How far will you ride the market down ?

[Retire Soon]

In my equities allocation, where I hold mostly Vanguard Total Stock Market I plan to ride it out as low as it may go. It's simply too late to bail.

 

[Gone4Good]

I'm starting to wonder if maybe herd mentality with regard to investing is actually the right way to do it. What was the heard doing in 98-00' - buying like mad and in internet stock of course, and even in 1-2 years they doubled their money. If the herd then soon panicked into 2000 and they panicked within a month or two, they missed most of the drop that continued through the end of 02' and sold much sooner than I did (which was never).

I remember lots of herds of sheep and lemmings . . . never met any members of the flock who actually got out with any gains. Whether the herd was chasing tech stocks, oil, or real estate over the past 10 years I don't know any one who got out near the top.

 

[SarahW]

All the way to the bottom, baby!

YouTube - DIRE STRAITS "Money for nothing"

 

[ejman]

If the market drops another 50%, it would bring it to about Dow 3500 or so or roughly a 75 - 80 % drop from its peak in October of 2007. This would put the drop in the neighborhood of the Big D levels. Given my asset allocation, this would mean about a 50% drop in my liquid assets from the top of the market back in 07. Just for the fun of it, I re ran my numbers in Firecalc using the assumed drop and guess what - It still works! So, I hoping there isn't a major glitch in Firecalc somewhere... I'm riding this baby down... and hopefully UP some day

 

[Tadpole]

The only adjustments I may make will be in bond holdings and, maybe selecting the same asset class with lower fees. Otherwise, with respect to equities, I will ride the coaster to the bottom.

The way I see it is, although we are in the process of retiring, we won't need to tap much from the savings for a few years if inflation is not too bad and, knock-on-wood we have few emergencies. So I may be retiring but I am still semi-long term (5-8) years.

 

[RonBoyd]

The trick is to start your day with four or five of these:

The Market Crash

and after a couple weeks, things don't look quite so bad.

(found at Drinks to Leave You Laid Back, Not Laid Out)

 

[Rich_by_the_Bay]

I'm holding on to the bronco. Even DCA'ing in through my 401K, though at a lower level than last year (shifted half to a guaranteed fund). It's not always easy to hold the line but I figure since I'm still working it's my last chance to add to the coffers; too bad the net amount goes down at the same time I'm adding to it.

 

[REWahoo]

I've always believed I would maintain my AA at 40/40/20 and stay in the market no matter what. However, retired for almost four years and relying on our nest egg for 100% of our expenses until this year (SS now accounts for 25%), this market is testing my resolve.

After an initial move to maintain my AA when the Dow dropped below 10,000, I've been unable/unwilling to buy more equities. Deer in the headlights syndrome.

If the current trend continues our expenses and market losses by the end of 09 will wither our nest egg to 50% of where it was when I retired. Don't think I will be able to watch that happen without making some attempt to reduce the bleeding.

I'd like to be able to say I'm optimistic the decline will end before I have to make that decision. Unfortunately the best word I can come up with is hopeful.

 

[Moemg]

I've always believed I would maintain my AA at 40/40/20 and stay in the market no matter what. However, retired for almost four years and relying on our nest egg for 100% of our expenses until this year (SS now accounts for 25%), this market is testing my resolve.

l.

If I was still working I would absolutely ride this out but when you need the money to live it's kind of foolish to just let it evaporate .

 

[Dawg52]

I've

If the current trend continues our expenses and market losses by the end of 09 will wither our nest egg to 50% of where it was when I retired. Don't think I will be able to watch that happen without making some attempt to reduce the bleeding.

I've heard several pundits who think we will get a market rally soon. Possibly significant. 'Hopefully' this will happen and give some of us a chance to trim our equities down a bit.

I've also heard that if mark-to-market accounting rules are suspended, that would have a big impact on the stock market. Below is an exchange from a reporter on the Nightly Business Report with Arthur Cashin,DIR from the NYSE. He's the old guy that CNBC and others always interview on the floor of the exchange.

Reporter: But some traders see one quick way for the market to find a bottom. The suspension of mark-to-market accounting rules, which require companies to value assets at the current market price, instead of what they could fetch down the road.
CASHIN: I suspect that if they were to announce something like that, then you would get a quick turn.
Reporter: How much do you think markets could rally?
CASHIN: That could, if it caught fire, given all the money on the sidelines and the big short positions, in a full blown rally, the S&P might go from 700 where it is now, almost all the way back to 1,000.

Nightly Business Report . Investors Ask ... Where's The Bottom? | PBS

I wonder if there is any chance the rule will be changed? I've heard people talk about this for months.

 

[ziggy29]

I wonder if there is any chance the rule will be changed? I've heard people talk about this for months.

Hard to say. Suggest a suspension or elimination of mark-to-market and people will immediately respond, "Enron!"

On the other hand, mark-to-market accounting is prudent when the markets are orderly and liquid. This market is neither for the stuff some of these banks are carrying. Some of them are carrying fully performing assets that they have to "mark to market" at almost zero. In a dysfunctional market with little liquidity, this has the potential to lead to a death spiral for financial institutions whose balance sheets depend on how these assets are valued.

 

[Bikerdude]

I've always believed I would maintain my AA at 40/40/20 and stay in the market no matter what. However, retired for almost four years and relying on our nest egg for 100% of our expenses until this year (SS now accounts for 25%), this market is testing my resolve.

A 50% loss on that portfolio allocation is pretty extreme. What are you expecting for the rest of the year?

 

[Bikerdude]

Hard to say. Suggest a suspension or elimination of mark-to-market and people will immediately respond, "Enron!"

On the other hand, mark-to-market accounting is prudent when the markets are orderly and liquid. This market is neither for the stuff some of these banks are carrying. Some of them are carrying fully performing assets that they have to "mark to market" at almost zero. In a dysfunctional market with little liquidity, this has the potential to lead to a death spiral for financial institutions whose balance sheets depend on how these assets are valued.

Yeah, I agree. The "mark to market" appears to be a "catch 22". If they value assets high then the government will have to pay more to bail out the really bad banks. But there will seem to be less banks to bail out even though some of them will still be bad.

 

[Running_Man]

I've always believed I would maintain my AA at 40/40/20 and stay in the market no matter what. However, retired for almost four years and relying on our nest egg for 100% of our expenses until this year (SS now accounts for 25%), this market is testing my resolve.

After an initial move to maintain my AA when the Dow dropped below 10,000, I've been unable/unwilling to buy more equities. Deer in the headlights syndrome.

If the current trend continues our expenses and market losses by the end of 09 will wither our nest egg to 50% of where it was when I retired. Don't think I will be able to watch that happen without making some attempt to reduce the bleeding.

I'd like to be able to say I'm optimistic the decline will end before I have to make that decision. Unfortunately the best word I can come up with is hopeful.

This is where I believe most of the "stocks are the asset of choice keep a high allocation stay diversified and your asset allocation of different classes will make you rich" is wrong. It is one thing to say in hindsight, it is quite another to do, where if wrong one will no longer have a retirement. It mismatches a fixed obligation - retirement - with an extremely volatile asset class and MPT has not eliminated as promised that volatility.

Blind faith to a high stock index based allocation is really just a technical analysis belief that the long term trend line will continue to go up. Times like this should present an individual with insight into what their true asset allocation should be.

The biggest gain an individual can achieve is to have funds available and the ability to make the required purchases on the way to the bottom, but the asset allocation needs to be comfortable enough to be able to handle the pain falling through a black untested hole provides.

It is entirely possible, though not necessarily probable the stock market could fall 90 percent. If that were to happen, it would be equivalent to enduring what has gone on over the past 15 months twice more! However it is at that bottom where the biggest gains will be made for the long term. A 25 percent allocation is right now equivalent in equity to a 50 percent allocation unbalanced from 2007.

My belief in planning for the long term is thinking, what X percentage stocks would I be buying knowing a decline similar to the 1930's would occur to rebalance to that level? For me I know I can hold 25% no matter how low the index goes. On the other hand I was willing to go to zero at the top since I though stocks were far too high (I sold my 25% stake early in 2007 and then after building back to a degree resold all in October of 2007) but my basic philosophy of holding at least 25% stocks will not be cut by any stock market decline, even if this market falls to 90% down, which would mean I would only have missed the first 1/3 of the fall.

At a 90 percent decline, a 25% stock allocation maintained will have 92 percent of the equity of a portfolio that was 100 percent stock at the top yet still hold 65% of the original portfolio in fixed instruments - assuming one does not draw down the equity or fixed for living and lives off the interest and dividends. The issue of whether or not a 25 percent stocks can withstand inflation is another question altogether, one I am fairly comfortable with myself. Also what do you do when you find your asset allocation is actually too high? That is really as Moemg is pointing out a truly difficult decision.

 

[W2R]

I've heard several pundits who think we will get a market rally soon. Possibly significant. 'Hopefully' this will happen and give some of us a chance to trim our equities down a bit.

If we have a significant rally, there will be dancing in the streets.

To be honest, I don't expect a significant rally anytime soon, due to the worldwide and virtually all-encompassing nature of this recession. Sometimes I think the pundits don't know any more about where the market is going than I do (and my crystal ball is a complete dud). I never expected a recession of this magnitude in the first place. But then, neither did many of the pundits.

IF there is a significant rally, I don't intend to do much with my equities other than rebalance and tweak.

Right now, I am too chicken to buy or sell. I am just hanging on to this rollercoaster and waiting to see what transpires.

 

[REWahoo]

The biggest gain an individual can achieve is to have funds available and the ability to make the required purchases on the way to the bottom...

...provided the individual has enough other sources of income and enough time to wait until the bottom is reached, and the recovery is of sufficient strength and speed to prevent total nest egg destruction. The latter two qualifiers mark the line between 'wise investor' and 'sad statistic'.

 

[ziggy29]

...provided the individual has enough other sources of income and enough time to wait until the bottom is reached, and the recovery is of sufficient strength and speed to prevent total nest egg destruction

Which goes back to what I've said many times before -- the unfortunate paradox is that the people who can most afford to take stock market risk are usually the ones who don't need to...

 

[Lakewood90712]

Still mostly in cash , so I can sleep ok except for worry about coming inflation , but I'm riding the little left in my 401k , riding it all the way.

Just watch the first 30 seconds or so .
YouTube - Dr. Strangelove - 1964 Part 11/11

 

[ls99]

riding it all the way.

Just watch the first 30 seconds or so .

Curiosity, watched the full clip.

When you get there.. there were to be those with "stimulating" characteristics.

Never seen the movie. Time to go rent it.

 

[REWahoo]

Never seen the movie. Time to go rent it.

It is a classic and one of my favorites. Slim Pickens is da bomb!

 

[Gpond]

If Mr Market closes red today, I may not look at it again for a year.

 

[FUEGO]

Unfortunately the best word I can come up with is hopeful.

"Hope" - hey, the current guy in the Oval Office won an election based on this word. That's worth something.

And for the record, I have changed my permanent asset allocation from 80% stocks/20% bonds to 50% stocks/20% bonds.

 

[Gpond]

If Mr Market closes red today, I may not look at it again for a year.

If the market was open for another 15 minutes it would of went red. Futures are now under today's open.

 

[ziggy29]

If Mr Market closes red today, I may not look at it again for a year.

It closed higher, but the last 30 minutes were another vicious selloff which indicates to me the trend is still VERY firmly bearish.

A market that's afraid to stay long at the close -- a market that regularly sells off just before the close -- is a market that isn't likely to sustain a rally.

 

[haha]

God blessed oil equities today, which means that He blessed me to.

Hallelujah! Hallelujah!

Ha