How do you deal with a down market day like today?

[mickeyd]

Dante,

In only the short time that this thread has been created you have gone from 33% in equities to 90% equities!

Neither % is probably correct for you.

May I suggest that you go to this site and do a little reading, take a little test and try to arrive at what your equities position may lie.

[ftp] https://flagship4.vanguard.com/web/p...tFinStart.html [/ftp]

[ESRBob]

Quote:

'LIKE?' -- I don't think so 'semi-working' Bob... No one in their right mind would trade half a mill for a lousy 20k yr part time 'gig'... Semi-Retired ~ Semi-Working -- I steer clear of all semis!!

GDER: steering clear of semis sounds good, especially if you are riding a bike!

So here is a thought experiment: You find out through a stroke of good fortune that a little private company you invested in has gone public and you now have an extra 500k (after tax) that you didn't think you had before. How much extra do you let yourself spend each year as a result?

My analysis is 4% or 20k, as my SWR amount. Crazy as it sounds, when I think long term finances, that is how I view capital -- the equivalent of 4% in perpetuity annual spending, nothing more, nothing less.

Working a little part-time gig, if you can do it a long time, is the flip reverse of this, or should be in an informal planning/thinking sense. 20k of additional annual income at a gig you really enjoy and could do for many years, (remember nobody is offering to spend real dollars on this trade -- it's just a little mental game to play with yourself) is the functional equivalent of an extra 500k in the portfolio, at least for those few decades. Likewise, the social security payment that takes over at age 67,say, that pays you 20k a year in today's dollars, could also be thought of like a replacement 500k of assets that would take over when the work stops. The guys who have early Cola'd pensions paying in that ballpark, could do the same sort of 25x calculation. Something to cheer you up on a down day in the markets, or make you think about the value of part time work.

Obviously when you die, you stop getting these payments and have nothing to hand on to heirs, so the thought only has validity during your lifetime. And once you know the hour of your demise, you can't spend this money down in a faster-than-safe-withdrawal-rate. So don't worry, GDER, I know you are right, and these are not exactly the same.

But lest you think that earning 20k a year needs to be a miserable grunt, consider this: In my town, our yoga teachers make 20k a year by teaching 4 classes a week, of one hour and 15 minutes each. 5 hours a week, with plenty of weeks off for vacations. This isn't exactly the world's most stressful job, either! Doesn't exactly mess with the ideal of a perfect ER... Probably would stay even with inflation over the long run, too, and reduce health care expenses... My point is that there are all sorts of ways to earn 10k or 20k a year that can be a lot of fun and don't involve getting sucked back into the rat race.

Now I wouldn't run out and try to get a banker to lend me 490k against that job's earnings and my future SS payments, but as an overall planning tool for my lifetime, I have found this thought experiment to be useful...

ESRBob

[Hyperborea]

Quote:

But lest you think that earning 20k a year needs to be a miserable grunt, consider this: *In my town, our yoga teachers make 20k a year by teaching 4 *classes a week, of one hour and 15 minutes each. *5 hours a week, with plenty of weeks off for vacations. *This isn't exactly the world's most stressful job, either! *Doesn't exactly mess with the ideal of a perfect ER... *Probably would stay even with inflation over the long run, too, and reduce health care expenses... * *My point is that there are all sorts of ways to earn 10k or 20k a year that can be a lot of fun and don't involve getting sucked back into the rat race.

Yeah, I think that's right. There are a lot of these $10k-$20K (maybe even $30K) jobs that are actually fun and interesting but many people don't even consider them because they don't provide enough to live on, support a family, and save for retirement. But if you're already mostly retired (whether you stopped a little early or you had unexpected losses or expenses) then it is a great supplement. I've got a couple of ideas for these kinds of "jobs" that I could use as the final fallback in my early retirement. For USians some of these jobs might even provide some measure of health insurance.

[haha]

Quote:

I've got a couple of ideas for these kinds of "jobs" that I could use as the final fallback in my early retirement. *For USians some of these jobs might even provide some measure of health insurance.

Hyper,

Please expand this idea?

Mikey

[MJ]

I plan to retire end of March 2005 but I will offer my firm the option of retaining me 2 days a week maybe for another 4 to 6 months as long if they also continue to pay my health insurance. I don't mind being weaned off my work schedule slowly and still get my pro-rated salary.
Then again when March comes along I might just say F--- it, I'm at of here.

MJ

Well, I did three (3) types of income producing
activity between 1993 (semiretirement) and 1998
(full retirement). I worked part time for a small
CPA firm which was mostly very unpleasant for me.
I worked 4 years on contract with a medium size
manufacturing company. The money was quite good and the work pretty easy for me, but I still had to show
up every day. Finally, I spent some time liquidating my own small manufacturing company. That was fun. Lots
of variety and whatever I made went 100% in my pocket. I could have gone on after 1998, but the time
was more important to me than the extra money.

John Galt

[Hyperborea]

Quote:

Hyper, Please expand this idea? Mikey

Well, I don't have any personal plans for those jobs that would provide health care in retirement so if that's what you want me to expand upon I'm sorry. *I'm a Canuck with access to that health care system and the British and Japanese ones too so I don't need to figure those types of jobs out. *Options here might be places like Starbucks or HomeDepot.

If you mean enjoyable retirement jobs in general then I've got a few ideas. *One is to run guided small group tours to "exotic" locations for the well-heeled over 50 set. *I plan to spend the first number of years of retirement in travel and living in other countries (I've also done a fair bit up to now and plan to continue plus my wife and I have a variety of language skills) so that should give me enough information to create"just exciting enough" tours for that demographic. *I would advertise such tours in the travel sections of the "right" newspapers and in the alumni magazines of certain universites. *We could also offer similar tours to the Japanese market which is mostly 50+ women and a small number of 65+ men.

Other options are teaching skills to adults preferably through adult ed programs. *The program provides all the facilities and administrative services. *Some options here are cooking (some of the foods that we have learned and will learn through our travel), flower arranging (my wife is quite skilled at this) and guitar. *Guitar instruction also has a good potential for private lessons too.

To continue with the guitar and music you can make some money doing small gigs but nowhere near enough to live on. *It may not provide more than $5K unless you do weddings (and then it might not be fun anymore) but it is potentially quite enjoyable and it provides you more exposure and credibility for the instructional side.

These are mostly being kept as fallback ideas if we have an a-historical return sequence and my portfolio unduly suffers. *I will likely consider the small-time gigging in retirement just for the fun of it though.

[haha]

Thanks Hyperborea. I did mean some ideas for fun jobs, not specifically the insurance issue.

I strongly agree with you that some cash income that doesn't expose one to undue legal liabilities and is at least some fun is worth much more than it might seem at first glance. If the going gets rough, I expect people with current working skills will be better positioned than those relying solely on capital.

Martin Whitman, who runs Third Avenue Fund, once remarked that the personal cash flow of the investor can be more important to his investing success than the cash flow of the companies he invests in. I took this to be a comment to the effect that one has many more choices if everything doesn't depend on markets.

Mikey

[Pennhaven]

From an inteview with Peter Lynch, former Fidelity Magellan Fund manager (and investing guru extraordinaire 8) ) at
http://myfidelity.members.fidelity.c...ynch040716.dyn

_________________________________________________
Q. But what if stocks hit a very bad losing streak?

Mr. Lynch: Look, I'm a historian not a prognosticator: And history says time is on your side. Even in the worst decade in stock market history, between 1928 and 1938, the S&P 500 lost, on average, less than 1% a year. Keep in mind, that was before we had the FDIC. The nation was plagued with drought, 20% unemployment, and depression. Since World War II, there has never been a single 10-year period during which the S&P 500 logged a negative average annual return. Of course, plenty of investors have settled for negative returns, but often because they bailed out at the wrong time.

I think it's important for an investor to ask himself or herself the question: What will I do if the stock market declines 10% over the next few months? What will I do if stocks decline 20%? Those are big numbers - 1,000 points, 2,000 points. Yet, since World War II, the S&P 500 has had 32 corrections of 10% or more - that's more than one every two years. And we've had 12 bear markets, during which stocks have declined 20% or more. Yet, the S&P 500 is still up, on average, more than 10% a year.

You can't invest in the stock market and think the world is going to end next week. You have to be an optimist. You have to do your homework. You have to have a realistic time frame. And, you have to understand that the market is a volatile animal, and be willing to accept the volatility. If you have those four things working for you, you don't need a crystal ball or need to time the market.
_________________________________________________

[cute fuzzy bunny]

He's not much of a historian either.

The S&P 500 has logged MULTIPLE ten year periods with a loss. In fact, during the 66-84 period, it almost logged a 20 year down period.

S&P 500:
Jan 1966 92.88
Jan 1974 79.90
Feb 1975 87.00

Not to mention that the end of this fiasco (which is why my dad wont own a share of stock ever again) was followed by a period of crushing inflation.

With such a recent and obvious conflict to Lynch's claims, I didnt look further back but if my recollection is correct, there were MANY periods during the 1930-1950 time frame where you could cull a ten year+ down period.

And those downturn/sideways periods started with high valuations that were nowhere near the peaks we're at today.

Now if he's talking about reinvesting dividends or considering their value, there might be a slight positive tilt during that 20 year cycle, but it wasnt anything to write home about.

His point about patience with equities is well taken. However its also worth noting that history shows you could wait two decades for a meaningful return on an equity investment.

Once again asset allocation is key, and the intestinal fortitude to "hold the line" is crucial.

[JWR1945]

I have posted Annualized Returns. I believe that it clarifies what Peter Lynch was talking about: stock market returns (most likely the S&P500 index) with all dividends reinvested and without any expenses.

He used average returns instead of annualized returns.

He used nominal returns instead of real returns.

Looking at annualized nominal returns with dividends reinvested, the worst case decade began in 1929 [using January numbers traceable to Yale's Professor Robert Shiller]. It had an annualized nominal return of (0.34)%, a loss of 0.34% per year (annualized).

The story does not sound nearly as good when looking at real returns. There were 13 losing decades starting during the years 1871-1992 and one flat decade (0.00% starting in 1937). Five of those had returns between (2.57)% and (3.46)%, losses of 2.57% to 3.46% per year.

Expenses would have reduced the returns even further.

Have fun.

John R.

[cute fuzzy bunny]

I find the flavor somewhat misleading. A novice investor might read that and take away two things: if you keep stocks for 10 years, you'll almost certainly be 'up', and for a period of that long or longer you'll almost certainly make 10% a year.

Neither of which is necessarily true, and even if it had been true historically, it wont be true going forward.

About what you'd expect from someone who once said something to the effect that "investing in bonds is for morons".

So did you and ***** get tired of talking to each other over on NFB with nothing but tumbleweeds blowing around you?