About Ready to Give In to....Resignation

[ziggy29]

One thing I do know is that when all is said and done, a lot of people are going to seriously reconsider their risk tolerance. Many people now are resigned, I think, to stick it out and wait for the recovery...but at that point they may reconsider their AA.

I was a 70/30 guy, and I suspect that once my holdings get back to about 70/30 (if they do) I'll probably be more like a 50/50 in the future, especially given the yields we can get on TIPS today for fixed income...

 

[DJRR]

For a different perspective, if I end the year where I was last week - down 34.32% then my compound annual return for the last 6 years will be 9.96%. That is significantly better to me than CDs and Tbills.

6 years is arbitrary, but all I have data for. The point being that stocks have averaged about 10% long term. That includes losing about 1/3rd of the value every 7 years on average (10 bear markets in 70 years). Part of obtaining the return is dealing with the volatility because the timing often makes no sense. We could go up 10% in a day (happened twice last few weeks) or 20-30% in 6 weeks or we could continue down. No one knows whether the next rally will be a "sucker" rally or the real thing. If you don't think it is the real thing you may miss the first 30% of the next bull and your long term result will suffer accordingly.

Unless you are in withdrawal phase then I would not worry about it. I have also learned that I should be more cautious when I am within sight of my retirement date. No need to bear the volatility when I am crossing the goal line.

 

[Gone4Good]

Correct me if I am wrong but if the Market is down about 40%, does it not have to "come back" about 70% to be even with say October LAST year?

Yup, you point out the pretty basic arithmetic of the situation investors face.

However, this isn't the first time stocks have declined 40%. On most long-term charts those periods are almost entirely imperceptible little blips or pauses in an otherwise powerfully upward trend. Is it different this time? Perhaps. But that is not my bet.

 

[haha]

To expand this thought . . . .

We also know with absolute mathematical certainty that returns on $1 invested in equities today will yield higher returns than that same dollar invested exactly one year ago. Plenty of people were eager to invest that dollar 12 months ago, fewer are now, even though we know with absolute certainty that returns will be higher.

Go figure.

Yes, that is true. There are all sorts of "yes buts", mostly riding on "but last year we didn't know how bad the economy would get", etc. What we forget is that we did in fact know that this was a possibility( unless we were ignorant of market history), we just paid little attention because it hadn't happened recently. Now we are very aware that it can happen, but we still know nothing more about the year to come, or the year after that, ....

So it seems to me that the most logical approach is to continue with whatever you rationally and carefully planned before this crash.

I am not the most careful person in the world, so this can be a tall order for me.

Ha

 

[FinanceDude]

#1 - "always take advantage of your pre-tax investments (IRA, 401K)"....mine is down 40%+

a)The match is FREE MONEY, b)You get to defer the tax for decades, and c) You are DCA'ing at the lows.....

#2 - "buy real estate - you'll never go wrong"....don't think I need to explain that one any more....BTW, I have yet to sell an unoccupied condo after 2 years on the market and having lowered the asking price by 25%!

Is the price comparable to other in the market? How is the location?

#3 - "buy good quality stocks and hold them - you can't go wrong".....hmmmm, another piece of advice that I have taken advantage of and believed in....and I know that I'm not the only one! .....down over 50%!!

What is you dividend income off those stocks??

#4 - "if you're buying quality stocks, buy on the dips....buy when everyone else is selling....DCA"....with this market I would have to say that it's ALL BS!....this is just another piece of advice that has placed me in a position to re-enter the work force after going all-in with a good piece of my "3 years of living $$$'s"....

I am truly sorry to hear that.........

 

[Notmuchlonger]

The '70s were rather hazy for me....O0

Can you dig it? O0

 

[W2R]

So it seems like that keeping it in the market in hoping to recoup some of the losses is kind of futile, since it does seem likely that there will be further losses in the stock market

Frank just took me out to lunch and we had a similar discussion. He thinks that in general equities are a gamble and that keeping money in the bank is where it's at.

My response to him was that yes, in the short term preceding this moment this has been true, but in the long term it may become even riskier to keep money in the bank/MM/CDs than to invest in mutual funds. Think of it - - this bailout is involving billions, or by now trillions, and is barely yet begun. Eventually it is possible that massive inflation will result. The risk of inflation is the risk you bear when not investing in the market. Massive inflation is not a problem right now, but at some time in the future it could hit us like a ton of bricks all of a sudden, just as this recession knocked us down in the beginning of October.

Since not investing has its risks as well, we are back to balancing risks.

But all that is theoretical. In the practical realm, all I have to say is "psst!!! Wellesley" (to borrow from UncleMick).

 

[bbbamI]

Can you dig it? O0

Every chance I get....

 

[tangomonster]

Thanks for everyone's replies! This board never fails me. Who knows how many breakdowns and suicides it has prevented by giving people a place to express their fears and concerns and get some advice? And not feel entirely alone in this Brave New World of the economy (don't know if the world/economy is brave, but we definitely have to be to tough it out...especially us FIRE types living entirely off our investments!).

Cuppa Joe, sorry to disappoint you with the misleading title! But don't you see, if I was still working I wouldn't be as worried about my investments.....

VA Collector, am I reading your post correctly in that you now have to go back to work? If so, I am so sorry----and I apologize for bellyaching when at least I am still retired.

Want2R, your point about inflation is a good one, but wouldn't a scenario still be possible that inflation goes up and the stock market doesn't beat it and even whittles down savings even more? So---did you convince Frank?

Spoke to my broker who commented that, with all the phone calls we have made to him recently, he sees we don't have the risk tolerance anymore for the market! I've been fired (not our type of FIRE) from my broker! (Not really, he actually is just our muni bond broker, except that years ago, he got us into a GMAC bond that was $30K, now is worth $17, and promises to tank further...and he can't even sell it now.) He did not note that for ten years since 1997, the S and P did go up a cumulative 79.86 percent whereas T bills went up 48.97....but that 2008 has obviously eroded that gain. And possibly has eroded my confidence in the market/investing....

 

[Gardnr]

Ah yes, this sell off continuing today after the bit of a rally from the bottom made on Oct 27 (up almost 19% on election day from those lows) is going to flush out some more capitulation amidst panic amongst those who haven't already done so. There will be much more of this kind of action, I predict, before we finally start heading up in a sustained fashion. I admit to fighting my own gut on days like today. It's very easy to get bogged down in the pessimism and start buying into the worst case scenarios and doomsday predictions.

I just have to continue to go back to the basics as others have stated, and look at the valuations we see now and the huge upside vs. the much more limited downside that we likely would get from here forward. Even many of the perma bears are saying it's time to get into the market now.

If you can stay liquid (i.e. you have plenty of cash-like funds to see you through a year or two at least) and gut this out I think you'll be well rewarded. But it is very gut wrenching to do so. I know, I feel it too.

 

[ziggy29]

I just have to continue to go back to the basics as others have stated, and look at the valuations we see now and the huge upside vs. the much more limited downside that we likely would get from here forward. Even many of the perma bears are saying it's time to get into the market now.

Agreed. I'm following a list of strong companies with solid dividend yields and a good history of paying them.

A couple weeks ago I bought some ADP and today they increased the dividend nearly 14% ($1.32/yr up from $1.16). So even in a market going nowhere, this provides some solace and a reminder that I'm taking the right approach...

 

[Dawg52]

Every chance I get....

I'm digging some Steely Dan, Eagles, Fleetwood Mac, Dr John, Little River Band and others as I work here at home. I'll save AC/DC for tonight when I'm half crocked.

 

[hankster]

A quarter of a million will do. Can I pick of a check this afternoon?

Wow, that would buy a large quantity of your favorite medication (and not the cheap stuff either

P.S. Show me the little beer drinking smiley. I crack up every time I see him.

 

[FinanceDude]

Frank just took me out to lunch and we had a similar discussion. He thinks that in general equities are a gamble and that keeping money in the bank is where it's at.

My response to him was that yes, in the short term preceding this moment this has been true, but in the long term it may become even riskier to keep money in the bank/MM/CDs than to invest in mutual funds. Think of it - - this bailout is involving billions, or by now trillions, and is barely yet begun. Eventually it is possible that massive inflation will result. The risk of inflation is the risk you bear when not investing in the market. Massive inflation is not a problem right now, but at some time in the future it could hit us like a ton of bricks all of a sudden, just as this recession knocked us down in the beginning of October.

Sounds like he needs a lecture on "Inflation 101"..........

 

[W2R]

Want2R, your point about inflation is a good one, but wouldn't a scenario still be possible that inflation goes up and the stock market doesn't beat it and even whittles down savings even more? So---did you convince Frank?

No, I didn't! We are both very independent and opinionated people. So, he compared equity investing to bookies and horseracing, and I predicted gloom and doom due to inflation. We both enjoyed our grilled chicken and iced tea, kissed goodbye, and he was off to work after lunch.

Yes, a scenario like that is certainly possible! I tend to think of equities as being shares in companies, so that the dollar worth of the shares might increase with inflation as company profits inflate and company assets inflate. But there is no guarantee of that and actually, it doesn't happen all of the time. At least there is a chance of it happening. I guess TIPS or I-bonds would be a better and more reliable inflation hedge but it is hard to get enthusiastic about TIPS lately, either! and at $5K/year, I-bonds are no help.

 

[W2R]

Sounds like he needs a lecture on "Inflation 101"..........

I gave him the lecture but he has the bank balance to compare with my portfolio losses!! All I could do was laugh and say, "Well, that is THIS year!! You're gonna get hit hard by inflation eventually."

 

[Gardnr]

Agreed. I'm following a list of strong companies with solid dividend yields and a good history of paying them.

A couple weeks ago I bought some ADP and today they increased the dividend nearly 14% ($1.32/yr up from $1.16). So even in a market going nowhere, this provides some solace and a reminder that I'm taking the right approach...

Yep, same here. It's made it easier on the psyche since these positions just keep getting drowned in red! And I'm running out of free cash to buy with!

 

[Nords]

Frank just took me out to lunch and we had a similar discussion. He thinks that in general equities are a gamble and that keeping money in the bank is where it's at.

Want2R, your point about inflation is a good one, but wouldn't a scenario still be possible that inflation goes up and the stock market doesn't beat it and even whittles down savings even more? So---did you convince Frank?

A lot of short-term emotional "logic" is being applied to long-term situations.

Dimson & Marsh's studies showed that the only asset to trump inflation over the long term is stocks. Nothing else. Even stocks occasionally lost to inflation, but over the long term (a decade at a time) only stocks beat inflation. It's not as if there's another choice of an inflation-beating asset class.

So you think you're unhappy now, and might be happier with a fixed-income portfolio? You don't know unhappy yet!! Those of you feeling the need to flee to the "safety" of 100% fixed-income investments are welcome to spend a few days with my parents-in-law. They fled to safety at the of the 1990s and were firmly in cash/Treasuries by 2001. Some of you could go around the house turning off lights until you're reading in the dark, while others could turn the thermostat down to 64 degrees. Then you could dial online at 56K (broadband costs too much and there's nothing on the Internet worth it anyway) or watch a library-supplied DVD of the Sopranos' fourth season (HBO is too expensive). You could sleep on a bed under six or seven quilts (those darn electric blankets just waste energy) and shower in tepid water. Laundry is a lot of fun because it's a great conversation-starter hanging around the condo on dryer racks instead of in that wasteful electric dryer. (Free humidification, too!) And when the utility bills arrive, you can help kvetch about electricity costs going up 5%-- from $50/month last year to $52.50 today-- and accuse each other of wasting electricity on your various "leisure" activities.

I guess there are a couple of asset classes that will keep up with inflation-- for example, a COLA-adjusted annuity. But those of you contemplating putting your portfolio in cash would probably recoil in horror at the idea of actually spending money for some sort of inflation-protected asset.

I guess that leaves it to I bonds & TIPS...

 

[Gone4Good]

I gave him the lecture but he has the bank balance to compare with my portfolio losses!! All I could do was laugh and say, "Well, that is THIS year!! You're gonna get hit hard by inflation eventually."

Tortoise and the hare.

I look at it this way. I don't have a one year plan. I have a plan that is intended to carry me for 50 or 60 years with a reasonable likelihood of success. Cash sitting in a bank account may feel very good today, but it has about a zero percent chance of getting me to the finish line 60 years hence.

Edit: Or, what Nords said

 

[FinanceDude]

I gave him the lecture but he has the bank balance to compare with my portfolio losses!! All I could do was laugh and say, "Well, that is THIS year!! You're gonna get hit hard by inflation eventually."

Next time the market returns 20%, re-explain the rule of 72 when his cash is getting 1.5% in a checking account........

 

[W2R]

Next time the market returns 20%, re-explain the rule of 72 when his cash is getting 1.5% in a checking account........

Well, I can explain but I have found that it is impossible for me to actually change people, especially him, so there is no point in trying. I accept and adore the whole package as is, and I try not to worry about aspects that I cannot change. Maybe if I provided a good example he will eventually decide on his own that he wants to change his investment philosophies. The market isn't helping me in providing a very good example, though, since I have been losing.

At least he isn't doing penny stocks any more, which he was messing with five years ago!! That was driving me up the wall.

However, I don't think he even gets 1.5% in his bank account.

 

[tangomonster]

Nords, thanks for the bit of a reality check about your ILs living on fixed investments (as well as the reminder that stocks have always performed better than any other investment over a decade---here's to 2009-2019! Never been one for New Year's Eve, but 2009 can't get here soon enough at this point!), but are your ILs really struggling---or just being overly cautious, as older people can become? My parents would go on travel tours where the older people had the money for the all-inclusive trip, but would still sneak food into their purses and pockets for snacks that weren't part of the deal!). And if someone has a high enough net worth and a low enough SWR, wouldn't it be (theoretically, at least) possible to live on the fixed income investments?

FD, yeah, I agree that 1.5% is pretty paltry, but I think we all know that any friend of W2R would be smart enough to at least be in muni bonds or CDs paying a (slightly) higher amount? And while I would be thrilled with a 20% return of the market, if at this point I/we all have lost over 40%, aren't we still behind over 21.5% (not getting the 1.5 percent of the Frank's checking account and still being down the 20% that the past months have brought)

YrsToGo, with your comment about the tortoise and the hare....didn't the tortoise win the race by being slow and steady? Yet you commented that "Cash sitting in a bank account may feel very good today, but it has about a zero percent chance of getting me to the finish line 60 years hence." So---maybe in this crazy new economy, we need to rewrite the fable and let the hare win....albeit after many sprains and dislocations and time-outs?

 

[OAG]

Nords, thanks for the bit of a reality check about your ILs living on fixed investments (as well as the reminder that stocks have always performed better than any other investment over a decade---here's to 2009-2019! Never been one for New Year's Eve, but 2009 can't get here soon enough at this point!), but are your ILs really struggling---or just being overly cautious, as older people can become? My parents would go on travel tours where the older people had the money for the all-inclusive trip, but would still sneak food into their purses and pockets for snacks that weren't part of the deal!). And if someone has a high enough net worth and a low enough SWR, wouldn't it be (theoretically, at least) possible to live on the fixed income investments?

FD, yeah, I agree that 1.5% is pretty paltry, but I think we all know that any friend of W2R would be smart enough to at least be in muni bonds or CDs paying a (slightly) higher amount? And while I would be thrilled with a 20% return of the market, if at this point I/we all have lost over 40%, aren't we still behind over 21.5% (not getting the 1.5 percent of the Frank's checking account and still being down the 20% that the past months have brought)

YrsToGo, with your comment about the tortoise and the hare....didn't the tortoise win the race by being slow and steady? Yet you commented that "Cash sitting in a bank account may feel very good today, but it has about a zero percent chance of getting me to the finish line 60 years hence." So---maybe in this crazy new economy, we need to rewrite the fable and let the hare win....albeit after many sprains and dislocations and time-outs?

As someone confirmed for me earlier - the market when down about 40% has to rise about 70% for a "hold em" investor to "get even". Then you have to go up about another 1.5% to have the basis for your "better" argument. Watch out he does not buy a couple of long term CD's too.

 

[W2R]

FD, yeah, I agree that 1.5% is pretty paltry, but I think we all know that any friend of W2R would be smart enough to at least be in muni bonds or CDs paying a (slightly) higher amount? And while I would be thrilled with a 20% return of the market, if at this point I/we all have lost over 40%, aren't we still behind over 21.5% (not getting the 1.5 percent of the Frank's checking account and still being down the 20% that the past months have brought)

Nope, I think he gets less than 1%. He is smart enough to find a better interest rate, but I don't think it's important to him.

MEN!!! Sometimes I think they were put on earth to drive women crazy. But we love them anyway.

He does like the fact that he hasn't lost as much as others lately! So maybe he is the smart one, at least for now. And who knows how he will be investing next year.

 

[bbbamI]

I'm digging some Steely Dan, Eagles, Fleetwood Mac, Dr John, Little River Band and others as I work here at home. I'll save AC/DC for tonight when I'm half crocked.

Love 'em all! ....... AC/DC...a little head bangin' music perhaps?