Looks like the Party is over

[Another Reader]

On the subject of putting money to work in the equities market, I spent a lot of time last week reviewing historical prices of the oil and gas stocks, the index ETF's for Canada and Australia (lots of commodities in those), and prices for my dividend payers. I set up a lot of price alerts for numbers where I would feel comfortable getting in, all of which are significantly lower than the then current prices. Nothing has triggered yet. I think we have a ways to go before we can start drooling over equity prices.

[Running_Man]

Quote:

Originally Posted by ERD50 Some data: Here's What Usually Happens to Markets After the S&P 500 Drops 5*Percent in a Week - Bloomberg Business -ERD50

I look at that data, which is being presented as favorable for market participants and can't help but notice that most of those dates are during the 2000-2001 market declines, the 2008-2009 market decline and just before the crash of 1987. Most of the dates were washouts after a prolonged decline with an initial decline listed in there as well. Each of those declines resulted in the Federal Reserve stepping in and taking a larger and larger role as a backstop for financial assets. If a decline of the magnitude of those 3 were to come along now, it will be interesting to see what they can do from a zero interest rate standpoint.

[RenoJay]

Any reasonable FIRE asset allocation should anticipate 20 - 40% drops in equity prices and have a plan in place ahead of time. I agree with OP that I think prices are likely to fall further. I'm not selling anything, but will be buying when the carnage gets a bit worse.


Sent from my iPhone using Early Retirement Forum

[LitGal]

Quote:

Originally Posted by Whisper66 I buy in down markets with any extra cash I can find. Also use any excess bond money to buy. During the down turn , living expenses will come from dividends and 3 yrs of expenses saved in bond funds. If needed, will cut back expenses to outlast a down turn. Just spent time last night looking for any extra cash or bonds laying around. 2016 may be a great buying opportunity. In my view, we just have a new party starting for those with the ability to buy in. Sent from my iPhone using Early Retirement Forum

After Christmas, resumed DCA-ing from money market acct. in rollover T-IRA at Vanguard. Prices on funds I had wanted to buy in the past couple years had reached all-time highs, but have been dropping in recent weeks. So have had the chance to DCA during market decline, moving closer to my AA goals.

So, have felt a bit like a personal party has just started.....

[Independent]

A number of people on this board do annual re-balancing in January. Presumably, they would have sold stocks a year ago and will be buying this month.

Seems reasonable.

[gcgang]

Quote:

Originally Posted by RenoJay Any reasonable FIRE asset allocation should anticipate 20 - 40% drops in equity prices and have a plan in place ahead of time... Sent from my iPhone using Early Retirement Forum

+1 - have a plan in place ahead of time. I've heard it called "the lifeboat drill".

Pioneering international investor Sir John Templeton said that you should always be prepared for (or not surprised by) a 50% drop in the value of equities.

I may be prepared, and like OP I won't be surprised. My Plan: Spending would drop, I'd rebalance back to 50-70% equity. But I sure won't like it.

Retired almost 3 years ago with 80%+ equities, now down to about 50%.

[petershk]

Yup. If the disaster isn't bad enough to end practical civilization... Staying the course makes sense.

If it is bad enough... Investment strategy probably won't matter

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[audreyh1]

Quote:

Originally Posted by gcgang +1 - have a plan in place ahead of time. I've heard it called "the lifeboat drill". Pioneering international investor Sir John Templeton said that you should always be prepared for (or not surprised by) a 50% drop in the value of equities. I may be prepared, and like OP I won't be surprised. My Plan: Spending would drop, I'd rebalance back to 50-70% equity. But I sure won't like it. Retired almost 3 years ago with 80%+ equities, now down to about 50%.

That's how I model things: 50% equity drop (from peak mind you, not current levels), 1% rise in short term bonds value, 2% rise in intermediate, and from there calculate my portfolio drop. Then the portfolio value shows me what my lower income would be. Compare this against expenses, and I get an idea of the belt tightening involved. It's not going to be perfect, but I'm just looking for ballpark.

[RISP]

Quote:

Originally Posted by Lcountz Besides.....Millions and Millions of Chinese are not going to want to go back to living in huts and eating cold rice and fish heads....they want a Sleep Number bed, a Buick , and ALL the electronic gadgets that the rest of the world is using...along with connectivity....they aren't going to go backwards.

My first thought was, 'They still make Buicks?'. Turns out they do. Apparently they even have production in Germany, but I have never seen one.

[Senator]

Quote:

Originally Posted by Lcountz Besides.....Millions and Millions of Chinese are not going to want to go back to living in huts and eating cold rice and fish heads....they want a Sleep Number bed, a Buick , and ALL the electronic gadgets that the rest of the world is using...along with connectivity....they aren't going to go backwards.

100% true. And neither is any other country, including the USA. The governments will step in and buy if necessary. Consumer habits may change, and production in other countries might be forced to be more local. China requires many things sold there to be made there. The USA gives tax breaks to incentivize production. Global currency imbalances keep companies moving to low cost countries which boosts economic activity where the economies are the worst.

Quote:

Originally Posted by RenoJay Any reasonable FIRE asset allocation should anticipate 20 - 40% drops in equity prices and have a plan in place ahead of time.

+100. I get amused by these 40-year old retirees that have a 4% WR, 3 young children, no SS, no pensions, and seem to be able to justify a early FIRE date. Those that didn't live through stagflation, the 2000 crisis, 87 crash, etc. More power to them.

Quote:

Originally Posted by petershk Yup. If the disaster isn't bad enough to end practical civilization... Staying the course makes sense.

That is where guns and bullets come in. Civilization could well come to an end, but it will not be anything on the radar today.

[REWahoo]

Quote:

Originally Posted by RISP My first thought was, 'They still make Buicks?'. Turns out they do.

Yep. I really like this one: Buick Avista - Cool cars from the Detroit Auto Show

[RISP]

Quote:

Originally Posted by REWahoo Yep. I really like this one: Buick Avista - Cool cars from the Detroit Auto Show

That's a beauty. I hope they really build it. "General Motors executives won't say whether there are any plans to produce this model for sale."

[Independent]

Quote:

Originally Posted by RISP My first thought was, 'They still make Buicks?'. Turns out they do. Apparently they even have production in Germany, but I have never seen one.

I don't know about Germany, but the Buick story is mostly about China.

Quote:

For the second time in its 110-year history, Buick has topped one million sales in a year--and set a new overall record in the process. Last year saw the marque shift 1,032,056 vehicles, beating the company's last million-sale year in 1984, when it sold 1,003,345 cars. Whereas that 1984 volume was largely down to North America, Buick's current prosperity is largely influenced by a different country: China. Of those million-plus sales, a full 809,918 cars were sold in the Chinese market, nearly four times as many cars as the 205,509 units sold in the U.S. market.

Those numbers are for 2013. More up-to-date info, GM sold 100,000 Buicks in China in October 2015. http://www.autonews.com/article/2015...g-buick-volume
Meanwhile, GM sold 223,000 Buicks in the US for the entire year of 2015. http://www.goodcarbadcar.net/2016/01...-year-end.html

When GM went through bankruptcy and shed nameplates, they kept Buick because it had a "luxury" reputation in China.

[jkern]

In the past I have always stayed the course. Never sold and periodically re-balanced. However, this time around I'm in a very different situation. Several months ago I planned to rollover my 403b to a Vanguard IRA at the beginning of the year. No real reason for choosing that time frame other than starting with a fresh spreadsheet for 2016.

As of right now, my check should be arriving in a day or two for the full amount of my 403b. My original plan was to immediately reestablish my AA. Now I am seriously considering trying my hand at market timing. I have never considered myself lucky enough to try market timing, but since I'm currently out of the market maybe this time I might get lucky. I don't know if I have the stomach to NOT immediately get back in.

[REWahoo]

Quote:

Originally Posted by jkern I have never considered myself lucky enough to try market timing, but since I'm currently out of the market maybe this time I might get lucky. I don't know if I have the stomach to NOT immediately get back in.

Won't getting back in now, after the market has dropped, BE market timing?

[W2R]

Actually, the recent drops in the market are a huge relief to me. FINALLY.

We all knew it was coming eventually (markets go up, then down, then back etc). The doom-n-gloomers have been telling us this was on the way for about 5 years by now. At least now we won't have to listen to the prophets of doom (well, one could hope that, anyway).

I still plan to do nothing unless/until my rebalance bands have been exceeded. I have my 2016 spending money in the bank already, and I have enough cash in MM to last a few years beyond that. It's all good and rebalancing within my written criteria for rebalancing, will give me an opportunity to buy low.

[steelyman]

Quote:

Originally Posted by W2R I still plan to do nothing unless/until my rebalance bands have been exceeded. I have my 2016 spending money in the bank already, and I have enough cash in MM to last a few years beyond that. It's all good and rebalancing within my written criteria for rebalancing, will give me an opportunity to buy low.

I'm on board that train. I already made my moves (and posted in the 2015 Performance Thread). Now there's the rest of 2016 to just get better at early retirement. In fact, I got me a taste for some beignets - and the time to go get some.

[W2R]

Quote:

Originally Posted by steelyman In fact, I got me a taste for some beignets - and the time to go get some.

Well, until you get around to going out to get some, here's my beignet avatar.... I would use it more but it makes me hungry! I also added my cafe au lait avatar since that is so good with beignets.

[steelyman]

Quote:

Originally Posted by W2R Well, until you get around to going out to get some, here's my beignet avatar.... I would use it more but it makes me hungry! I also added my cafe au lait avatar since that is so good with beignets.

Excellent - thanks! Here's a deal: if I happen to be in that great city and on e-r.org, I'll temporarily switch to one of those tasty things for my icon. Until then, I'll stay somewhere over the rainbow.

[lem1955]

Quote:

Originally Posted by aim-high If you've been retired for several years this drop is nothing to be concerned about and you simply stay the course. However, we all know about the studies of sequence of return risk. For those who retired in December, I think it's the hardest.

That's me. Retired at the end of December. I'm glad for the 2 years in CD's I've put aside and am hoping that's enough. No plans to do anything except rebalance if my allocation goes beyond +-5%.