What would you change?

[Canadian Grunt]

What mistakes did you make in this Bear and what will you change regarding your portfolio moving forward. To make this a little easier to understand each others position, what is your timeline to retirement? Long (10+ years), short (less than 5), in retirement.

We all make mistakes; let’s admit some so we can learn from each other.

Myself, I won't be so eager to change asset mix and liquidate bonds to buy stocks after several significant drops in the market. This bear is going to be more significant than I thought. I am buying on yield and I didn't think the assets I was buying could realistically gain much more yield. Wrong!

I continue to buy all the way down because I don’t know where the market bottom will be. I just know this is a buying opportunity, or I might as well leave stocks for good. It is painful to watch what I thought was a good deal 2 days ago plunge further, but I see Warren Buffet doing the same so they must know something.

I have 15-20 years before I need the funds.

 

[ikubak]

I learned that maybe I'm not as close to retirement as I thought I was.

 

[Kronk]

10+ years to go before retirement.

Things I've learned...

1. I have a high tolerance for market losses at this stage. I'm emotionally shrugging off the losses, and yesterday bought more stock and shifted some money from bonds to stocks. DW has the same outlook I do. Market losses are probably $60k+ so far.

2. Right now I'm glad I paid off my mortgage rather than putting that money into the market over the last 5 years.

3. I'm going to think/read about more dynamic asset allocation strategies for the next time the market goes haywire (up or down). Is there value to be had in more opportunistic investing rather than just investing when I have the money (dirty market timer warning)?

I'm sure I'll have more thoughts down the road...

 

[Canadian Grunt]

10+ years to go before retirement.

Things I've learned...

1. I have a high tolerance for market losses at this stage. I'm emotionally shrugging off the losses, and yesterday bought more stock and shifted some money from bonds to stocks. DW has the same outlook I do. Market losses are probably $60k+ so far.

2. Right now I'm glad I paid off my mortgage rather than putting that money into the market over the last 5 years.

3. I'm going to think/read about more dynamic asset allocation strategies for the next time the market goes haywire (up or down). Is there value to be had in more opportunistic investing rather than just investing when I have the money (dirty market timer warning)?

I'm sure I'll have more thoughts down the road...

I have been pondering whether it makes sense to buy only in down markets and stockpile during the recovery. I am giving this a lot of thought.

 

[Donzo]

Like you CG - I kept throwing in more cash and re-allocating on the ride down - way to early and therefore magnified my losses. I need to set dates for re-allocation and stick to them. This trying to buy at the bottom slapped me hard.
Of course when the market does recover those funds invested on the way down will pay off - but for now - not so great

 

[Kronk]

I have been pondering whether it makes sense to buy only in down markets and stockpile during the recovery. I am giving this a lot of thought.

But what metric do you use to determine the ups and downs? Or do you wait for the OMG! types of market movements like we're seeing now? I think I'll be doing some reading on this myself. With hopefully a 50-year investing lifespan remaining to me, I'm sure I'll see a few more bulls and bears.

 

[W2R]

I am not sure that I regret anything specific that I have done or not done.

There's just this one teeny little doubt - - I wonder if someday people will say something like this:

Back in the 20th century, people used to gamble on "stocks" and the odds were pretty good because we were in a period of economic expansion. As we all know, economic expansion is a natural, but transient part of a country's evolution to a more stable, mature economy. Of course now, ever since the Great Bear of 2008, we realize that gambling only pays off when the odds are skewed. So, to make money we....w*rk...

One thing I REALLY want to do in ER is to take a few classes in economics, since I was never able to fit one into my engineering curriculum. Obviously I need to learn more, in order to gain more confidence in our economy if nothing else.

 

[Notmuchlonger]

I bought some on the down turn. If the market never goes up then yes I will have made a mistake Otherwise I have stuck to my plan. I am comfortable with my asset allocation.

 

[ziggy29]

I learned that my retirement plan went up in smoke. And I also learned that I wish I took a government job out of college. At least then I'd have an adequate chance of retiring at a decent age.

 

[Canadian Grunt]

I am not sure that I regret anything specific that I have done or not done.

There's just this one teeny little doubt - - I wonder if someday people will say something like this:
One thing I REALLY want to do in ER is to take a few classes in economics, since I was never able to fit one into my engineering curriculum. Obviously I need to learn more, in order to gain more confidence in our economy if nothing else.

If there was an alternative I would agree with the statement, but how does the average Joe "save" to retire?

Memory is short, and there really is no other alternative to the stock market. Even bonds are down, and with their low yields you just can't get ahead.

I think we have to buy stocks with dividends or ETF's with a decent yield.

This could be along recovery period but I don’t see an alternative to the stock market to build funds for retirement. Simply saving won’t do it.

Now if I was retiring I don’t think I would be over 25% stocks. I am going to keep this years memory for that date.

 

[Canadian Grunt]

But what metric do you use to determine the ups and downs? Or do you wait for the OMG! types of market movements like we're seeing now? I think I'll be doing some reading on this myself. With hopefully a 50-year investing lifespan remaining to me, I'm sure I'll see a few more bulls and bears.

A part of me wonders that if I only bought in bear markets like 2000-2003 and now to whenever the recovery is under way. Then saved half my free cash and spent the rest during the interim. Where would I be?

I guess the metric would be to buy on a 20% decline. Needs more research, but intuitively I think I would at least come out the same with more free cash to enjoy during the interim or pay down the mortgage.

Not quite market timing…just buying in a bear market and not at all after the recovery.


Need more thought on this…but I have a long time horizon so I figure I should get two more kicks at the cat beyond this one.

 

[ziggy29]

If there was an alternative I would agree with the statement, but how does the average Joe "save" to retire?

"Saving for retirement" is a fairly new thing. In the pre-WW2 days it was somthing only the idle rich could imagine. Most everyone else worked until they dropped dead or were physically unable to work.

Even after the war a lot of people could retire but didn't have to save much -- pensions were plentiful and generous, and the future of Social Security wasn't in question. Fifty years ago, many middle class people with retirement aspirations wouldn't be freaked out about a 40% market haircut because they had very little (if any) skin directly in the game. They didn't really see it affecting their retirement. Between Social Security and a pension, they were set. My FIL brings in close to $65,000 a year from SS and a pension -- and he retired at 58 with no savings.

Really only in the last 20-25 years has the average person owned stocks for retirement with the decline of the pension and the rise in IRAs and 401Ks. And generally, with no pensions and the likelihood of stingier Social, Security in the future, the only realistic chance a typical family in the middle class has is to dump a large share of their paycheck into these retirement accounts and bet fairly heavily on stocks as the only potential vehicle to provide enough growth to create a portfolio size that would fully replace an old school pension.

In the long run, the ability of the masses to "save for retirement" is pretty much an unknown.

 

[W2R]

If there was an alternative I would agree with the statement, but how does the average Joe "save" to retire?

I guess my statement indicates that you can't, and just have to work until death. On the other hand, I refuse to accept that so I will just have to stop thinking things like that.

This could be along recovery period but I don’t see an alternative to the stock market to build funds for retirement. Simply saving won’t do it.

If I was younger and able to manage a rental and keep it in good repair, I would have one. But, I'm not. Besides, that is too much like work.

Saving could only work under certain conditions, such as if our dollars would retain the same buying power from year to year, or if savings accounts paid an interest rate equal to the rate of inflation. Unfortunately, neither is not the case.

 

[Marquette]

If you bought solely based on valuation, you'd have missed out on some very good runups over the last few years.

If you buy now, odds are good that you're buying closer to the bottom than, say, if you had bought a year ago. But, you still might be buying a long way from the bottom. And, when would you get out? Get out too soon and, again, you might miss a good rise.

Some timing strategies work better than others, until those don't either. I remember a few forex traders come through here. Whenever I asked them what their strategy was, it was generally 'buy the euro against the dollar'. Given the amazing margin you can play with in forex, if they didn't have the foresight to stop those sorts of trades before this last week, they're in a lot of pain right now.

The alternative might be to keep a solid asset allocation and stick to rebalancing. When coming up with that plan, include a slice just for cash. If a equities take off, your cash, as a percentage, decreases. So, you sell equities at the peak and bulk up cash. Then, when equities crash, say you never believed in AA and just stick to holding.

 

[calmloki]

Wish i hadn't sold my '57 650 Triumph twin.

relearning that doing what you think is right is the best plan - not what others say is the best.

 

[Canadian Grunt]

If you bought solely based on valuation, you'd have missed out on some very good runups over the last few years.

If you buy now, odds are good that you're buying closer to the bottom than, say, if you had bought a year ago. But, you still might be buying a long way from the bottom. And, when would you get out? Get out too soon and, again, you might miss a good rise.

Some timing strategies work better than others, until those don't either. I remember a few forex traders come through here. Whenever I asked them what their strategy was, it was generally 'buy the euro against the dollar'. Given the amazing margin you can play with in forex, if they didn't have the foresight to stop those sorts of trades before this last week, they're in a lot of pain right now.

The alternative might be to keep a solid asset allocation and stick to rebalancing. When coming up with that plan, include a slice just for cash. If a equities take off, your cash, as a percentage, decreases. So, you sell equities at the peak and bulk up cash. Then, when equities crash, say you never believed in AA and just stick to holding.

I wasn't thinking of selling at the high point. I am a buy and hold guy. Only buying in the bear markets and letting the funds ride. Then buying on the next decline of 20% until recovery is in full swing.

I have to think about this. It doesn't seem logical to put money in the stock market on the highs. Bear markets seem easy enough to identify. It might be better to divert funds to my mortgage when the market is in recovery as I get a guaranteed return from those funds.

 

[Marquette]

I have to think about this. It doesn't seem logical to put money in the stock market on the highs. Bear markets seem easy enough to identify.

If you keep your head about you, I think you can identify when things are driven too high by mania (hint, when a sock puppet is starring in a superbowl spot).... But, outside of certain mania times, how would one identify when a stock market is high. Everything is easy to spot in hindsight, not so easy when you're in it.

 

[Canadian Grunt]

If you keep your head about you, I think you can identify when things are driven too high by mania (hint, when a sock puppet is starring in a superbowl spot).... But, outside of certain mania times, how would one identify when a stock market is high. Everything is easy to spot in hindsight, not so easy when you're in it.

If I only buy when the market is in bear territory and stop on recovery what would I lose on potential gains should I divert funds to my mortgage? The idea is to buy and hold but not continue to buy after a certain point in the recovery. Most historical gains are made early in a recovery.

In a bear market a dollar may double to the market peak, while a dollar close to the peak of a recovery stage may only go up 10-20% and be wiped out on the next bear.

Money diverted to my mortgage after this bear would keep its value no matter what happens in the market as that is cash I no longer need to service debt. Every dollar I place on my principle makes me 6.27% after taxes. Not a bad return.

I need to give this a little thought but it seems logical and a better guarantee of maintaining value.

 

[Alan]

What mistakes did you make in this Bear and what will you change regarding your portfolio moving forward. To make this a little easier to understand each others position, what is your timeline to retirement? Long (10+ years), short (less than 5), in retirement.

We all make mistakes; let’s admit some so we can learn from each other.

It's too early to tell what mistakes if any I have made. I have been keeping my allocation at 40/50/10, haven't altered the amount of or allocations of my contributions to my 401(k) or changed the auto re-balancing that I have set up.

I plan to retire in 17 months, so the sight of of a cool $250K being knocked off the old nest egg is a little disconcerting but I am not admiting to any mistakes yet.

My decision to stay the course with financial cannons firing on all sides could of course end up a disaster like the ill-fated charge of the Light Brigade in the Crimean war at Balaclava

 

[freebird5825]

No changes to portfolio will be made. I started FIRE at 55/45 AA, and will leave it there. I like the "fence straddle" position very much, TY.

FIREd at 48, now 50. I have at least 10 yrs before I plan to tap into portfolio. Still doing DCA but at a much lower rate than when w*rking.

Mistakes? Not having more cash flow to jump on this tremendous buying opportunity. I have cash reserves, but will not use them right now for equity purchases. Inflation is still an issue for day-to-day and seasonal (winter heating bills) costs and current income sources. Playing it safe on that til i reach a steady state.

 

[Gardnr]

There's just this one teeny little doubt - - I wonder if someday people will say something like this:

Back in the 20th century, people used to gamble on "stocks" and the odds were pretty good because we were in a period of economic expansion. As we all know, economic expansion is a natural, but transient part of a country's evolution to a more stable, mature economy. Of course now, ever since the Great Bear of 2008, we realize that gambling only pays off when the odds are skewed. So, to make money we....w*rk...

LOL! I've had the same nagging thoughts as I've boldly bought into this drop, following the "buy when there's blood in the streets" and "be greedy when others are fearful" advice from the greats.

One thing I do believe that mitigates this kind of thinking is that you need to invest globally. There are plenty of developing/emerging markets/countries out there that just might (should?) provide the kinds of returns that the U.S. market has yielded over the last century. I'm about 40% International (10 of that EM) and considering moving it up to 50%. There's plenty of blood in those streets and it takes an iron stomach to dive in but they bounce up and quickly (and violently) as they go down. I hope my strategy is vindicated.

 

[rwc356]

3 months to retirement, down 8.76% YTD. Wish I would have paid more attention to Swedroe earlier. I am finding way too much correlation between my bond holdings and my stock!

Bob

 

[Rambler]

I've learned:

1) I waited too late to begin shifting out of equity (targeting 60/40 a couple years from now....another couple weeks like last week and I'll be there without trying).
2) I got too greedy with stock options...that were worth 500k after tax and are now worth nothing.
3) maybe I will get back in the slumlord business...not that I want to, and I still have a couple years before I ER (been saying that for 18 months or so...its getting further away rather than closer). Have a house I wanted to sell after ER, for tax reasons. However, if real estate does not start moving, and if the financial markets remain messy, I will need it to produce cash. (it is paid for and not rented out at this time, also for some convoluted expatriate tax issues).
4) I haven't really lost anything, because I haven't sold anything...and won't be selling for a while. I just wish I had a certain cash windfall I am expecting next spring in hand now...I'd be like a kid in a candy store buying up bargain priced high-yield stocks. (maybe its best I don't have the extra cash...see who survives the next 6 months).
5) I am surprisingly upbeat for someone who has lost as much as I have, although most of it is on paper, and in the form of real estate losses from their highs as opposed to where I bought them. The only REAL loss I had was WM, my bet that the situation was overblown was off the mark, lost 25k on that. I guess Warren has lost a tons more than I have, but he had the cash to buy in while the market was declining, I only had my cash reserve and nothing investable.

and finally...I knew this already, but family is more important than money. I can keep working and make a bit more if I have to. If I lost my family, that's irreplaceable.

R

 

[W2R]

LOL! I've had the same nagging thoughts as I've boldly bought into this drop, following the "buy when there's blood in the streets" and "be greedy when others are fearful" advice from the greats.

One thing I do believe that mitigates this kind of thinking is that you need to invest globally. There are plenty of developing/emerging markets/countries out there that just might (should?) provide the kinds of returns that the U.S. market has yielded over the last century. I'm about 40% International (10 of that EM) and considering moving it up to 50%. There's plenty of blood in those streets and it takes an iron stomach to dive in but they bounce up and quickly (and violently) as they go down. I hope my strategy is vindicated.

After posting those nagging thoughts, I too boldly bought into this drop. Well, maybe not BOLDLY but I did it anyway! Like you, the phrase "buy when there is blood in the streets" was my motivation.

Bought a little more VTSAX (Total Stock Market) at a nice bargain-basement price, I hope. To make me feel better about that purchase, I also got a little more of my favorite fund - - VWIAX (Wellesley), which was also a "blue light special" yesterday.

In the coming week I am planning on buying some VFWIX (FTSE All-World Ex-US) and more VTSAX. Both purchases and those yesterday are consistent with my usual monthly DCA which I do manually. I just didn't want to throw all my DCA in on the same day this month, when prices are dropping so rapidly. This is almost like DCA'ing my DCA.

All of the above is more or less according to my investment plan, but it was still pretty unnerving! I hope that buying now pays off eventually. I like your idea that international purchases should help my state of mind when buying into this severe bear, since I will be buying some in the coming week. I hadn't really considered the state of economic development of emerging markets and it does differ from our own.

 

[dizzy]

lessons learned

Thanks for the thread, interesting read. I was going to start a "lessons learned" thread as well.

We are newly fired in the last month. Here's my lessons learned:

- don't underestimate single party risk. (AIG annuities, large positions in any one company, etc...)
- buy, hold, and rebalance --- everyone trying to time the market finding bargains only a month ago now looks like they were smoking crack. Of course, moving your yearly rebalance date in or out a few months seems allowable.
- never keep money in stocks that you will need in the next 5 years
- You will sleep better if you can live reasonably (if not lavishly) strictly on dividends and interest thrown off by your portfolio. For a 50/50 portfolio, this is more like 3% draw.
- the financial system is a house of cards. When there is 10 times as much money on the "side" bets (CDS, etc), than in the actual asset backed market (MBS), the assets in play become merely a side show.
- don't invest in anything you don't understand. (or as Warren Buffet put it "beware of geeks bearing formulas")
- given a windfall just into retirement, (like a stock option payout), pay off the mortgage! Unless you have a ridiculously low interest rate, the reduction on the expense side will most likely make your portfolio last longer.

-- dizzy