I'm getting spooked about the markets

[Aerides]

A 2 year cash cushion

I have always had this in my plan. + a heloc, + multiple high line credit cards. So, pulling back discretionary in a recession would extend that even more. That allows me to comfortably ride highs and brace for lows.

 

[VanWinkle]

I use a static allocation that should control my losses to about 25% in the worst scenario. I would not have to reduce my spending as I am spending 4 % now, but will be able to reduce to 2 % in 2021 when SS kicks in. With a 50/50 allocation, the ups and downs of the market are much less noticeable.

 

[Dtail]

We have about 4 years in cash, but need to use some of it to manage ACA income.
Most of our monies are in a TIRA, so not really sure it matters if one spends down equities in a down market as there are no extra tax consequences on distribution or easy rebalancing.

 

[LOL!]

I am unafraid to lose money in the stock market. Indeed, I have trained myself to love to lose money in the stock market. The reason is that every single time I lose money in the stock market I make even more money later in the stock market.

But I can see that if one doesn't like to lose money, then they should not be invested in the stock market. That's because the stock market is all about losing money.

 

[athena53]

I'm always spooked about the markets, too, but have learned not to try and time them by buying low/selling high. I've been through the dotcom bubble and the financial crisis and what I've learned is that the good stuff recovers- so I periodically go through my portfolio and weed out poor performers/underperformers. I'm 65 and am pretty aggressively invested in equities.

The factor that can really hurt retirees in a crash is being unable to cut back on withdrawals in a down market. If you really NEED a fixed amount per year to supplement your SS in order to pay for essentials and the market tanks, you're forced to withdraw a larger % of your assets. I may have to cut back on travel, charitable donations, deposits to the granddaughters' 529s, etc. during a downturn but should still be able to maintain a safe withdrawal rate.

 

[audreyh1]

Lookout! - in 2020. So you might be a bit early, IMO.

I always know it’s going to come crashing down, but I never know when, so I just stay widely diversified all the time and rebalance.

 

[Oz investor]

Me too, I’ve been wrong for a long time

not exacting wrong several 'safe havens ' have risen buy 300% to 500%

and let the debt investments ( mostly) mature due to lack of quality but then the interest rates continued dropping .

the decisions look good , now but were made for all the wrong reasons

despite the gains , it really doesn't inspire confidence when then outcome succeeds by lucky twists

for example if i had of been heavy in cash ( and cash equivalents ) in 2016 my health-care costs would have had a nasty accident later in the year

 

[rodi]

Interesting thread. I have some nervousness too. My BIL sent me a link to a fund he was looking at.... He's *super duper* conservative/nervous nelly and is drawn to annuity type products that I keep talking him out of. This one was marketed as super safe/conservative. It was based on mortgage backed securities.... Um... Isn't that the 'too good to be true' investment that crashed the market the first time around? Yeah... but it's different this time? Not so much from my anecdotal observations - seeing jumbo loans approved with low doc requirements. I think at least a portion of the banking sector might be setting up for another big loss. But this is all based on anecdotal observations and gut feelings... not hard data.

My personal asset allocation is not changing... 60/40 asset allocation.

I did rebalance the kids 529s... but that has more to do with their ages (senior and sophomore in HS.) The target numbers I wanted to save have been achieved... so conservation is the highest priority for those funds.

 

[Spock]

I think I am now a permabear.
The "recovery" from the 2008 crash that people pride themselves for riding out has been fueled by debt with little real investment for future return. A lot of the market recovery is companies buying their own stock back (using borrowed funds). IBM has to borrow just to pay their dividend.
The national debt has doubled in just the last 10 years, again with none of it invested in any infrastructure thats going to help future growth to pay for that debt.


10 years post-crash and the market still requires near 0 interest rates? thats not a recovery thats being on life support.



Then there are central banks purchasing stocks directly... the Swiss central bank owns 90B of individual company stocks. BOJ is the largest shareholder in 40% of Japans listed companies and Bloomberg says the BOJ owns 75% of Japans ETF market.



Then there are those who chide on "market timing"... what else is old style value investing "buy low, sell high" other than market timing? Blind buy-and-hold is no more than wishful thinking that what worked yesterday will still work tomorrow.


HFTs (insider trading done by getting information faster than anybody else) front runs all your trades. Market liquidity is an algorithmic illusion and nobody knows what those algos are going to do in the next pinch.


The more I try to do old style value investing the more the market looks like a casino. Place your bets and spin the wheel.


I'm so far over the edge I'm starting to distrust the Stable Value fund in my 401K as it is mostly insurance company wrap contracts. I'm going to take 1/2 of it off the table, roll it into an IRA and just CD it.

Whew. OK. Time to crawl back under my rock.

 

[97guns]

OK. Time to crawl back under my rock.

Hey neighbor

 

[Oz investor]

am looking for a full bunker ( fallout shelter ) a rock might be too fragile

 

[OldShooter]

I didn't lose a dime and I don't think 'everyone' here lost anything either.

My neighbor, OTOH lost a ton because she sold everything on the last week of February 2009.

"...a feeling...", like hope, is not a strategy. Figure out your risk tolerance and position accordingly.

This.

Beginning with the hit in 1987 and through today, we have never lost a dime due to market fluctuations. In Olden Times I was 100% equities and I just rode it out. Now I have a bucket of liquid funds (NOT zero-yield cash) that I can draw on when the next hit comes. Really the flaw in your thinking, dear OP, is this concept of "losing" money. With patience and with a planned liquid cushion, it is unlikely that you will lose anything. Think of it rather as money that is temporarily inaccessible, a sort of mental accounting trick.

That said, I have been nervous about the markets for the past few years but I am less so now that we are in a period of stasis. From engineering, unstable systems tend to overreact to disturbances. This market has been absorbing disturbances with equanimity for a good while. I like that.

 

[gauss]

Really the flaw in your thinking, dear OP, is this concept of "losing" money. With patience and with a planned liquid cushion, it is unlikely that you will lose anything. Think of it rather as money that is temporarily inaccessible, a sort of mental accounting trick.

Love it! Thanks for framing it like that.

FWIW I believe that so much of the FIRE thing is about managing your thought processes over time.

-gauss

 

[marko]

Think of it rather as money that is temporarily inaccessible, a sort of mental accounting trick.

Yes. I look at my portfolio as if it were rental property.

A hot housing market will raise the "sell" price if I ever were to sell, and then something...maybe some road construction might lower the sale price for a while.

But all along the way, the property is still there paying rent (dividends or interest), appreciating over time and doesn't loose any real value until I do, indeed, sell it.

 

[Another Reader]

Yes. I look at my portfolio as if it were rental property.

A hot housing market will raise the "sell" price if I ever were to sell, and then something...maybe some road construction might lower the sale price for a while.

But all along the way, the property is still there paying rent (dividends or interest), appreciating over time and doesn't loose any real value until I do, indeed, sell it.

I look at all my investments the same way. They are businesses that throw off income. Markets are bi-polar creatures, given to overly enthusiastic highs and downright paranoid lows. The actual businesses the equities represent are more volatile with more of a chance of going to zero than the real estate, but real estate has risks as well. If you pick sensibly and stay the course, you will be rewarded for taking the various risks.

 

[slowsaver]

I wish that crash would hurry-up and happen, because I've had $100k in cash I've been wanting to invest since 2013! At least I've been sleeping well the last 5 years.

 

[NYEXPAT]

Yes. I look at my portfolio as if it were rental property.

A hot housing market will raise the "sell" price if I ever were to sell, and then something...maybe some road construction might lower the sale price for a while.

But all along the way, the property is still there paying rent (dividends or interest), appreciating over time and doesn't loose any real value until I do, indeed, sell it.

Hey there, I am the guy who has been "flipping" houses in your neighborhood!

 

[marko]

Hey there, I am the guy who has been "flipping" houses in your neighborhood!

Not in my neighborhood. No one has sold a house around here since JFK was in office. The next generation of the family just moves in when the previous one dies.

 

[Chuckanut]

My fear is not a big crash. Rather I think it is much more likely that the next 5-10 years will produce lower real growth in my assets. Combine that with interest rates that are still near historical lows ( My father would never believe one could get a mortgage at less than 5% or five year CD's at a measly 3% were such a good deal.) that I feel obliged to take some precautions.

With $1,000,000,000,000 Federal deficits on the horizon, I also wonder how we can handle that even with solid economic growth.

So, I am watchful and cautions.

 

[marko]

My fear is not a big crash. Rather I think it is much more likely that the next 5-10 years will produce lower real growth in my assets. Combine that with interest rates that are still near historical lows ( My father would never believe one could get a mortgage at less than 5% or five year CD's at a measly 3% were such a good deal.) that I feel obliged to take some precautions.
.

True and good to be aware, but what precautions can be taken other than taking on more risk?

 

[W2R]

To the OP (jjflyman): Don't be spooked - - - be READY. Have some cash on the side, and know exactly what you will do in each of various possible scenarios.

A market crash can ruin you, or it can give you the most amazing boost to your nest egg, ever. Buying low really does wonders! Now is the time to be putting as much money aside as you can manage, until you feel you are ready.

I already feel like I am ready, and have been for years. So, I am investing as always and thrilled to see my nest egg returning to its all time high value from last January.

 

[Chuckanut]

True and good to be aware, but what precautions can be taken other than taking on more risk?

Good question.

In my case the precaution is to make sure I dance a few dances with the one that brought me here - LBYM. IOW, don't make any commitments that require me to have the more traditional stock and bond returns.

Ther are no magic bullets, I can find.

 

[joeea]

I've had a very uneasy feeling for the past few weeks.

That's bad.

I have nothing to back up my feeling, I know the economy is going good, but I must have a little PTSD in me from the last few market drops

That's bad.

Anyway, I think I am going to pull out over the next few weeks/months and be done with it, I don't want to go through another correction.

If you were planning to time the market, I'd suggest that you write down the plan for getting back in before getting out.

But since you seem to be checking out for good, I'll just wish you Good Luck and hope you meet whatever goals you have in mind. Hopefully this move will let you feel better.

 

[joeea]

I wish that crash would hurry-up and happen, because I've had $100k in cash I've been wanting to invest since 2013! At least I've been sleeping well the last 5 years.

Hmm. Have you calculated the rate of return you got on the rest of your portfolio for the past 5 years? And thus you know the cost of sleeping well?

 

[kimcdougc]

I have enjoyed this thread very much.