Market Correction in Retirement

[NYEXPAT]

Quote:

Originally Posted by REWahoo OK, that's one. Anyone here who retired on 10/18/87?

I retired on the 19th so I guess I don't win the prize.

[walkinwood]

I wrote about our experiences in '08-09 in these posts. We ER'd in May 08. Others shared their experiences in the threads and also their amazing support & advice.

http://www.early-retirement.org/foru...-er-44084.html
http://www.early-retirement.org/foru...get-48044.html
http://www.early-retirement.org/foru...old-47618.html
http://www.early-retirement.org/foru...-er-55986.html

[Andre1969]

Jut out of curiosity, I went through my records to see how many times I've experienced a drop of ~20% or more. I've been keeping track since March 1998. Now, none of these were overnight drops, but were still some pretty rapid wipeouts. Also, they represent drops in total values, so by the time you work in additional assets, the actual percentage was probably worse. Anyway, here goes...

1) December 2000 to March 2001: -20%
2) June 2001 to September 21, 2001: -26.6%
3) March 2002 to July 2002: -24.3%
4) August 11, 2008 to November 20, 2008: -44.2%
5) January 6, 2009 to March 9, 2009, -19.6% (okay, not 20%, but darn close!)

So, in the overall scheme of things, I guess a 20% correction is pretty rare. And even though I've experienced five of them in the 16 years I've been seriously investing, they really centered around two major events: That period involving the double-whammy of the tech bubble burst/September 11 Tragedy, and the Great Recession.

Now, I did have another drop in the summer of 2010 that seemed like a big deal at the time, but in retrospect it was only a 14.6% drop from April to July. I think that one seemed scary at the time because I had just recovered all of my "Great Recession" losses and was afraid that we were about to go through it all again.

In 2011 I had another fairly sharp drop, losing 14.2% in the period between 7/7 and 8/8.

As for lesser, ~10% drops, haven't had one of those in awhile. They used to seem somewhat common before the Great Recession. Looking back, these pop out at me...
1) March 2000 to April 2000 (but recovered by June)
2) June 2004 to August 2004 (recovered by October)
3) May 2006 to June 2006 (recovered by September: This one "hurt" pretty bad though, because by this time I had a lot more invested, so it was a ~$30,000 loss)
4) July 2007 to August 2007 (recovered by September)
5) 12/31/07 to January 2008 (recovered by February)
6) 6/23/08 to 7/8/08 (9.5% loss, recovered by 8/11, and then the big plunge into the Great Recession started)

Also, I don't know how much consolation this brings, but as long as I've been keeping records, I've never experienced more than three down months in a row. However, my record keeping, for some reason, was very spotty in 2002. I only have three data points: 3/6/02, 7/22/02, and 11/21/02. That March-July period was one of those >20% down periods. However, I don't know if it went down steadily in April, May, June, and then bottomed in July, or if it was spiky.

My record keeping in 1998 was very spotty as well, with only 3/5/98 and 12/22/98 as data points.

Anyway, hopefully these 20%+ downturns will continue to be somewhat rare events, and something that we recover quickly from!

[NW-Bound]

Quote:

Originally Posted by walkinwood I wrote about our experiences in '08-09 in these posts. We ER'd in May 08. Others shared their experiences in the threads and also their amazing support & advice. http://www.early-retirement.org/foru...-er-44084.html http://www.early-retirement.org/foru...get-48044.html http://www.early-retirement.org/foru...old-47618.html http://www.early-retirement.org/foru...-er-55986.html

These threads surely bring back memory of the scary period that we went through together. I was a newcomer then, and some of the posters that I exchanged posts with have disappeared. I recall that commiserating about portfolio loss during that dark period was even more "enjoyable" than bragging about our riches as we do now.

[REWahoo]

Quote:

Originally Posted by NW-Bound I recall that commiserating about portfolio loss during that dark period was even more "enjoyable" than bragging about our riches as we do now.

Followed closely by the enjoyment of wishing something "nice" would happen to those who dropped in to say 'I told you so'...

[heeyy_joe]

Damn Magic 8 Ball is broken. So I keep at least two years cash.

[pb4uski]

Quote:

Originally Posted by DoWright Perhaps Ms./Mr. FedEx Courier was speaking hyperbolically ...

Do you mean hypothetically?

[REWahoo]

Quote:

Originally Posted by pb4uski Do you mean hypothetically?

I thought he was asking if the OP was throwing us a curve...

[FedExCourier]

I read with interest the past posts that were given in this thread. The good news is that you survived it and seemingly well....you all are still here and posting. Do you ride the market downturns out or do you have plans in place to pull a percentage of your investment out of harms way when the market drops a certain amount?
Since I'm working right now and putting money in my 401k every month I have always ridden the downturns out as I dollar cost average in with each paycheck. But in retirement I will only be rebalancing my stock/bond portfolio each year.

[REWahoo]

Quote:

Originally Posted by FedExCourier Do you ride the market downturns out or do you have plans in place to pull a percentage of your investment out of harms way when the market drops a certain amount?

Ride and rebalance seemed to have been the rallying cry for many of us who weathered the roller coaster ride(s). It helps to have a sufficient amount set aside in cash or short term bonds to fund expenses for a couple of years (or more). This prevents having to sell equities during any 'market unpleasantness'.

The age old problem of "pull[ing] a percentage of your investment out of harms way when the market drops" is figuring out the other side of market timing - when to reinvest.

[jollystomper]

Quote:

Originally Posted by REWahoo It helps to have a sufficient amount set aside in cash or short term bonds to fund expenses for a couple of years (or more). This prevents having to sell equities during any 'market unpleasantness'..

+1. This is our plan. We will have enough in cash to cover projected withdrawals for 7 years, to keep from being forced to sell in a down market. I'm willing to accept the low interest on cash for peace of mind.

[walkinwood]

Quote:

Originally Posted by REWahoo Ride and rebalance seemed to have been the rallying cry for many of us who weathered the roller coaster ride(s).

+1

I had trouble (nerves couldn't handle it) re-balancing all the way in 2008/09, but did do some re-balancing. And, I switched mutual funds to realize tax losses. Hopefully, I'll be more disciplined the next time around.

[Animorph]

Quote:

Originally Posted by REWahoo Ride and rebalance seemed to have been the rallying cry for many of us who weathered the roller coaster ride(s). It helps to have a sufficient amount set aside in cash or short term bonds to fund expenses for a couple of years (or more). This prevents having to sell equities during any 'market unpleasantness'. The age old problem of "pull[ing] a percentage of your investment out of harms way when the market drops" is figuring out the other side of market timing - when to reinvest.

+1. You sell when the market is down 20% and there it goes back up again.

I had extra cash I was able to reinvest in 2008 and 2009. The sell side of that process was raising cash just before retirement, just for that reason.

[Lsbcal]

Quote:

Originally Posted by FedExCourier I read with interest the past posts that were given in this thread. The good news is that you survived it and seemingly well....you all are still here and posting. Do you ride the market downturns out or do you have plans in place to pull a percentage of your investment out of harms way when the market drops a certain amount? Since I'm working right now and putting money in my 401k every month I have always ridden the downturns out as I dollar cost average in with each paycheck. But in retirement I will only be rebalancing my stock/bond portfolio each year.

This is going to rub some readers the wrong way . A few will think I should be run off the web . I went through several downturns in my 40+ years of investing. One was the Oct 19, 1987 Monday crash. The worst in retirement was the 2008 drop.

Now I've done a lot of research and analysis since 2008. I've convinced myself that really bad business declines can be roughly predicted. Even the crash of 1987 has a pretty easy explanation. I won't go into algorithm's here but will say a few things for the mildly curious.

The 1987 crash was preceded by an extreme difference between bond yields and stock PE's. We are not likely to see that for at least a decade as bond's have such low real yields. The 2008 decline was preceded by (importantly) a negative sloping yield curve. There was a Fed paper that discussed recessions and the yield curve slope so I'm not the first to notice this phenomena. But it will not pinpoint even the month exactly when things go to pot.

If I come across a situation that predicts a decline, I'll probably post. But I could be wrong and I'm sure many will tell me I'm a bad market timer type. Oh well, I'm just an independent type and enjoy sometimes being a bit different. It is nice that there are some posters here who will at least consider some very modest timing information. I do think that for the majority of investors, buy-hold is the way to go. Mine is buy-hold most of the time.

[haha]

I think it is possible to take a tidy sum out of markets knowing nothing more complex than if it is cheap consider it; if it is not cheap, pass.

You will miss most or all of the moon rockets, but almost never get skunked. Kind of like the difference between a baseball player who hits some homers, rarely gets a walk and whiffs pretty often, and a guy like the late Tony Gwynn or Pete Rose, who seemed almost to own a lease on the bases.

Ha

[NW-Bound]

Quote:

Originally Posted by REWahoo The age old problem of "pull[ing] a percentage of your investment out of harms way when the market drops" is figuring out the other side of market timing - when to reinvest.

If I sold, then bought back a stock at a lower price than what I sold at, I considered that timing move a success already. The repurchase did not have to be perfectly at the bottom, which was of course not possible all the time.

Looking back at my records, I have made plenty of good "buy low", but not enough "sell high", meaning I often sold too soon. And I am talking about individual stocks here, not the entire market. Stocks usually run into the overvalue range until they self-correct, and I tend to get edgy and want to "book" the gain too early. This is very common among stock investors, and yet it is so hard to fight the tendency.

[audreyh1]

Lots of folks who sold into the downturn in 2008, or after the downturn, couldn't bring themselves to reinvest while the market was down. They essentially locked in their losses and stood on the sidelines while the market recovered. It's very hard to get back in psychologically after you bail - especially if you did so after suffering some steep losses already.

[mpeirce]

Quote:

Originally Posted by audreyh1 Lots of folks who sold into the downturn in 2008, or after the downturn, couldn't bring themselves to reinvest while the market was down. They essentially locked in their losses and stood on the sidelines while the market recovered. It's very hard to get back in psychologically after you bail - especially if you did so after suffering some steep losses already.

I was just a wee investor back in '87 - only a few thousand dollars in the market. The max for IRAs was only $2000/year back then.

Anyway, I worked in a "bull pen" setting, where all the engineers on the project were in one room and shared telephones. Big fun (not), but we did know what was going on with everyone else.

On Black Monday I recall watching the plunge in the market with interest. A woman I sat next to called her husband and they decided that "we need to get out!" and they sold all their stock holdings.

The market actually recovered rather quickly and they stayed out of the market well past the time it took for stock prices to recover. I noticed they the only reason they lost money was that they panicked. I didn't do anything and didn't lose a penny.

This made a lasting impression on me and I've never felt the urge to sell when the market plunges since then.

[ejman]

Quote:

Originally Posted by mpeirce I was just a wee investor back in '87 - only a few thousand dollars in the market. The max for IRAs was only $2000/year back then. Anyway, I worked in a "bull pen" setting, where all the engineers on the project were in one room and shared telephones. Big fun (not), but we did know what was going on with everyone else. On Black Monday I recall watching the plunge in the market with interest. A woman I sat next to called her husband and they decided that "we need to get out!" and they sold all their stock holdings. The market actually recovered rather quickly and they stayed out of the market well past the time it took for stock prices to recover. I noticed they the only reason they lost money was that they panicked. I didn't do anything and didn't lose a penny. This made a lasting impression on me and I've never felt the urge to sell when the market plunges since then.

Ditto for me back in 1987. I had just started seriously investing in January of that year and when the market crashed in October I was so paralyzed and numbed by fear that I did nothing. I realized when the market recovered that a very valuable lesson was given and in subsequent market crashes 2000-2002, 2008 did nothing other than following my standard rebalancing bands (which always seem to get me to sell equities way before the market top but that is another story). I must say however that the 2000-2002 crash was particularly difficult psychologically because I ER'd December of 2002.

[Lsbcal]

In Oct 1987 we had a 3 year old and DW had pneumonia in the hospital. I remember reading the Wall St. Journal and worrying, while waiting in the hospital on the weekend before that crash. I did sell out on Oct 20th. Exceedingly bad timing but repurchased about 1 year later at higher levels.

My take away, if you are going to sell have a strictly mechanical plan with sell and buy criteria. Do not use "feelings" in a crisis. If the markets sells off before your plan kicks in, then plan to ride it out.

BTW, one should have seen that crash coming. Not the exact timing of it but there was valuation concerns. Bond real rates were exceedingly high and SP500 PE was also high. One can look up "Fed model" in Wikipedia. Of course, I didn't have that perspective years ago. We live in a golden age with lots of available data and tools ... to get one in trouble or maybe not.