Did 2008-09 Results Help You Now?

[Willers]

Willers - I'm out about 4 months from retirement too. I'm wondering what you did to prepare? I moved my 401k from my big employer to my IRA, invested 8% in laddered CD's and the rest in 4 Index funds all within my tIRA. I have enough in cash and CD's for about 2.75 years expenses. I'm hoping that will be enough to get me through this dip. Not planning to do anything else.

Congrats! I'm sure you will have a great retirement!

The major things we've done over the last couple of years to prepare:
- Dialed down my stock allocation from about 70/20/10 to 50/40/10. We feel that for our standard of living we've won the game so there was no need to live with that amount of volatility. There are endless debates about this, but it is right for us.
- We had a real estate sale that we've used to build a CD ladder. I plan to keep 3-4 years in either CD's or other liquid assets. Again conservative, but it works for us.
- I've started to simplify our portfolio. I had a pretty complicated portfolio and have a spouse that isn't interested in managing it all so I've cut the number of funds in 1/2.
- I created a "death" file with all of the info DW would need if I had a sudden demise. It lays out instructions for our Vanguard rep.
- I ran every model I could get my hands on and processed endless what-ifs. I also took advantage of a number of complimentary consultations from CFP's as a final review. Right now it appears that our biggest risk is a LTC black swan. We're continuing to look at LTC options, but so far nothing seems worth buying.
- I made sure that I had 10% more than I thought I needed so if we had a 20% market drop we'd be OK. That really helped this week.

Finally, I put together a PowerPoint for DW to walk her through it and answer any questions or concerns she still had. That may sound crazy, but it worked great for us.

Going forward I plan to review everything at the end of each year and stay flexible. Good luck!!!

 

[tulak]

I learned that it's good to have an allocation to bonds. Otherwise there's no money available buy on the dips. I was 90/10 going into 08/09 and went as high as 95/5. I'm now 80/20 and thinking of going to 85/15 if the market drops some more.

Keep in mind that I'm still accumulating, so I'm willing to take more risk than if I was living off my portfolio.

 

[sengsational]

...
I am sympathetic to the poor mutual funds owners today. The heard the market was up today, decide to sell on the strength only to find out that millions of others did the same thing.

One of the big reasons I prefer ETFs to mutual funds is exactly this problem.

The mutual fund managers, having to sell because the weak decided they've had enough? That sounds like it would hurt more than ETF. But last night I did a price check between a Vanguard ETF and a Vanguard mutual fund. They tracked very, very closely. Did I do that analysis right?

 

[Ronstar]

Yes, going through the 2008 recovery helped, and going through the 1987 disaster as well. Did not sell anything either time.

But more importantly, I learned from the dot-com crash of 2000. I suspected a y2k issue, and put 100% of my 401k into cash just before 1/1/2000. At the time, my boss and I had about the same amount in our 401k's, and we made a game of it trying to outdo one another.

As it turned out, I got out before the crash, but failed to get back in at the right time. When the dust settled, my boss (who remained all in equities) had me beat by $100k. From that point forward, i stayed the course through corrections.

 

[hnzw_rui]

I learned that it's good to have an allocation to bonds. Otherwise there's no money available buy on the dips. I was 90/10 going into 08/09 and went as high as 95/5. I'm now 80/20 and thinking of going to 85/15 if the market drops some more.

For the bond allocation, I substitute our plan's stable value fund.

Unequivocally.

2008 taught me:

1). My risk tolerance was a little less than I thought, particularly with my kids college savings. I've adjusted my AA accordingly which is making me far more zen about this correction

2). My balance sheet assessment was too generous. I became far more thoughtful about liabilities (future college costs, deferred taxes) and far more conservative about assets (unvested stock)

3). The value of having cash on the sidelines

Yes, exactly.

For my age, I've actually got way too much in the stable value fund relative to the total portfolio but that's because I'm earmarking some of it as my 2nd tier emergency fund (at least until I start earning enough to both max out 457 contributions and build up after-tax accounts). A fixed amount from the stable value funds don't get counted as part of the retirement portfolio for the purpose of rebalancing to AA.

Sure, I could've saved the emergency funds in after tax accounts but with practically 0% interest and 34.3% marginal tax hit (25% federal, 9.3% state), it just felt better to put it in the 457 account. This choice was made easier by the fact that there's no early withdrawal penalty on our 457 plan in case I ever get laid off. For all other emergencies, I can always take out a loan.

 

[Big_Hitter]

But more importantly, I learned from the dot-com crash of 2000. I suspected a y2k issue, and put 100% of my 401k into cash just before 1/1/2000.

did the same thing in early 2000 after a trip to DC when a cabbie told me that coca cola was a great stock - moved all 401k money to stable value and cashed out all my mutual funds put them in money market - bought two new cars with cash and gold/silver and metal funds

I was laughed at, ridiculed and called an idiot - guess who got the last laugh?

started putting my new 401k money in 80/20 around 2004. Worked out so far.

 

[retiredinnyc]

Not a fan of the rollercoaster

I was still working during the 2008 downturn, I couldn't bear looking at my monthly statements, I was contributing the max every 2 weeks from my paycheck into my retirement accounts so in the long run it helped me buy low. I also lived through the 1987 crash and didn't sell then either, however I had a whole lot less of a paper loss in 87 than I did in 08-09. When I did my taxes in 2009 I brought the year end statement for my taxable account and opened it in the office, I almost fainted. It's funny now but it was not then. I had just retired and took a lump sum I decided to dollar cost average it into the market over a 2 year period, I just felt it was safer than dumping all at once.

 

[stepford]

2008 was a gift (disguised as a hand grenade). I had just dipped my toe in the water of semi-retirement, dropping down to part time at age 45 with about 20 years expenses saved up and hoping to get out at 50. Then 2008 happened a year or two later and, in reducing my NW by 1/3rd, it refocused my efforts - back to full time, saving aggressively, and slowly as the recovery progressed, shifting my AA from 80/20 to around 55/45. While this all took a while and 50 came and went, at 55 I am MUCH better positioned to make the jump - in about 7 weeks - with a pension that will cover 70% of my expenses, a paid off mortgage and ~35 years of expenses saved. (I know, I know, I probably stuck around too long, but a nice extra thick security blanket is a good thing).

 

[youbet]

(I know, I know, I probably stuck around too long, but a nice extra thick security blanket is a good thing).

Yes. In situations involving decisions and time, it's always best to take a "the glass is half full" outlook since there's no way to turn back the clock for a re-do. The time has passed and the situation is what it is so assume your timing decision was perfect, smile and enjoy FIRE.

 

[FIREd]

In 2008, I was still pretty young (34), I had a good income, and seemingly many years of work left in front of me. So I did not have much to lose and I tried to take advantage of the downturn by doubling down on riskier assets. It worked great for us when the market came roaring back and we were able to reach FI many years ahead of schedule.

Seven years later, the situation is very different so the lessons of 2008 don't apply anymore. Our portfolio is much higher (so we have much more to lose) yet our financial situation is in many ways more precarious too (gone is the good income and our expenses are higher too). Next time the market goes haywire, we'll take a direct hit. So we have to be more balanced in our approach to risk. I think we'll be fine if we don't do anything stupid, so my strategy now is is all about balance and diversification.

 

[youbet]

I FIRE'd in mid-2006, just in time to take the downturn right in the teeth. It was very educational. Living primarily on DW's pension and portfolio withdrawals, we juggled portfolio positions (successfully) to avoid having to sell any downtrodden holdings until I could start my SS at 62 in 2009. Our portfolio was close to 50/49/1 going in and we learned that that configuration makes it unnecessary to hold large amounts of cash "to avoid selling equities low" as many here seem to irrationally fear.

We also learned that the Great Recession was not as painful as what the folks experienced who retired into the prolonged high inflation of the late 70's and early 80's. Those folks experienced permanent higher costs than they planned and which never,to this day, have recovered. With the market crash, we had to juggle a bit for 3 - 4 years, but things are substantially back to where we were and we never reduced spending a bit the whole time.

And that was our final lesson. We kept our spending plans intact and that turned out to be a winning decision. Travel, a few minor home improvements, new kayaks, a camper and other discretionary spending went on as planned and therefore we're not sitting here today regretting that we're older and the time to do those things has passed without them being enjoyed.

 

[wmc1000]

I am almost 100% pre-tax equities at age 62. Don't expect any need for those investments until 2033 if SS gets a haircut. Should rebound from any potential drops in the next 5-10 years.

 

[kcowan]

I decided that if the trend continued, we would die as paupers, but was pretty sure that would not be the case. Turns out I was right!

 

[Danmar]

I decided that if the trend continued, we would die as paupers, but was pretty sure that would not be the case. Turns out I was right!

Yes, me too. Had just retired in 2006. Wasn't much I could do anyways. A lot of my net worth was tied up in employee options which all submerged at one point. From spring of 2008 till Feb of 2009, my portfolio, including options declined by about 70%. All back by end of 2009. My retirement would have looked very different if the market hadn't recovered. I figure if I could get through that, I can get through anything.

 

[Fedup]

My portfolio was in cash pre 2008-2009 due to being laid off. But too scared to pull the trigger to buy, only got back slowly in stock market in 2010 and a lot more in 2011-2013. I left the small Roth IRA accounts alone because it was not worth the hassle to move in and out. The Roth IRA accounts have since recovered and more. In fact I bought them at the peak of 2008. So lesson learned is to leave them alone when the market is down.
For 1987, I bought a put on the market before the Monday, made some money but not handsomely.
But I lost boat load in 2000 bust by buying individual stocks. Got panic and liquidated all my accounts to cash.
I think that was a harder lesson than 2008. Except in 2008, we had a large cash position in two banks that almost were bank run. I remember the panic I had to find different bank that I could move this cash to. This was not retirement money. It was college fund and down payment for real estate.


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[kimcdougc]

We kept all our money in company stock in 2008. I know, not good to do that, but I didn't know then what I know now. Came back within 3 years. Now that we are retired, all stocks are in a "balanced" portfolio. Works for us.

 

[statsman]

Not really. We had moved all 401(k) assets to bond and TIPs funds prior to the drop in 2008-09. Determined we have extremely low risk tolerance. Sadly low. Figured we were ahead of the game until the Dow hit the 17,000 mark.

Not sure what to do next, especially since we will both be retired some time next year (me: 57, wife: 63). Our only child has completed college with all costs paid for and is currently working but under a 1-2 year temporary agreement. Seems to be the wave of the future for many American workers.

Sitting on $1.2M in tax deferred accounts, $1.1M in taxable accounts, and $1.2M in home equity (accounting for selling fees and expected capital gains tax - we will be downsizing). Not one penny in equities. $3.5M in real net worth and somehow I think we're screwing up our retirement. Thank you 2008-09!

 

[kcowan]

The other thing we did in 2008 was to buy a condo in Puerto Vallarta. By staying there for 6 months, our annual budget dropped by 40%. That and the market recovery means we can live forever! But a full time relocation to Mexico would enable us to live much cheaper as a fallback plan.