Lessons learned from the debacle

[Moemg]

I also learned that as Khan says I'd rather sell a kidney than return to work .
Great thread Brewer !

 

[brewer12345]

One in the hand is better than two in the bush ?

I've heard the latter requires special stretching exercises...

 

[Notmuchlonger]

I've heard the latter requires special stretching exercises...

Darn. Im leaving them right over the plate these days...

 

[samclem]

Good thread.
- I confirmed that my high-equity AA is okay for our needs based on other sources of income. Still, I may increase my cash so that we can avoid selling in the future when there's been a decline. (I avoided selling equities this time because I'm still working part time--the cash earned has been enough to allow us to leave the portfolio untouched.)
- I confirmed that I'm not tempted to sell and throw in the towel when the portfolio is in the toilet. I tend to figure that the train has left the station, and "locking in" the losses by selling hurts more than the prospect of more declines. Maybe it's just a mind game with me, but I'm not a mark-to-market guy when it comes to my holdings--I haven't lost money until I've sold them for less than I paid.
- I learned that diversification isn't a magic vaccine against the travails of the market. Sometimes almost everything goes down at once.

 

[Rich_by_the_Bay]

• My 55-60% equity AA was too much at age 60; letting it settle back down in the 45-50% range
• Even Wellesley and the like got hit bad. Balanced funds are not bonds. I'll leave them far anything I might consider "safe" money.
• Rebalancing really will be an infrequent exercise for me. I watched this market at times thinking about how I might rebalance, but things changed so fast and furious that almost any rebalancing was an impossible game of chasing your tail. Thinking maybe once every 12-24 months or at least a 20-25% veer from baseline that lasts a month or more. Don't know but it won't be often.
• In the end, the plan worked more or lesss. I lost less than the market as a whole, had only half my assets at risk, and they were diversified enough; I kept DCAing in all along and got some bargain prices. I have my fair share, no more no less.

 

[ejman]

• My 55-60% equity AA was too much at age 60; letting it settle back down in the 45-50% range.

Yes, I'm really having a hard time deciding which way to go on this one. My range is 50-60% equities and I'm 58, ER'd now into my 7th year - no pension no annuity. Most of what I read from generally respected sources (Bogle et al) suggests my equity allocation is too high. The other side of the coin is that even that high an allocation appears (up to now anyway) to be survivable even given fairly extreme events.

Dunno, maybe I'll follow the advice to do nothin' until the feeling of doing somethin' passes

 

[Bikerdude]

I learned that when you have more money than you need...cash out. I'll be sure to do just that..... next time.

 

[hankster]

With 8 to 10 years left to work, I learned that my 65/35 AA allowed me to avoid total panic and despair - just a little scared at times

I learned that I can tolerate a nasty downturn without locking in my losses at the bottom (I hope we've seen the bottom

I definitely plan to start shifting toward 50/50 or even 40/60 as retirement approaches.

 

[FIREd]

I learned that:

1) a moderately aggressive portfolio (60/40) is just right for me at age 35. Aggressive enough to get the blood pumping, but not so aggressive as to give me palpitations.
2) valuations are important.
3) my diversified dividend income stream has been surprisingly stable throughout this crisis.
4) a job, no matter how undesirable it can be, is not a bad thing to have during tough economic times...

 

[tulak]

I learned that:

1. Buying equities when they are going down makes you feel dumb.
2. Having too aggressive a portfolio (90/10) doesn't give you enough room to up your equity exposure.
3. Even with #2, I managed to get to 94/6 when the dow was at 7500.
4. When the dow hit 6500, #2 prevented me from buying more and #1 made me think I'd be crazy if I could.
5. With the dow at 8500, life is much better.

 

[yakers]

I learned about tax loss harvesting.

 

[chinaco]

I learned a major lesson during the tech bubble bust... I was younger and lost a considerable amount (paper loss). I knew if I wanted to ER, I could not let that happen again. While the bust can be temporary, if it happened when i wanted to exit my j*b... I would miss my ER opportunity.

The major lesson I learned back then was diversification into bonds. I made that move with approx 30% of our assets in late 2006 . I had a bit of a struggle doing it at the time because the stock market was doing so well at the time.

The other lesson I learned was that timing investments matters. Investing in the hot areas can be a mistake (even over longer-time periods 5 - 7 years) if one tends to buy and hold. I seem to keep learning this lesson and paying for the education over and over . For example investing in foreign stocks during the last 5 years. The dollar was riding low and US investors were paying a premium for foreign stocks along with the overvalued positions in the stocks. Now that the USD is higher, it is time to make the move into foreign investments for long-term holdings (10-15 years).

Re-balancing is key... but not too frequently.

Fight the fear and do it anyway. (But have a plan!)

 

[KenM]

I learned in 1974 I had a strong aversion to catching falling knives. I'm glad I again remembered that lesson this time even though I've been tempted.

But the tone of most of the posts seems to indicate a belief that the worst may be over. If (a big if) the markets drop 40% or so from here and overshoot on the downside of valuations then I may see if there are a few knives blunt enough to catch.

 

[Eagle43]

Good post Brewer.

I learned that everything can fall at the same time.
I learned that asset allocation, combined with safe pensions and no major expenses, allows me to sleep at night (and nice naps, too).
A key thing I learned and which I was not doing, is to rebalance. Sell the winners and lock in the profit.
I learned that I can survive the "worst economic disaster since the depression." At least that's what the media tells me it is/was.

 

[Ronstar]

I learned that a good cash cushion is the key to surviving such a mess.
I learned the importance of AA
I learned that I could tolerate my j*b (until the debacle eases)
I learned to control my expenses better

 

[donheff]

1) I got a good feel for my risk tolerance - I slept fine but need some tweaks. I was a little higher in equities than I should have been and let the downturn adjust that. On the way back up (unless notmuchlonger is right and the worst is yet to come) I will keep it there.
2) Related to that, I confirmed the importance of a substantial cash/cash equivalent bucket which I had just set-up before the crash based on what I read here.
3) Like Moemg I would sell the kidney rather than go back to work -- but I knew that .
4) I also noted that the catastrophe fallback plan I won't need unless things keep getting worse (sell the weekend house) is a brittle plan for the reasons Brewer discovered - when you need to sell is precisely when no one will buy.

 

[Coach]

I learned that I need to learn not to be greedy. One of the simplest concepts is that as you approach retirement you probably should be modifying your AA to reduce risk. I was enjoying the returns too much to do that.

Coach

 

[Midpack]

Good things:

• I was 100% equities in the 01 dive, learned that lesson then which lessened the pain considerably this time.
• Never sold anything, never lost any sleep this time.
• Was happy with my AA going into this one, and still am.
• Learned to listen but make my own decisions many years ago, a lesson some people never seem to get. In the end, no one cares about my portfolio except me - I have to live off it, no one else.

Bad things:

• Learned to my dismay that all asset classes can go down together, didn't think that could happen. So much for negative correlation.
• I knew there was a housing bubble, but thought I was immune. Never realized how expensive other peoples mistakes (individuals, banks, Wall St and especially the primary source of the whole mess, the US government & Fed) could be to me. If there is a way to protect myself from this, I haven't figured it out yet.

Great thread Brewer.

 

[simple girl]

I learned:

• DH and I are lucky to be employed in different fields (diversification in careers is a good thing)
• our risk tolerance is not as high as we thought (esp. for DH; I always had a lower risk tolerance than him)
• we have lowered our stock allocation and have a plan to decrease the stock % by a certain amount each year as we get closer to FIRE

 

[brewer12345]

I learned that I need to learn not to be greedy.

Coach

Not sure I would go quite that far. More, be greedy at the right times (when the public at large is cr@pping their pants).

 

[samclem]

• I knew there was a housing bubble, but thought I was immune. Never realized how expensive other peoples mistakes (individuals, banks, Wall St and especially the primary source of the whole mess, the US government & Fed) could be to me. If there is a way to protect myself from this, I haven't figured it out yet.

Yes, good point. Talk about systemic risk! When my neighbor makes bad decisions, the bill gets sent to me. I now think financial/economic literacy education for the public is every bit as important to society as driver's education and civics classes. It's not just about balancing your checkbook, it's about getting your finances in shape so that your money works for you and everything is on a sound footing--and then insisting that the government do the same. I hope we get there someday.

 

[Amethyst]

Great thread. I am so glad to have a place where people discuss money and investing from a pragmatic ER point of view. Workplace discussions tend toward the macho competitive ("I made such a killing, and the rest of the turkeys lost out"), which is OK, but not useful.

So much of what I read on the forum, confirms conclusions I reached through intuition, which is a useful confirmation to have. To maximize your investment returns and protect yourself and your family, you must learn to think of yourself as a small company, with assets, liabilities, a balance sheet, an income statement, and real shareholder equity. The composition and choices you make with your financial capital should reflect the nature and security of your career or job, which is your unique “human capital.” This is so true! What I was missing, was practical ways to make use of this concept (What is a balance sheet, anyway, and how do I construct one for Amethyst, Inc.?) From reading others' posts I now know that it's simpler than I feared.

We've made so many mistakes through not having the right information, or enough information ("you don't know what you don't know"). Because I continued to work after husband retired, we have been protected from the worst consequences of our errors, but we also haven't got the "cushion" for my retirement that we would have had, if we'd gone about things better.

Now I am trying to put us on a better path, and "lessons learned" posts like this one are so helpful. I would say that the lesson I've learned is not to buy and hold when my gut is saying, "That's high enough already! Sell now, pay the $#@! taxes, and who cares if the stock goes higher, you locked in your profit!"

Now I'm just worried that everyone else is thinking the same way...so the market can never recover

 

[Poundkey]

I learned that I should pay attention to my gut feelings. In 2004 I saw co-workers being approved for home loans that I knew were way more than they could handle. I knew their lifestyle and wages. Many had large amounts of credit card debt. Some had even gone through previous backruptcy.

My gut was telling me to back off on my equity exposure and increase fixed income. Hard to do when the markets are rocketing to new highs.

 

[Dawg52]

I learned a 40-45% equity allocation works for me
I learned the "hurry up and do nothing" approach to rebalancing can be a workable strategy
I learned having 8+ years worth of expenses in a combined cash bucket and SS income lets me sleep at night
I learned that being debt free (including no mortgage) also helps with the sleep at night thingy
I learned I'd much, much rather cut expenses than go back to w*rk
I learned that months of the news media screaming "THE SKY IS FALLING" can work on my ability to sleep at night and cause me to question the benefits of all the planning above.

I learned I could hate CNBC more than I ever thought I could.

 

[REWahoo]

I learned that I should pay attention to my gut feelings...

My gut was telling me to back off on my equity exposure and increase fixed income. Hard to do when the markets are rocketing to new highs.

And had you listened to your gut in 2004 and backed off your equity exposure, you would have missed out on an additional 35% gain prior to the market peak in 2007.

I learned long before this meltdown that neither my head nor my gut is smart enough to time the market. This is exactly why I've worked hard to find an AA I can live with no matter which way the market is headed.