The financial crisis of 2008, uncertainty, and change in plans

[ziggy29]

The only change I made was to change my portfolio from a 70/30 AA to something closer to 60/40... but didn't do so until I recovered most of the losses.

 

[LOL!]

I look at my portfolio every day. Some people do not, either because they are afraid, or because they don't care. I do look, because I care and also because I want to see the market bottom so that I can [-]time it[/-] rebalance.

If one owns DODBX and happens to look, it is a rare soul to say that he/she wasn't scared by the 55% drop.


PS. I own a bit of DODBX, and did not even know that it dropped that much until later.

M* says DODBX total return (sic) dropped only 50%, so maybe there was 5% of dividends in there if the NAV dropped 55%. Some solace, but not much.

 

[audreyh1]

I look at my portfolio every day. Some people do not, either because they are afraid, or because they don't care. I do look, because I care and also because I want to see the market bottom so that I can [-]time it[/-] rebalance.

If one owns DODBX and happens to look, it is a rare soul to say that he/she wasn't scared by the 55% drop.

Sure, people look at their portfolio everyday. But to ONLY compare it to Oct 2007, so that you get the absolute worst comparison - that's dumb IMO, unless you went from cash to a DODBX purchase or other another investment precisely in Oct 2007 and no other time.

And if you are looking at your portfolio everyday, you would realize that it had recovered, unless you were still sitting in cash after you sold out at the end of 2008 or in March of 2009.

Audrey

 

[Lsbcal]

BEFORE 2008: had 55/45 with buy-hold plan and some active funds, sold no equities in decline

AFTER 2008 debacle:
1) recognize I was really the almost always buy-hold type
2) rebalanced to fill up on stocks in July 2009 using index ETF's only
3) moved to 65/35 AA (more equity)
4) plan is fully spreadsheet driven, no gut instinct calls, clear buy/sell criteria

 

[Brett_Cameron]

IIRC I was 100% stocks in my 401k before, during and after 2008. At that time I was sort of planning to retire at 58 or 59. In early 2011 I changed my AA to 60/40 then FIRE'd at 55.

I, too, reached an all time high recently in my 401k.

I remember watching the 401k go down and thinking "bummer" then I watched it go back and said "wheeee!". Ignorance was bliss. Not sure how I will do next time, now that I know more.

 

[NW-Bound]

The market gives, and then the market takes the next day. Whether one looks at his portfolio everyday or not, to keep cool in order to avoid fear at market bottoms, one must also try not to rejoice too much at market highs. But how many of us can keep from doing that?

People who can still post here to brag about our performance tend to be the type to have survived from the debacle of 2008-2009 (I have also more now than at the previous market high in 2007). But we also have a collective short memory to not remember how we were shaking in our boots back then. Makes me almost wish the market would tank to see how people would react again.

 

[tightasadrum]

All of this talk about net worth setting new highs makes me very nervous. When investors start thinking the good times are finally here is when the market seems to correct itself.

In every other downturn I have pretty much watched passively as the market plunged. In 2008-2009 I had some cash in my accounts standing by that I moved from stocks because the market was so hot. I bought index funds three times going down. I remember thinking that the market won't continue going down much further than this. But it did. Of course it did come back. But I should have been more patient about putting more money in in retrospect.

My wife has a cousin that, I kid you not, got out near the bottom. Said something about not being able to afford to live if all his investments went to zero. I need to call him soon to see when he intends to get back into the market. That will be the time to get out.

 

[Lsbcal]

I remember all too well that sicky feeling in late 2008. That's why I try to have a preplanned buy and sell discipline -- 2008 reminded me about the sell side.

 

[ejman]

All of this talk about net worth setting new highs makes me very nervous. When investors start thinking the good times are finally here is when the market seems to correct itself.

My theory is that there are some folks "upstairs" with the lab coats and clipboards peering at the "experiment" and saying something like "hmm they are getting giddy again, Sam - turn that knob a little to the left will ya?"

 

[Independent]

I retired in 2006. The stock crash was a non-issue for our assets because we were so conservatively invested. However,

... the big drop gave my former employer the cover to drop retiree health insurance subsidies. We got the letter when my wife was on chemo. That cost us $50-$100k.

... the terrible job market plus serious health problems hit multiple family members. We've ended up helping people that we expected to be self-supporting.

OTOH,

... I had a non-COLA'd pension. Lower than expected inflation rates have been good to it.

... a former colleague called and asked if I was interested in a short term consulting job. That was an ego booster, and it paid for the money lost on health care.

The moral here is that you can have the assets all set up to weather the storm, but stuff happens anyway.

 

[Lsbcal]

Hi Independent, isn't that called "collateral damage"?

Something we should all be concerned about.

 

[sunnysideup]

Having seen my portfolio killed in the 1999 crash where several of my stock holdings went belly up, in 2008 I was mostly in mutual funds and my allocation was about 70% in stock funds. As Oct 2008 approached, I saw the numbers dropping and moved a good portion of my money into the money markets. In March 2009 jumped back into the stock arena. However, I went back to stocks and into a bunch of dividend stocks which were some good buys at that point. I am not sure how long it took to recoup but I definitely have.

One change since 2008 is that I shifted my allocation to somewhat less stock, more bonds and cash, 60:20:20. I am still working on how much I want to maintain in individual stocks and how much in mutual funds. Since I am still working, I have no choice in my 401K but to put the money into funds, and limited to the choices that my employer chooses.

Another decision I made in late 2008 was to remain at a job where I was pretty miserable to gain a bit more on the pension I had already accrued. Unfortunately, the misery was never-ending and I finally left in mid 2010 to a less stressful job that only has a 401k. Hence the 2 more years...

Norma

 

[brewer12345]

The crash tossed me out of an extremely lucrative job that was extremely hard on me and my family (not to mention my marriage). It was a blessing in disguise. I found a job after 3 months in limbo and invested aggressively (including borrowing money to invest) near the bottom to recoup my losses. The new job was OK but came with lots of bureaucracy. However, it lead to an opportunity to transfer to a vastly better job in my dream location that I intended to ER in (and they paid for the move). In retrospect, it was a blessing in disguise.

As a result of the crash I keep a much bigger e-fund. I also am more enamored of selectively chosen junk bonds. Those are about the only changes I have made.

 

[EveryLady]

I retired in Jan.2008 and was ready to pull the trigger on selling several times . I did sell a tiny portion pretty close to the bottom but I held tight with the rest . It was a real test of my sanity . I have re cooped all of my lost money and next time I hope to have the strength to totally ride it out .

One of these days will do a proper introduction. For now, want to send on a thanks to Moemg and E-R generally. This is my story - which is, basically, the story of "Every" man (lady in this case) meeting up with E-R and what then happens financially.

With the security of a coming pension, I was 100 percent in equities until October 2007 when finally managed to adjust the 401K to a "temporary" retirement allocation of 60 percent equities - 40 percent cash equivalents. Doing that took about 30 minutes, which - except for lurking on E-R - seemed like all the time I had to spare back then. Retired in April 2008 with a separate, substantial account of inherited stock to manage.

E-R reading encouraged me to insist - still competing time demands - on devoting a month (June 2008) to get to a point where financial decisions made during the turmoil that I feared lay ahead would be my own. Luck or not, that led me, against "advice," to maintain the 60-40 allocation during the sell-off for the 401K thus "locking" in the profits on the 40 percent converted to cash. The 401K stays at 60-40 today.

About half the inherited stock I sold high wanting greater diversification then held the proceeds in cash as the market plunged. The other half, well, fell. Not happy. One day I saw the post from Moemg about her decision to sell some equities low and it just clicked albeit with E-R caveat that a low sell had to be accompanied by a low buy. So I sold and waited. How long?

The tenor of most articles, guru "advice" by spring 2009 was not positive to say the least. Remember Suze Orman and Jim Cramer in particular saying sell, sell, sell (seemingly for any money that you might need in the next decade).

Based primarily on *my* interpretation of the "general sentiment" here on the forum, I put my money - pun intended - on a sharp uptick. Felt that the composition (i.e., financial sophistication) and size of the forum was such that it might be a reasonable proxy for the decision making by institutions and the like that would drive a stock market recovery. Yes, there was some E-R dissension. One poster whose name I have forgotten - believe he's no longer here - struck me as particularly persuasive.

So that March morning of 2009 when the market first moved up 300 points I cancelled my plans and stayed home. And bought Vanguard equity funds. Was finished by noon. (The remainder of the inheritance trickled in over the next two months.)

My point is that this post is being written by a someone who post-kid had long since developing stopped much in the way of financial acumen and just dumped money into equities within a 401K. Even the 2000-2002 dip barely registered. The primary determinant of my Great Recession decision making was what I read and digested here.

You all done me good.

 

[M Paquette]

It was horrible. In February 2009 I was forced to rebalance, AND I had to do tax loss harvesting. My personal investment plan required this. (OK, what I'm really saying is that having a written plan, drawn up outside of a potentially emotional, if not frightening crisis, is a really good idea.)

The good news is that I doubt I'll ever have to pay capital gains taxes, with that loss booked.

 

[traineeinvestor]

I got lucky - I changed jobs in January 2009. A combination of holding more cash than usual due to the uncertainty surrounding the move and cashing in entitlements from the old job left me with a lot of cash reasonably close to the bottom and I invested just about all of it in equities in the first half of 2009.

The 2008 crash was painful at the time but, with the benefit of hindsight, a very good thing for my finances.

 

[FIREd]

The 2008 crash was painful at the time but, with the benefit of hindsight, a very good thing for my finances.

Same here. In retrospect, the 2008/2009 blue light special allowed us to reach financial independence much, much sooner than originally planned. At the time, though, it felt pretty darn scary.

 

[traineeinvestor]

Same here. In retrospect, the 2008/2009 blue light special allowed us to reach financial independence much, much sooner than originally planned. At the time, though, it felt pretty darn scary.

Buffet made the point (as have a number of others) that people who are net buyers of equities are better off with lower stock prices than higher ones.

 

[NW-Bound]

To track my investment moves (I usually own more than 100 positions in individual stocks and MFs), I kept two records to allow me to look back at a glance. One is a daily total of portfolio. The other is a monthly record of cash position vs. equities (I have only a few % in bonds).

Just now, when I looked back at the monthly record, from Nov 2008 to Feb 2009, I threw $400K from cash into stocks. Yep, I did all the right thing. In hindsight that is, as the market did not bottom until March 09. All that money was just sucked into the whirlpool... They would bounce back just as fast, a couple of months later, but who would know then?

But then, as I explained earlier, I started to sell too soon in later 2009. I had those stocks at excellent prices, and I let some of them go too early for mere 20-50% profits. Many eventually bounced back to where they were in 2007, and in the case of stocks like Caterpillar, even higher. Nope, I do not own CAT anymore, selling it way too soon.

Oh well! I still currently have more than I had in Oct 2007, when the Dow was at 14,000, despite having been withdrawing some money for living expenses. It could be a lot worse, that's for sure.

Just did my 2011 tax, and found that I have used up all my cap loss carry-over, and start to pay cap gain tax again.

 

[CyclingInvestor]

I retired 1.5 years ahead of schedule in Oct 2006.

While the market value of my portfolio declined as you would expect a 100% stock allocation to (down a bit over a third), dividends and earnings kept rising right through it, making it more of an interesting show than a source of worry.

 

[NW-Bound]

A drop of 30% for a portfolio of 100% stock is impressive. It beat many balanced funds that had bonds in the mix. But we have talked about this in some other threads. I will look to get out of some cyclical stocks I have, and to shift into the stalwarts that are more stable. But of course, I am still susceptible to the syndrome of "just a few more %".

 

[Aeowyn]

The recession of 2008 actually caused me to quit my JOB much sooner than anticipated for these reasons.

1. I got excited during the crash and threw as much money as I could find into equities.
2. Since I worked for a company that is famous for layoffs, I increased my savings rates. When the company cut the 401k match, I increased my contributions to more that off set the loss.
3. The recession had an effect on the Mega-Corp I worked for. They started squeezing the employees more and more. Of course there were furloughs and 10% reduction in pay periods and benefit reductions, but what really got to me were all the bean counters that went crazy and started counting beans in so many different directions it was impossible to satisfy them all.

Between the savings I achieved from 1 & 2 and the squeeze from the company, I started hoping they would lay me off. Then I decided their new tactic was instead laying people off and giving them a severance package and unemployment benefits, their new tactic was too make the job so untenable that people would quit. They succeeded. I felt like the only control I had in the situation was to quit.

 

[sundance]

I have a 457 plan which I am no longer eligible to fund since 2004. I have not removed any money nor have I made any changes yet I am not up to its original highs. I am close though. Since the financial crisis I have been in a dysfunctional asset allocation nightmare. Paralyze. Way too much in cash/. No courage.

 

[scrabbler1]

The 2008 crash was painful at the time but, with the benefit of hindsight, a very good thing for my finances.

While not terribly painful but a bit nerve-wracking, th 2008 crash was a big benefit to my ER plan because I was able to buy 25%-30% more shares of the big bond fund I have been using to provide me with investment income to cover my expenses. Those share prices were at bargain basement prices and I made terrific use of that.

A key part of my ER plan was to not have to sell any shares of my stock mutual funds at a loss (other than liquidating my 401(k) but then buying two similar funds in similar proportions in my new IRA, as I mentioned in my earlier post here). I have also been able to reinvest the dividends from those stock funds back into the stock funds at similar bargain basement prices.

The stock fund values have bounced back nicely.

 

[FreeAtLast]

I sold of some stocks (primarily financials) but purchased others at the low prices. I basically hung in there. I am just about back to where I was 3 or 4 years ago. I kept my semi retirement job a couple of years longer as it paid my health benefits and it provided a good distraction from the dismal economic news of the times.