How far will you ride the market down ?

[MichaelB]

The discussion begs the question: when you would consider going back to work, if you are currently FIREd and, say, under age 65?

That’s me. No pension, minimum SS is years away. At current portfolio levels my WR is a bit above 4%. Back to work? NFW. As the song goes, I (we) will survive. I’ll find a way. Sell a kideny? I’ll sell my left testicle, but I ain’t going back to work.

I am wondering about the constant reference to the valuation of the market being really good at this point (usually by equity managers on CNBC). Isn't valuation related to earnings? What if our economy is undergoing a needed deleveraging and earnings do not improve back to 2007 levels? Then isn't the market valuation going to be much lower? I just don't see how relevant it is to compare the valuation now to what was when we don't know what our economy is going to look like in one year, much less five or ten.

People will work, companies will hire, there will be profits, and the economy will grow. We just need to purge the system a bit. And like all purging, it’ll be messy.

Economics and business are more or less self-righting. The killer is untoward political change

Right on.

My gut feeling is that even after recovery "normal" earnings won't return to 2007 levels

Sure they will. It’ll just take a while – say, another decade or so.

I don’t think stocks are inexpensive right now, but many are fairly priced and some are really good values. Thinking about the past isn’t helpful. Basic principles of investing apply like never before.

Money you need over the next 5-7 years – needs to be in short term high quality fixed income funds. beyond that, money should be in equities or DCA’ing in with a clear plan. At these levels it is just as risky to be out as in the equity markets.

US equities can go down or up, but after the next 7 years or so, the odds are much greater that they will be higher. Much higher.

I think one difference from the past decade – the next decade may be one for the stock pickers vs the indexeres. But this is a matter for another thread.

Michael

 

[Koolau]

Depends on what shape your kidney is in ?

Won't spare a kidney, but I've got some extra stomach to sell, heh, heh!

YouTube - No matter what shape your stomach is in

 

[Koolau]

Simple just take out a really huge low interest loan then stick that money in something like gold or unicorn figurines. When the dollar tanks you convert back to dollars and pay off the loan plus keep the excess.

That's really all shorting is. Having someone pay you for stocks(or whatever) at today's rate and then having you give them that thing at a later date. With a loan They are just paying you in today's dollars for some of tomorrow's dollars.

I probably framed my question the wrong way. When I said "short" the US$ I had something like buying alternate currencies in mind. Gpond and Dex mentioned some ETFs for me to look into. But thanks all the same.

 

[Koolau]

The discussion begs the question: when you would consider going back to work, if you are currently FIREd and, say, under age 65?


<groan>

Never! - based on my equities position, I assure you! Now if inflation rears its ugly rear, that could be another story. If my cash equivalents were under severe strain due to inflation, I'd probably be looking for w*rk at some point. But even if equities go to zero, I'll manage - all else being equal.

 

[GoodSense]

Like other young dreamers, I am still DCA'ing into the stock market. The alternative is to just save cash, but I am not really smart enough to figure out when I should start buying into the market, so I figure DCA'ing all the way down is just as good as DCA'ing all the way up.

(and no, I am not selling no matter how low it goes)

I still have 20+ years to go until I can FIRE. In today's climate 25 years is more realistic. I looked at my pension and SS statements recently and figured that even if SS takes a big discount in 30 years, I can still afford to retire at 65, and that's my absolute worst-case scenario if I lost all my money in the stock market now and don't save a penny more.

Besides maximizing my 401K into the stock market, I'm not sure if I'll have money left over. If I do, will probably put into cash.

I do have over a year of living expenses in cash as my emergency fund.

 

[CuppaJoe]

I've sometimes been unfaithful but will never leave the market completely and intend to leave my heirs some worthless shares.

Will continue beating myself up with alternate month DCAing--April 15th, that's the next day, skipping the Ides of March.

 

[sander06]

I calculated that a drop in the DOW to 3000 would still leave us with sufficient funds according to FIRECalc for the duration. The key, however, is that we have zero debt and are totally capable of living our lives self-sufficiently. We both plan on going back to work in northern Wisconsin to cut our drawdown from our accounts. We can live on $25K a year very easily and happily. Being a part of history, ie. the SECOND Great Depression, isn't what we signed on for but I reckon that our current situation is called "Life"!!

Now, what was the question again? Oh yeah, we're not selliing anything. I reckon the stock certificates alone will be worth a fortune someday as historical mementos for a museum...

 

[Gpond]

Euroland down around 2%.

ES futures back under 700.

Buckle up.

 

[ziggy29]

When you say you, are you referring to me or some indefinite you?

No, it was the royal "you."

 

[jug]

I calculated that a drop in the DOW to 3000 would still leave us with sufficient funds according to FIRECalc for the duration. The key, however, is that we have zero debt and are totally capable of living our lives self-sufficiently. We both plan on going back to work in northern Wisconsin to cut our drawdown from our accounts. We can live on $25K a year very easily and happily. Being a part of history, ie. the SECOND Great Depression, isn't what we signed on for but I reckon that our current situation is called "Life"!!

Now, what was the question again? Oh yeah, we're not selliing anything. I reckon the stock certificates alone will be worth a fortune someday as historical mementos for a museum...

I'm mostly out of the market, been so a while. So from a non-emotional point of view, do nothing, it will go down, then it will go up, above what its is now. Otherwise if we go way down, and don't go up, whether you have your shekels in the market or bank, we are all in the same boat.

So do nothing, ride it down, chances are it will go back up over 10,000 in due time. This is from someone who kept on the sidelines and can think without any fear or greed involved.

Jug

 

[Lusitan]

Though I don't think I'll ever find myself planning on a 6-7% real return from stocks over the long term any more.

Yeah, I've always used 5% in my calculations. And I always thought I was just a pessimist.

 

[ERD50]

Originally Posted by ziggy29
Though I don't think I'll ever find myself planning on a 6-7% real return from stocks over the long term any more.

Yeah, I've always used 5% in my calculations. And I always thought I was just a pessimist.

Seems I had always heard a range of 8%-12% for total returns over time (that might even be a one standard deviation thing on a 30 year time frame, or some basis like that).

So I always thought I was being conservative by picking the low end of the range, (8%), subtracting 3% inflation (another "popular" number I guess), and getting 5% as what could be expected as a "Real Return".

And then the alternate-ego accountant in me took off another 1%, just to round down. Shazaam - 4% SWR!

But that does not take into account volatility and drawdown effects, so I now view that as an upper limit, depending on your timeframe.

-ERD50

 

[ls99]

It is a classic and one of my favorites. Slim Pickens is da bomb!

The local video rental had it. Best buck fifty spent in a long time. Good flick.
Now If I wanted to get banned from this board I could draw analogy's. Umm... I'll pass.

 

[Moemg]

I went to my Vanguard account ready to sell and go to all cash and I could not pull the trigger . I did sell some stock that I was tired of owning . I now have 10 years in cash and safe investments and I've turned off CNN and went back to enjoying my life and trying to ignore the markets . I was spending too much time worrying about them and I have found out that the things you worry about rarely happen . It is the other crap that ends up happening and changing your life .

 

[Rich_by_the_Bay]

I went to my Vanguard account ready to sell and go to all cash and I could not pull the trigger . I did sell some stock that I was tired of owning . I now have 10 years in cash and safe investments and I've turned off CNN and went back to enjoying my life and trying to ignore the markets . I was spending too much time worrying about them and I have found out that the things you worry about rarely happen . It is the other crap that ends up happening and changing your life .

I'm glad for you that you came to that conclusion. 10 years is a long time in terms of the economy. You'll probably be glad you stayed in, even if stock performance is so-so. Time will tell.

 

[ziggy29]

I now have 10 years in cash and safe investments and I've turned off CNN and went back to enjoying my life and trying to ignore the markets .

Good for you. I used to be more of a strict asset allocation guy, but I'm becoming a convert to the "X years of safe investments" school of thought. Given enough time, the markets will recover (and if it doesn't over the time horizon of a very long-term investor, we may have bigger problems than our 401Ks). But I think most people would be well-served -- especially as they get to within 5-10 years of retirement -- to have 10+ years of anticipated withdrawals in less volatile investments. That would seem to provide some insurance against not being able to retire "on schedule" because the markets tanked a few months before you were about to clock out for the last time.

 

[Helen]

I think the future inflation rate is going to be a bigger factor of whether I can retire in four years or not. My pension won't get a COLA until I'm 62, but I can retire at age 56.

At this point, I'd rather ride the market to zero than sell out. I think the best return over the next five years will be in the stock market.

 

[ziggy29]

At this point, I'd rather ride the market to zero than sell out. I think the best return over the next five years will be in the stock market.

As much as this ride is making me want to vomit, I tend to agree.

One thing I did see the other day: Even if all the financials in the S&P 500 went to zero, the index would only drop about another 10%.

 

[Lsbcal]

...
At this point, I'd rather ride the market to zero than sell out. I think the best return over the next five years will be in the stock market.

If history is any guide, that's the way it worked in the past. Even in the Great Depression, there was a stock recovery from 1933-36 that took the market back to the price level of 1929 when adjusted for inflation/deflation in that period. That is part of the reason FIRECalc shows decent performance during the period 1929-36.

 

[ziggy29]

If history is any guide, that's the way it worked in the past. Even in the Great Depression, there was a stock recovery from 1933-36 that took the market back to the price level of 1929 when adjusted for inflation/deflation in that period. That is part of the reason FIRECalc shows decent performance during the period 1929-36.

Also, given that we've had so many Depression references lately, it should be pointed out that the best single year in the history of the Dow was in 1933 -- the bounceback off the lows of 1929-32 despite being in the midst of the Great Depression.

I think the market gained something like 55% in 1933 -- probably closer to 60% with dividends. Imagine throwing in the towel in mid-1932 and missing THAT recovery.

 

[Dawg52]

I think the market gained something like 55% in 1933 -- probably closer to 60% with dividends. Imagine throwing in the towel in mid-1932 and missing THAT recovery.

Well let's have that 60% recovery now! Not after another 50% decline.

 

[Lsbcal]

...
I think the market gained something like 55% in 1933 -- probably closer to 60% with dividends. Imagine throwing in the towel in mid-1932 and missing THAT recovery.

Yep Ziggy, I think you have the data right. That year the market was extremely volatile, April up 37%, May up 21%, June up 13%, July down 10%, etc.

There may be hope for us after all .

 

[REWahoo]

Do what we always have advised other countries to do. What we advised Japan to do but it didn't. Temporarily nationalize the banks. Don't bailout the banks and reward the owners for imprudence. Don't let them limp along and become zombie banks like in Japan. Take the insolvent banks over and sell them at the market value immediately to private investors. With the clean balance sheets they will be able to make loans again to qualified borrowers. Work out the bad crap through a Resolution Trust type organization.

Martha, others apparently agree with you*:

WASHINGTON (Reuters) -- The United States should let some big troubled banks fail rather than commit more federal funds to prop them up, two key congressional Republicans said Sunday.

Sen. Richard Shelby, R-Ala., ranking member on the Banking Committee, said the United States should not mimic Japan, which in the 1990s propped up failing banks and prolonged its economic downturn.

"Close them down, get them out of business. If they're dead, they ought to be buried," Shelby told ABC's "This Week" program. "We bury the small banks. We've got to bury some big ones and send a strong message to the market."

Shelby says government should 'bury' some big banks - Mar. 8, 2009



* FWIW, so do I.

 

[redduck]

According to Vanguard's Asset Allocation graph, I am now 26.6% in stocks. I figured that I just want a large enough base to live on in retirement--like forever. So, maybe I'm sort of close to that. Could have had it if I had moved out of stocks earlier (probably like many on this board). Hopefully, TIPs along with my energy fund will protect me somewhat from inflation.

It seems to me that asset allocation is way over-rated. Probably works well in good times, but, wow, look what happened in the last several months. Everything I owned sort of fell off the cliff together--kind of like each sector was holding hands with each other on the way down--and it's been a long way down. And, I can't tell if the bottom is yet in sight. Maybe if I opened my eyes I could see the bottom.

 

[ziggy29]

Sen. Richard Shelby, R-Ala., ranking member on the Banking Committee, said the United States should not mimic Japan, which in the 1990s propped up failing banks and prolonged its economic downturn.

"Close them down, get them out of business. If they're dead, they ought to be buried," Shelby told ABC's "This Week" program. "We bury the small banks. We've got to bury some big ones and send a strong message to the market."

I think the current approach just keeps the uncertainty and water torture going. Either nationalize the zombies or kill 'em, I think. Either way eliminates a lot of the uncertainty. I don't like the idea of government pursuing actions specifically to prop up the stock market, but in this case I think there's such a crisis of confidence that it seems necessary, because a continued plummeting will cause many of the problems to get exponentially worse.