.

I feel your pain.
NW down 23%, taking us backwards to 2004 levels. Everything is invested and annual investment/contribution rate is 3% vs NW, no dampening effect for us.
The damage could have been a lot worse if it wasn't for the 20% cash position taken near the top. My loss leaders were emerging markets, small caps, value & financials (RIP Bear Stearns).
Learned my lesson after the dot com crash and diversified, still can't catch a break.
Lord knows when we'll see the highwater mark again. Easy come, easy go.

Salaryman

 

[Nords]

I'm impressed that we don't have anyone reporting losses anywhere near the 40% that the indexes fell. Or the 50%+ that real estate has fallen in many areas. Maybe those people left the early retirement forum for the [-]work until death[/-] real estate investing forums

In Nov 08 we were down over 45% from our Oct 07. That's come back, and now we're down "just" under 40% from that high.

Our ER portfolio is >90% equities to counterbalance our COLA govt pensions, we don't need to touch the shares for at least five years, and we've been through this volatility drill before. Doesn't make us look forward to the next one, though.

 

[albundyz]

FWIW, our net worth dropped 10% in 2008.

We're lucky. Currently, we're in stocks about 30%, but we had 5% in stocks in January and started to dollar cost average in each month, so we lost less than most.

Also, we sold our house in September. Took the proceeds and downsized. Bought another house, no house payment. We were lucky, we sold our house conventionally, at a small discount. Then, we found a bank-owned house and bought it at a greatly reduced price.

I have no idea when we'll recover our losses, but I'm guessing it will only take two years to recoup the 10% loss.

Our main advantage is that (with no house payment) our living expenses are significantly reduced.

 

[kcowan]

Retired and living off portfolio, our NW is down 18% 12/31 yoy.

We have embarked on snowbirding in Mexico for 6 months instead of 12 weeks and are hopefull that will favorably impact our SWR. Otherwise who knows what will happen?

We have not rebalanced so our equity mix has declined and we might do some more profit-taking during the dead cat bounce (?).

 

[JOHNNIE36]

Don't know how to present this but my new worth for 2008 is the same as it was for 2007 which was the same as 2006, etc. Guess I operate differently than most people but we live on what's available and stick to the 4% guideline of withdrawal from IRA. No mortgage and no debt except for car lease. Credit card debt is paid off at end of month. Our life style is geared to $50k maximum spending per year. We don't earn any more than that so we don't spend any more. The $50k is a combination of my pension, two SSI's and MWD's from IRA. As long as we can maintain this lifestyle our net worth should remain relatively constant.

 

[haha]

Don't know how to present this but my new worth for 2008 is the same as it was for 2007 which was the same as 2006, etc. Guess I operate differently than most people but we live on what's available and stick to the 4% guideline of withdrawal from IRA. No mortgage and no debt except for car lease. Credit card debt is paid off at end of month. Our life style is geared to $50k maximum spending per year. We don't earn any more than that so we don't spend any more. The $50k is a combination of my pension, two SSI's and MWD's from IRA. As long as we can maintain this lifestyle our net worth should remain relatively constant.

Of course you do- many people do not have pensions and 2 social security payment streams. It must feel good to have that stability.

Ha

 

[Bimmerbill]

Looks like my main retirement account is down 30% (1/1/08 to 1/1/09, but that is with regular and continued contributions the whole year.

Not sure about my home value, but don't plan to sell anyways. I'm sure the rest of my real property depreciated (cars and whatnot), but paid off a few so I'm probably in better shape.

 

[bamsphd]

In a way, I miss the good old days when my net worth rose solely based on my savings. There was such a feeling of control and self-determination associated with that.

Once upon a time, inflation didn't seem to matter, because I could easily out-earn and out-save it. Once upon a time, savings in the bank felt as good as gold (in the proverbial sense), and I didn't feel hostage to the vagaries of the marketplace.

No longer. Today, my income from labor is bound and chained, and savings from labor's income alone will no longer keep my accumulated savings topped off relative to inflation, never mind on the advance.

Today, my savings breathes in and out with a lusty life of its own. That's because I've felt forced into the mosh-pit, aka the stocks and bonds markets, in order to have some hope of keeping up with inflation. At least, that was a concern a year ago, and presumably it will be again sometime soon.

These days, I might make or lose more in a day than I can save from my labor in a week or a month or maybe even a year. Indeed, during 2008 I have lost more than I earned from all sources for several prior years.

However dismaying this is, it's also a source of some hope, for income from labor is something I'd prefer to graduate from.

May 2009 be a healthy and more profitable one for us all.

Amen.

For years my saved income from labor ensured my net-worth grew every year.

For years after that, my income from labor covered all my taxes, and added a bit to the portfolio.

In recent years, I've regretted having to dip into my taxable portfolio to pay some of the taxes it causes. I've also started to measure my portfolio's changes in terms of days/months/years of salary. That was very nice in years when the portfolio was up by more than a year's salary. However, near the lows this year my portfolio was down by roughly a DECADE of GROSS salary!

It is like I have had a series of ever larger boats, on every larger bodies of water. I started with a rowboat on a small pond, and my labor totally controlled my travel. Later I combined oars (labor) with a small sail (stocks), and moved to larger lakes. If the wind was with me, I could go farther and faster than ever before, but even against the wind, I could row anywhere I wanted to go. Recently I've been riding through a hurricane on my much larger boat with huge if somewhat tattered sails. I still have a paddle on board, but I'm not strong enough to overcome the slightest breeze. Fortunately, my boat is pretty solid. Once the hurricane passes, and the sails are mended, I'll be enjoying luxuries I wouldn't have dreamed of in my rowboat days. Assuming I don't abandon ship during the storm.

P.S.
Vanguard holds most of my portfolio, and says my one-year performance is -26.6% for 2008. That is probably pretty close to the change in my net worth as well.

 

[bamsphd]

I don't think this is necessarily true. Over the past 80-some years, the S&P 500 has returned, on average, about 10% per year. So we could have a random distribution with a mean of 10% and a standard deviation of 20% (roughly the historical average), out of which we are drawing future returns. In this context, "reversion to the mean" would simply mean that the expected average future return would revert to the 10% distribution mean, yet still be independent of past returns.

I recently read the book
Amazon.com: The Black Swan: The Impact of the Highly Improbable: Nassim Nicholas Taleb: Books
and it convinced me that the stock market does not follow a normal distribution. Basically there have been too many 10 sigma events for a normal distribution to make much sense. Taleb proposes a fractal model as better fitting the observed facts.

For the non-statistically inclined, assume you put 1000 randomly selected people in a stadium. Next measure their average height, and their average net worth. Now add the tallest person in the world to that group, and the richest person in the world to that group. You'll notice that the average height of those 1002 people hardly changes, but the average net worth changes a lot. That suggests a normal distribution is useful for estimating height, but not so useful for estimating net worth. You can in essence force it to work for net worth by increasing the standard deviation you assume, but that does not work very well, and can mislead you into making expensive mistakes.

I do not consider myself competent to fully present Taleb's book, but I strongly urge anyone using statistics or "Modern Portfolio Theory" in their portfolio management to read Taleb's book ASAP. Note that you do NOT need a statistics background to understand the book, but if you do have a statistics background, you have a greater need to read the book!

 

[freebird5825]

No gain can occur without the pain.

2008 left us all looking for aspirin by the case.

 

[FIRE'd@51]

I recently read the book
Amazon.com: The Black Swan: The Impact of the Highly Improbable: Nassim Nicholas Taleb: Books
and it convinced me that the stock market does not follow a normal distribution. Basically there have been too many 10 sigma events for a normal distribution to make much sense. Taleb proposes a fractal model as better fitting the observed facts.

As I'm sure you know, a variable need not be normally distributed to be random. Even if stock market returns have somewhat fatter tails (positive kurtosis) than a normal distribution, they could still be random. I think this is what Kaleb believes. I have not read "Black Swan", but I read his earlier book, "Fooled By Randomness". In that book Kaleb pretty much argues that exceptional trading performances are the result of good luck (chance) as opposed to superior skill. This is why he positions his investments in a way that gives him a chance to reap large benefits from very unlikely random events. He is willing to accept a somewhat lower return in the hope of making that "one-time killing" from a "Black Swan" event.

 

[soupcxan]

In that book Kaleb pretty much argues that exceptional trading performances are the result of good luck (chance) as opposed to superior skill. This is why he positions his investments in a way that gives him a chance to reap large benefits from very unlikely random events. He is willing to accept a somewhat lower return in the hope of making that "one-time killing" from a "Black Swan" event.

As I recall, he also figures that people on the other side of his trades underestimate the probability of a really unlikely outcome. So someone he's trading with thinks the odds of a -40% S&P is a 1 in 1000 event so they don't charge a high enough premum, but Taleb thinks its more like 1 in 100 so he's getting a "good deal" on insurance (via his extremely out of the money options).

 

[NW-Bound]

I have read both of Taleb books. Before he pointed it out, it was already known that stock market returns do not have a Gaussian or normal distribution. Taleb's point was that every so often, an event of epic proportion comes along that nobody could have predicted. It does not have to be a catastrophic event. The rise of Microsoft or Google to such lofty market-cap companies is also a black swan.

Taleb really blasted the use of the Gaussian distribution by many academics in econometric works, because the real world is anything but that. I am no economist, but in engineering, we use the Gaussian distribution all the time because it leads to a mathematically tractable solution. And with luck, the solution often works.

Taleb said that the economic meltdown due to the subprime mess is not a black swan. I guess this is true, because people in the know have been sounding the alarm for some time, but were dismissed. To the people with knowledge of the sheganigans pulled by WallSt, the aftermath as we know is simply unavoidable. On the other hand, not even Bill Gates would know he ended up dominating the software world when he was toiling as a young nerd in New Mexico.

Anyway, I read that Taleb's hedge fund had not been doing that well prior to 2008. Recently I saw that it was doing much better. Ironically, since it was not a black swan to Taleb, he could have prepared for it. Had I known these BearSteans and Lehman guys and other bankers were so bad, I could have become a multimillionaire too.