How I handle a market downturn

[UnrealizedPotential]

I simply accept what it is and I do not look at my statements as much. I realize that market downturns are a part of the process. I am far from a market expert . I am no expert at all. But everyone has an opinion. Mine is I would not be the least bit surprised we enter a bear market this year. Too many moving parts and none of them are good. I think the two most important that stand out to me are rising rates and a historically high price to earnings ratio. I think we go down 20% - 30% and slowly claw are way back up. No matter what I will hold tight and ride out the storm like I always have. The storm always passes eventually. This is where nerves of steel and asset allocation are so valuable. Is this how everyone else feels about it ?

 

[REWahoo]

Sums it up nicely for me.

 

[MrLoco]

I handle market downturns the same as I would handle huge market gains.

Double stoli on the rocks.....and keep 'em coming!

 

[eta2020]

From high up long term charts look pretty good even with many 20-30 percent drops.

 

[steelyman]

I don't have nerves of steel (as someone once guessed my username implied), but I agree with your viewpoint.

 

[bclover]

I simply accept what it is and I do not look at my statements as much. I realize that market downturns are a part of the process. I am far from a market expert . I am no expert at all. But everyone has an opinion. Mine is I would not be the least bit surprised we enter a bear market this year. Too many moving parts and none of them are good. I think the two most important that stand out to me are rising rates and a historically high price to earnings ratio. I think we go down 20% - 30% and slowly claw are way back up. No matter what I will hold tight and ride out the storm like I always have. The storm always passes eventually. This is where nerves of steel and asset allocation are so valuable. Is this how everyone else feels about it ?

+1

I do get a bit nervous because I'm planning on retiring in a few months (thanks fire) but then I just have a cup of tea and remind myself that i've done pretty much every thing I can to ensure my families financial well being.

now if I could only lose weight.

 

[marko]

I think that 2008 showed us all the folly of panic and the wisdom of just holding on for dear life.

(Almost) the worst happened, and those who held on made out just fine. Make a drink, let the dividends roll in and wait it out.

* A while ago someone here posted a chart showing the short duration of bear markets....would be nice to see it at this time.

 

[big-papa]

+1 and I had to put that into action today.

Yesterday I closed an account at Schwab I've had for years, originally set up 20+ years ago back when I owned individual stocks. Money was sitting in a balanced fund I wasn't happy with and there wasn't that much in there to begin with. So, in the interest of consolidating accounts, the fund was sold and the proceeds moved to my bank account.

Was on Vanguard this morning to do some buy orders with the proceeds. Put it in cash? Load up on my bond fund because things are turbulent right now? Nah. Just distributed it among my various holdings which put my AA back to the target.

 

[Dawg52]

After a bad day in the market...........

 

[Midpack]

Good OP summary.

Though IMHO 'nerves of steel' come from studying long term market history. I never sold anything, actually bought a little, in the 1987, 2000 & 2008 downturns - and was rewarded for it. There WILL be corrections, some painful, along the way - that has always been the case. And even the biggest corrections don't look so bad when you look at the long term trend. That's what let's me sleep at night in good times and bad, not 'nerves of steel'...

And as retirees, most of us don't have to be as aggressive with our AA, so the downturns % are dampened.

Anyone want to have the 'this time it's different' discussion?

 

[Major Tom]

This is where nerves of steel and asset allocation are so valuable.

Or simply an ability to change focus, and concentrate on all the other areas of your life - hobbies, loved ones, walking the dog, coffee meet-ups, long hikes in the country etc etc.

In other words, if you're happy with your strategy, then disengage and let it do it's thing while you get on with your life.

 

[ttvjef]

Recently retired (Oct 2015) and have planned for downturns but now that it's here, oh boy! I am a bit concerned as I believe most are, but it's good to hear other perspectives, especially from experienced RE's who have weathered previous turbulence.
I'm pretty much going along with the plan in that I have cash set aside to live off of and don't plan to get out of the market, especially now.

While I was working, this type of event was always viewed as a buying opportunity! Now I'm on the other side. So I'm gona sit tight, be aware of whats happening but not hit the panic button

 

[Dash man]

I'm feeling very fortunate right now. In December I moved my 401k into a stable value fund to prepare to roll over to my tIRA and Roth IRA, with the checks arriving today to send off to USAA. We also liquidated in December a large portion of DW's stock options currently sitting in cash. We still have significant stock holdings, but avoided a lot of the current downtrend by having so much cash. The hard part is when to buy back in and what to buy. Nice problem to have I guess.


Sent from my iPhone using Early Retirement Forum

 

[Corporateburnout]

A few months shy of two years in retirement I have no plan to do anything. This may or may not be the start of the market correction that some people have been predicting for a while. If it is our 50/40/10 AA allows enough cash for a few years of living expenses to ride out the downturn.

Besides 20%-30% drop will only be 10%-15% for us and we can live with that.

 

[Senator]

I think we are going to find out how people really handle a market downturn, not just say how they handle it...

 

[misshathaway]

Recently retired (Oct 2015) and have planned for downturns but now that it's here, oh boy! I am a bit concerned as I believe most are, but it's good to hear other perspectives, especially from experienced RE's who have weathered previous turbulence.
I'm pretty much going along with the plan in that I have cash set aside to live off of and don't plan to get out of the market, especially now.

While I was working, this type of event was always viewed as a buying opportunity! Now I'm on the other side. So I'm gona sit tight, be aware of whats happening but not hit the panic button

Retired in Sept. Have been consumed with money fear recently. Yesterday I was rebalancing to a more tax-efficient AA on advice of Vanguard advisor. He reminded me that my current plan has a 99% statistical chance of lasting until age 91. That did help. And that is just the assets in Vanguard, not the 3 years of cash security blanket.

Regardless, seeing the cash slowly decrease b/c there is no more income is unsettling. But I already did the pull-out-at-the-bottom, then miss the upside, thing in 2009. Won't do that again.

 

[Lakedog]

Since I have a pension that covers expenses, I admit to being somewhat of a market timer. I tend to increase my allocation to equities as the market drops. In 2008, I was close to 100% equities a bit before the bottom. Today I am at 50% equities but plan to increase that % as the market drops.

 

[papadad111]

Turn off CNBC...

Corrections are normal and healthy. This bull is old. We've had 1 official 10% correction since 2009 - corrections often renew and refresh the bull. Bulls usually end with a whimper. Was 2015 the whimper? Maybe.

We are only down about 11% from the highs of 2150 SP500. At least another 10% to go before we enter a bear. 1700 is SP500 bear territory.

It's perhaps more painful because 2015 was flat and then finished negative (-1% real return) thus doesn't feel good from a sequence of returns standpoint. And we've been up a lot since 2009

Remember you have to break to rally and rally to break.

Even if we have another 7 years ...but this time it goes down and down not up and up ... we are already a year into it so only 6 to go ! Where she stops, nobody knows...

 

[misshathaway]

Turn off CNBC...

Corrections are normal and healthy.

This is why I read this forum. I love the brave experienced posters who say that when the market is down they buy equities like it's a fire sale.

My advisor sounded like he had done a lot of talking people down from the ledge yesterday. I told him about this forum. Maybe it can help those people as well.

 

[Corporateburnout]

My advisor sounded like he had done a lot of talking people down from the ledge yesterday. I told him about this forum. Maybe it can help those people as well.

Why are these people investing in the stock market? if 3% drop in a couple of days is going to make them panic then they shouldn't be invested in equities.

Also shouldn't this advisor talk them out of the market if they can't handle volatility?

 

[W2R]

I continue to look at my accounts, because that is what I always do every day the market is open.

There is no danger of me listening to CNBC any more, especially since I cut the cable so I can't.

I do remind myself of 2008-2009, when things looked awful to me. For a while, some of the talking heads even said the market could go to zero. Many of us did pretty well investing during that time.

If when the market really bombs (which I don't think it has yet), I compute how much I could spend if recovery never happens or if it bombs even more. I think about ways to cut my spending. This calms me down because I realize that I can still survive and enjoy life, even if maybe I will want to cut back a little on all those non-essential doo-dads that I get from Amazon and so on.

It helps that I have no mortgage, no other loans except a CC that I pay off every month, SS, a tiny pension, the TSP "G Fund", and cash. So it's not like I will be totally broke if the market crashes. This set-up was intentional because I am a worry-wart so I think about things like this decades in advance.

When things get really bad, bargains abound. This is true not only in investments, but when the economy is bad enough there are bargains to be found IRL.

Some of us forum members have been there, done that, when it comes to market crashes and we know they have not led to the end of the world thus far. We can view the claims of "This time, it's different" with a more skeptical eye. We know that the biggest mistake is to sell low, so we try not to do that.

 

[Bigdawg]

Since I have a pension that covers expenses, I admit to being somewhat of a market timer. I tend to increase my allocation to equities as the market drops. In 2008, I was close to 100% equities a bit before the bottom. Today I am at 50% equities but plan to increase that % as the market drops.

+1. DW=COLA'd pension. Me=COLA'd pension. I am about 90% equities now. I will move to 95% and add, add, add as much as I can. If I get the 2009-2013 returns following this coming (maybe it is here already) downturn like I did after 2008 then yippee. If not, we have our pensions.

 

[steelyman]

Turn off CNBC...

What Ignore market timing??

 

[audreyh1]

Yeah - Bummer to see big drops right after rebalancing. But I'll have to ignore things and go on with my life.

With this huge build up in negative international and market news, the market often defies everyone and "climbs a wall of worry". So I wouldn't be surprised if we don't have a bear market this year.

 

[Sittingduck]

This drop is really bothering me.

I plan on RE on April 1st. The BS bucket just overflowed.

I have my asset allocation the way I want it, a small non cola pension that will pay about 1/3 of my needs, and only two years to go until 62 when DW and I will both take early SS which will cover another 1/3 of what we need. 100% with FircCalc on investments to cover the rest while maintaining our current life style which we are happy with.

Have about 3 years of cash to cover market downturns like this. The problem I have is switching out of the accumulation phase to retirement phase. I was always a dollar cost averager but would add extra to the monthly check if the market was declining. Did that for 30 years. To keep buying more during some declining markets when you can not see the bottom was nerve racking, but after seeing the long term results - it gets kind of addicting. I have an almost irresistible urge to move some of my safety cash into equities. It is hard to break old habits!

Buying more on drops was an oversimplified system but seemed to work for us. It is allowing a sales guy and a waitress to retire early when a lot of our friends in our socio-economic level are struggling. Just finding it hard to switch to a new plan.