In retrospect: How Did You Handle The Crashes?

ShortInSeattle

ShortInSeattle

Full time employment: Posting here.
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A question for those who were already retired during the 2001 or 2008 market crashes...

How did you handle them? I'm talking both financially and emotionally. Had you dialed down the risk in your asset allocation so that your losses were moderated? Dd you cut expenses further?

I'm just realizing that as a 30 something I have the luxury of saying "great, a buying opportunity" when things go south, but when you're living off those investments I imagine the stakes are much higher, and scarier. It must take guts.

Given that we're likely to go through similar events in the future as we retire, any lessons learned?

Appreciate it.

SIS
 
 
I retired @ end of 2002 but started investing in equities in 1987 so have experienced the crashes of 1987, significant drop of 1990, 2001 and 2008. My take away is simply stick to your asset allocation, don't panic and don't sell at the bottom when everybody is convinced the end of the world is at hand. I use wide equity bands (10%) so I sold back to my allocation almost a year before the respective big drops. One other point It makes you feel pretty dumb to be selling when everybody else and the media is telling you how they are making money tons of money. But that is the beauty of following an asset allocation - sell high and buy low.
 
My ER plan got a big boost when the market crashed in late 2008 because I was able to buy 25% more shares of my bond fund than I had anticiapted. The value of my company stock (I had to sell it when I left) had not yet taken a similar dive so I was selling high and buying low, everyone's two favorite rules of investing.

I did get a little nervous in early 2009 when the stock market kept dropping and I had a few bad months in that bond fund's dividends. But both have recovered although all bond fund's monthly dividends have dropped gradually in the last few years.
 
ShortInSeattle said:
I'm just realizing that as a 30 something I have the luxury of saying "great, a buying opportunity" when things go south, but when you're living off those investments I imagine the stakes are much higher, and scarier. It must take guts.

Given that we're likely to go through similar events in the future as we retire, any lessons learned?

Appreciate it.

SIS
Click to expand...

I have been pretty good at buying during crashes. The only time I really screwed up was Black Monday back in 1987 when I put in my sell orders for my mutual funds the weekend before I couldn't get through to cancel them in time.

I sold much of my tech stock in early 2000, so I didn't really notice that much of 2001 crash (except for the continued plummeting of my Intel stock)

There isn't much good about aging but the one benefit is in field like investing where you can recognize that cycles happen and the end of the world isn't just around the corner.

I certainly got nervous in 2008 as a retiree, but I also looked at as buying opportunity.

While there many disadvantages to picking individual stocks vs mutual funds there is one big advantage for learning to fundamental analysis on individual stocks, you really get a sense of the intrinsic value of a company and by extension a fair stock price.

To me the number one thing people forget both during a bull market but especially during a bad bear market, is that we aren't just trading ticker symbols who's price rises and falls based on random events. But rather we own slices of individual business and that when we own stock we are entitled to a shares of the future profits of the businesses. Regardless if the market is up or down our share of the business remains fixed (generally speaking).

I found that it is easier to get a sense of intrinsic value for companies with simple product lines and then using some basic math to figure out how many products your 100 shares is equal to. For instance Apple has 935 million share outstanding and sold 35 million iPhones and 11.8 million iPads last quarter. So if you own 100 shares of Apple you are entitled to profits of 3.8 iPhones and 1.3 iPads each quarter, plus iPods, Macs etc.. Now is that worth $570 share? Hard to say. But when Apple fell into the $80 range back in 2008, it was easy to see the company was ridiculously cheap especially after subtracting out its cash hoard. I did the same calculations for hamburgers and fries per share for McDonalds, microprocessors for Intel, and jets for Boeing . After you do these calculations for a 6 dozen blue chips, it is not that difficult to say to Mr Market I don't care what price you think these shares are worth, I KNOW they are worth more. So I am not going to sell until you Mr. Market make me a reasonable offer.
 
ShortInSeattle said:
How did you handle them? I'm talking both financially and emotionally. Had you dialed down the risk in your asset allocation so that your losses were moderated? Dd you cut expenses further?
Given that we're likely to go through similar events in the future as we retire, any lessons learned?
Click to expand...
Financially? No problem. We sold several individual stocks at what in retrospect were the top, but at what in reality were also stupidly high values. Then we watched the market moves, looking for opportunities. We re-examined our asset allocation for suitability, tracked our portfolio percentages as they moved, rebalanced when the numbers went outside of their bands, and did a buttload of tax-loss swap selling to realize paper capital losses. We dispassionately watched for the bottom, made sure we were fully invested, and then rode it all the way back up to its current values. The entire Vulcan race would be proud of our stoic response and logical market moves.

Emotionally? Gosh did it suck. I applied for retirement in the summer of 2001, so that's the lens through which we watched the stock market re-open after 9/11. We spent most of 2002 (I retired that summer) trying to figure out why the heck we had chosen the asset allocation that we had back then. We spent 2008 wondering why the AA we'd chosen wasn't working any better than the one we'd had in 2002. We wondered if we were going to be as thrilled with these 50% swings in 2015 or 2025, and how we were going to get a handle on when to take money off the table. We were much better off in 2008 than in 2002 yet I found the daily grind to be much harder on my psyche. I would've been much happier shutting off the computer and going surfing for the rest of 2008. Or sucking my thumb in a fetal ball in the corner.

You have to decide which attitude is going to affect you more strongly during a bear market. If your employment is relatively sound ("good luck with that") then you can weather a recession as a buying opportunity. If you're an experienced investor, and all your loved ones are also experienced (or at least blissfully ignorant) then you'll see a recession as a great investment.

But if you're a retiree getting ready to live yet another year off your dwindling cash stash, or contemplating withdrawing 8% of your portfolio to meet that year's expenses, then you're not going to be happy being fully invested.

Like Clif, we sunk everything we had into the stock market after Black Monday. We did it again in the summer of 2002 with Berkshire Hathaway. In 2008 we mostly hung on tight, made the right tax/financial moves, and questioned our tolerance for volatility.

From here on out, though, we don't hesitate to take some off the table. Last year we liquidated a chunk of our portfolio for a familyroom renovation. (Worth every penny.) We sell call options to force the sale of some assets when the markets get ebullient. We'll sell some shares whenever they reach new highs. We've started leaning a lot more toward dividend-paying equities and companies like Berkshire Hathaway (in about that priority order). We've invested some of our portfolio in startups and some of our assets in rental real estate.

Today I'm not particularly happy with our international asset allocation, but those shares are only 20% of our portfolio. If share prices go down another 10% then we'll be buying more to rebalance back to our AA. This time I'm hoping that a recession won't affect every sector by the same amount (or worse), and I think we're also more immunized to the volatility. Now that I understand how to use the volatility to sell put & call options, I think we'll be able to make more profit out of the phenomenon.

But at some point we need to decide how to solve the conundrum: do you take market risks with assets you don't need, or do you just pull them out of the stock market so that they don't cause emotional distress or require financial attention?

It's a different story with my Dad's assets. I have no credible reason to take risks on his behalf. I've been selling off his expensive mutual funds (for decades-long capital gains) and socking the money away in CDs. He's at 40% equities now (down from 85%) and could stand to go down to 25%. I should probably sell more into the rest of this year, especially if share prices keep going up.

My spouse and I should probably do the same with our own assets over the next 30 years, but we just haven't addressed that conundrum yet...
 
I retired in Jan 2008, so during that year, I saw the value of my portfolio, like most others go down down down. But I stuck to my guns and didn't panic sell and rebalanced to my target allocations.
 
My husband retired in Jan, 2008 (I had aleady retired, but was working part time).

Financially, we took no withdrawals from the IRA or taxable infestment accounts. We were able to live on his pension combined with my pension, SS, rental income and part time earnings. We made no changes in our investments.

Emotionally it was tough. He kept wondering if he should have waited a year and I wondered if I'd ever be able to quit my part time job. But we rode it out and I'm confident that we'll be better equipped emotionally to handle the next downturn.
 
It was time to walk the talk re: allocations and our belief in our portfolio's overall solidity.
Scary, white knuckled for a few months but DW and I kept each other from panic and we just held on.

We knew the worst was over when, at the end of Jan 2010 our neighbor (quite the know-it-all) announced that she had just sold all of her holdings!
 
Retired in Jan 2006 @54, sold the lake house in June 2006. In 2008 we had in a lot of bonds and cash, not because we were smart, but MM still paid 5%. We only eased back into the equity markets when rates started dropping. I have always said only take as much risk as you need to. Of course now I am scrambling for dividends, because 5% is tough to get anywhere. For 2 years now I said bond yields can't get any lower wrong. I still have a couple of cash/short-term buckets of money. I can't see having to sell any equities until I take SS @70.
 
The greatest tool was to have an asset allocation in place. When our financial boat started rocking, we found that we were, indeed able to stay afloat. Emotionally, I need to focus on my own portfolio, and tune out the panic-driven noise out there.
 
I/DW are both retired. We started our "investment journey" last century :facepalm: in '82, after our respective pensions (different companies) were eliminated.

Our first "major glitch" was of course in 1987 a few major, and many minor ones to follow.

In 1987, I was going to night school for my BS degree (at the ancient age of 39, since I received my physical/draft notice in my "early years"). At the time, I had this "old phart" as an instructor who did invest, and gave me the simple (but valuable) advice that markets will always go up/down over time, for various reasons.

Assuming I had a job which covered my day to day expenses in the present day, what did I really lose? The market could lose most of it's value, but I still would have a place to live and food to eat. That's better than most of the world's population at that (and this) time.

I didn't do anything in '87 nor 2000-02. In fact, during the tech meltdown I/DW did extremely well. While most folks were investing heavily in tech during the mid/late 90's, DW/me took the opposite approach and paid down all our debts, including our home - which we were making payments that allowed us to pay off our 30-year note in just over 5.5 years, in late 1999.

What did we do then? Simply took the mortgage (actually note - mortgage is the incorrect term), along with the "extra" we were paying, and put it into the equity market. Even though it was "meltdown time", we did not care; heck, we had a roof over our head, enough to eat, and we were both employeed.

That was a period that allowed us to amass significant retirement assets, since we bought cheap in those years.

In early/mid-2000, we decided on a retirement scheme to leave our respective employment at the age of 59. Not really early according to a lot of folks on this forum, but earlier than the SS FRA age of 66 that we had planned on many, many years ago.

Around the age of 55, we started building up our retirement cash reserves, since we were going to be retiring without a pension (me; DW has two small one's, starting next year at age 65), along with our planned SS draw dates of 66 (FRA - DW) and age 70 for me (primarily for the benefit of my DW, assuming I'll die first, along with 50% of DW's SS from my age 66-69).

Even though I retired in early 2007 (DW did not follow me till a few months ago - she was not "emotionally ready"), the downturn of 2008 meant little to me/us. I had the cash (and so did DW - we established it that she could retire on and day she chose) and had been through enough downturns to remember that markets go up, and they go down. There is nothing the same under the sun, and when some pundit states "this time, it's different", it really isn't. It's just that they have not lived though a similar time in their own life.

We add to our retirement cash accounts when things are up (as we have for example, last spring and this spring) and just sit tight when profits are lacking. We have yet to sell (nor intend to) on a down cycle, primarily due to our extensive cash holdings, along with future retirement income that will start in a year with additional funding sources coming "on-line" over the next five years.

Anyway, we learned that flux in the market will always be there. You need to understand, and accept that fact - even though it's not easy, especially for the first few times. That's our story, and hopefully answers your question, based upon our reality.
 
The 2001 market did not effect me at all. At that point I thought I was so far away from retirement. I just kept buying 100% equity through 401K and outside. But, in 2006 I found myself burning out as a mega pharma regional manager. Found this site, crunched numbers and retired shortly there after. I am sure that if I knew I was out in 5 years....I would have been very emotionally involved. I found the 08 market was in my thoughts quite often. I remember getting up one morning in 08, having coffee - turning on the news and seeing the market was down 600+ points -- and going back to bed - in the fetal position :LOL:
I am alittle tougher now and less invested in equities.
 
rescueme said:
Anyway, we learned that flux in the market will always be there. You need to understand, and accept that fact - even though it's not easy, especially for the first few times. That's our story, and hopefully answers your question, based upon our reality.
Click to expand...

+1 Thanks; I enjoyed reading your post and I really agree with the last part, which I quoted above.
 
I retired in March of 2000 and had transferred my 401K to a Schwab IRA account and at the time was all in MM funds. Also in March 2000, Bob Brinker made his call to get mostly out of the market. Following his advice I did not get back in until he later made a buy call. So no mess no stress on that bear market.

The most recent 2008/09 bear I lost 30% at the peak and was drawing up austerity budget plans for the next 10 yrs.:) I did not sell any assets until the market recovery was well underway however, holding until the bottom was not a pleasant trip.:eek:

Overall I did very well during both bear markets and have fully recovered from the most recent. I now have a better appreciation of the "dips" on a "Firecalc" chart that show a 30 to 50% portfolio haircut only to rebound and provide a 100% SWR.:cool:
 
We retired March 1, 2000. Had an allocation of 65/35 and almost immediately went to 50/50. Pretty clever. In retrospect should have definitely been less stock as approaching retirement, and no we weren't clever, just very fortunate in the timing of my birthday.

We really have not suffered with the market volatility even in 2008-09. As said above have to recognize it will always be a part of investing. Big part of making it through the down cycles for us is having the reserve bucket as part of asset allocation. Had read Frank Armstrong articles on Morningstar before retiring; he recommended putting all of your bond allocation in short term bonds so that you could survive a 5-7 year down period without selling at a loss. We don't go that far, but having a buffer to fall back on is great. We also route all stock/bond dividends to cash for spending (or consciously selected rebalances) which is also comforting as an income source.
 
I used to have about half of my 401k in Stable Value, the rest in stocks. But, I sold my stocks when I could not stand watching them drop any more, in the dot com fiasco. I sold at about the 3/4 of the way down point. I always have about 80 percent of my 401k in Stable Value since then. I'll take the inflation hit.
 
Med's.
img_1204455_0_0ff25d720d269205de68fc80b5a9b3e4.gif
 
I retired in December, 2007. 2008/09 was an exciting time. In the fall of 2008 I had back surgery that was followed by complications in the shoulder. For much of the worst of 2009 I was on pain medication -- that helped.

What also helped was the opportunity in late 2008 to load up on 3%+ TIPS.

Actually, my recollection of the 2000-2003 bear market was that it was psychologically worse than 2008-09. The market ground down quarter after quarter for a longer period of time.
 
I did it a bit differently in 2008 than others here and cashed out before the DOW started it's grind down to sub 7,000. Between the high of almost 14,000 and when I cashed out I was down about 5%. Between 2004 and 2006 I just had this feeling the housing market could not sustain itself. Then I was reading all about the 55 trillion dollar CDO exposure. Wall Street Journal gave plenty of "heads up" articles. It wasn't an article here or there. Rather, it was "daily". Same with The Financial Times and The Economist....etc. Read a book by a guy called "No NonSense Finance" Errold Moody (sp). www.efmoody.com

He provided some insight into dollar cost averaging down that made sense to me. Also pointed out that if you have a 50% drop, you need to make back 100% to get back to even. O.K. fine. But it can take time and you still loose sort of thing. Just make sure you have the time frame for it to do that.
BTW I called Errold Moody and had a couple of long conversations with him.

I slept at night....and eventually got back in around Dow 8,500 and had more to get back in with than if I had ridden it down. I know that is NOT what most here recommend but it worked for me. Sold high on the "cash out" and bought back in when it was much lower ...not the bottom ...but lower. If everyone remembers they were projecting DOW 4,000 back then.

I will say, deciding when to get back in can be a conumdrum.
 
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We were very conservatively invested and our portfolio did just fine.

My former employer was not so cautious, lost a lot of money, and dumped my retiree health care subsidy after a medical event that made my wife a "high risk" individual. That cost us $$.

All three of my kids got hit through job losses or housing losses. We ended up providing some financial support for two of them.

Net, we were prepared for some risks, not for others.
 
Having only retired last summer I haven't experienced a downturn without employed income. In 87, 00 and 08 I sold nothing and did a little equity/fund buying (never kept a lot of cash on the sidelines), and did well by not panicking.

Now that I'm retired I've reduced my equity exposure to 50-60% (ranged from 100% to 70% while working) but I'd still plan to do nothing except normal rebalancing come what may. Preserving principle is brighter on my radar now, and I'm sure that will increase as we age. I hold more cash now for income, but that's by design, and not to be available for buying opportunities.

It will be interesting to see what I actually do when the next drop happens, hopefully I'll sleep like a baby as I always have...
 
What has worked for me to do nothing other than some buying during downturns is to ensure my portfolio throws off more than enough cash to meet my "needs" budget. That puts my portfolio tilted more towards income than growth and likely reducing long term total return but I enjoy life a lot more knowing I won't be forced to sell while at the same time generating decent capital appreciation.
 
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