Remember the basics....don’t panic

[UnrealizedPotential]

If you look at my signature you will get the answer you seek. I am not 100% cash though, I have an allocation to some long term bonds still though I have been selling those as rates approach zero and I have a healthy allocation to precious metals (less than 10% but more than 5%).

Alright , fair enough. I do not have any idea where the market goes from here, so I am holding tight to my current AA -50/43/7.

 

[RunningBum]

Why will you be powerless to make moves later but you are suggesting people change their stock allocation now?

Right now the market is where it was in September of last year. 30% down and we are back where we were in 2017 a 75/25 stock portfolio becomes a 52/25 stock portfolio 60/40 becomes 42/40 assuming bonds hold even. So your portfolio will already be at a more conservative level than it was at the top.

Transferring 30 % now on a million dollar portfolio would mean selling 250K of stocks to get to 50/50, but that opportunity will be lost with a 30% decline.

It would probably be foolish to sell after another 30% decline, but no one is "powerless" to sell at any time. It would just be a further AA adjustment to the adjustment you are proposing.

For all you and I know it may be foolish to sell after the decline we've had this year. Maybe not, but neither of us can be certain. One of us may think they are certain, but they cannot be.

 

[Markola]

Good thing we’re not panicking on this string saying “...don’t panic.”

 

[targatom2019]

No but you may want to sell your VTI here

and pay close to 300K in long term capital gains ? no thank you.

 

[Running_Man]

Good thing we’re not panicking on this string saying “...don’t panic.”

No one is panicking, the only one who said to consider selling is me, pretty much the prevailing view is this is no big deal over time you have to make money and you’ll lose out if you sell. Panic will happen after the market drops a sufficient amount to make people concerned about their chances in a long term retirement, this happened around December in 2008. 18,000 was a major drop but nothing in the scheme of things. You have to have a very optimistic view of the world or stocks, to think that as of today, the market is as good as it was in September of 2019. On CNBC today I heard an analyst state that since the economy was going to be so bad for so long long term rates will be zero meaning a multiple of 22-25 should be used on the S&P500 and he forsees 2021 earnings rising 40% from 2020 back to the previous earnings level of 2019 of 140 so 2800 to 3500 is the solid basis of the SP500.

When a major commodity in the world can drop 100% in a day, to say “we’ve seen this all before” is befuddling to me.

 

[WyomingLife]

No one is panicking, the only one who said to consider selling is me, pretty much the prevailing view is this is no big deal over time you have to make money and you’ll lose out if you sell. Panic will happen after the market drops a sufficient amount to make people concerned about their chances in a long term retirement, this happened around December in 2008. 18,000 was a major drop but nothing in the scheme of things. You have to have a very optimistic view of the world or stocks, to think that as of today, the market is as good as it was in September of 2019. On CNBC today I heard an analyst state that since the economy was going to be so bad for so long long term rates will be zero meaning a multiple of 22-25 should be used on the S&P500 and he forsees 2021 earnings rising 40% from 2020 back to the previous earnings level of 2019 of 140 so 2800 to 3500 is the solid basis of the SP500.

When a major commodity in the world can drop 100% in a day, to say “we’ve seen this all before” is befuddling to me.

Commodity price booms and busts are not uncommon:

"Commodity markets occasionally exhibit broadly based massive booms and busts. These events affect the poor's ability to purchase the most basic necessities such as food and energy, and they often cause political unrest. Prominent riots generated by commodity price spikes include the Peterloo Massacre in Manchester, England, in 1819; the Southern U.S. bread riots in 1863; and unrest in Haiti, West Africa, and South Asia in 2008. Commodity booms and busts thus resonate with the populace and affect social welfare in a way that other asset price spikes do not." Carter, C. et al. "Commodity Booms and Busts," Annual Review of Resource Economics, Vol. 3:87-118 (Oct. 2011) (available at https://www.annualreviews.org/doi/full/10.1146/annurev.resource.012809.104220).

There are many other references in the literature.

The current situation regarding crude oil also falls amidst Paris Agreement-esque discussions of decarbonizing fossil fuels. EV's, for example, are gaining market share (or at least they were pre-Pandemic). So there are confounding factors related to potential stranded assets and the like.

It is human nature to judge an event or occurrence through the lens of one's existence, which is by nature a very narrow aperture and dramatically time-limited in scope. That isn't criticism of anybody, it just is what it is.

So while I'm glad I don't work for a major o&g company with job-related stresses, today was just another day in the commodity markets for one who takes the long view. I'm certainly not chopping up all my furniture tonight for firewood in case economic collapse occurs tomorrow. I'm also pretty sure that when I go to gas up my pickup truck tomorrow to travel some great distance to the Walmart for provisions, gas will still be for sale -- and I will get a great price.

And if the measure of economic calamity is the market is back where it was in September 2019, I don't think any of us has had a bad day yet.

 

[jollystomper]

The sad thing for us is, the ones who will be most impacted by the market fall are not DW and me, but (a) our heirs, as we will not be leaving them as much as we had at market peak, and (b), those we provide with charity and gifts, since if we need to belt tighten those are large expenses that are easiest to cut. We anticipated bear markets in our retirement planning. While we are not jumping for joy at the market "bargains" some may see, we are not panicking and are still enjoying retirement.

 

[USGrant1962]

Right now the market is where it was in September of last year. 30% down and we are back where we were in 2017 a 75/25 stock portfolio becomes a 52/25 stock portfolio 60/40 becomes 42/40 assuming bonds hold even. So your portfolio will already be at a more conservative level than it was at the top.

...

What the heck does 52/25 mean? The answer is 66.7/32.3%. Not good but don't exaggerate.

 

[Bir48die]

Whew! I can sleep now.

 

[Running_Man]

What the heck does 52/25 mean? The answer is 66.7/32.3%. Not good but don't exaggerate.

I think my answer was exactly right, as is yours

 

[Markola]

It’s just different investing world views at play here, tortoise vs. hare, ant vs. grasshopper, three little pigs. It’s a Rudyard Kipling moment (“If you can keep your head while, all around, other people are losing theirs...”). I’ve been building my little brick house for many years made of index funds with exposure to 28,000 securities all around the world, half bonds, half stocks. It was built to weather storms and I’m curious to see how it performs. I really could care less about a few oil stocks. It seems like we’re always either awash in the stuff or absolutely certain to run out of it.

I decided to get a few percentage points more conservative after this stock bounce back the last couple of weeks with a particular account I might need to access over the next 1-3 years if I lose my j*b, but I’m generally hunkering down with my asset allocation and am bracing to ride out the storm. I feel that it is about to howl out there but it just doesn’t make sense to me to SELL NOW!!

 

[Running_Man]

It would probably be foolish to sell after another 30% decline, but no one is "powerless" to sell at any time. It would just be a further AA adjustment to the adjustment you are proposing.

For all you and I know it may be foolish to sell after the decline we've had this year. Maybe not, but neither of us can be certain. One of us may think they are certain, but they cannot be.

Certainty is never possible, the only thing one can do is play probabilities. Now most individuals with investment portfolios have been conditioned by herd behavior that it is always bad to sell as markets always make a new high, that is all we have seen in our lifetime.

We are not Germans who by in the 40 years by 1946 had seen two 99% drops in the stock markets, two world wars, a halt on government pensions twice leading to a population far more risk adverse than Americans. We have seen 40 years of continual new highs no matter what the economic problem, and we are conditioned this is always so.

Both investment styles result in long term experience determining belief in investment outcomes and a suspension of rational evaluation of risk and reward. Risk is extremely high, 6 percent of all mortgages in America are now suspended.http://https://www.cnn.com/2020/04/20/success/mortgage-forbearance-coronavirus/index.html during the 2008 housing crisis the ratio got up to just over five percent, we already are exceeding the housing issue of 2008 and we are just getting started.

We will see over the next years if the present situation deserves a positive outlook and the allocation to stocks as an investment thesis and buyers flood into the stock market with their funds for the future.

 

[Ed_The_Gypsy]

Oh, can't we panic a little bit? ?

We are not selling anything. We are cancelling major purchases, though.

I am guessing that the markets for real estate and vehicles will tank shortly. If so, real estate may not recover in my lifetime. Good thing we like our place.

 

[daylatedollarshort]

You have a tremendous opportunity to get out of the market now not too far off of the top, If anyone thinks this is like anything in American history I think you have not looked at American history, it is worse than 1929 and in 1929-1932 the market sank 80% the stock market will fall further than that, and any money you obtain by selling on Monday will be money to invest in the future, that is not panicking that is rational behavior.After the market falls 30-40% you will be powerless to make moves as the market will have moved you to a lower stock allocation. I really wish people would stop and think what individuals and companies are going to have to do over the coming year.

We sold most of our stocks on one of the bounces. I tend to agree what you describe seems like the most likely scenario. Most unemployment projections are what we had in the Great Depression, if not higher, and they did not have a pandemic to deal with as well.

 

[Perryinva]

So there is an advantage to having most all equities ownership in retirement accounts I hadn’t considered No capital gains to worry about. No loss harvesting either, but I can live with that trade. Since that is my current placements, I had not thought of that consequence of retreating to a safer position. It certainly makes more sense to me now, to stick to your guns when faced with that, and why it would be considered more a panic reaction instead of a prudent move.

This thread matches my rebalancing question/pondering thread. It really is just a different view of anticipated future and current risk & as to what the objective & timeline is and ones faith in their long term AA. The only difference is some view this as still “this time it isn’t different” and in time, all will be well while others are viewing it as “it is” and are too uncertain of how long it will take. I am learning a lot about myself as well as others reasons. Better now than closer to the end.

 

[brewer12345]

Oh, can't we panic a little bit? ?

We are not selling anything. We are cancelling major purchases, though.

I am guessing that the markets for real estate and vehicles will tank shortly. If so, real estate may not recover in my lifetime. Good thing we like our place.

Used car prices have apparently been in a nose dive. We were planning to look for a 2018 off lease car this fall, so it sounds like prices will be attractive.

 

[Markola]

Used car prices have apparently been in a nose dive. We were planning to look for a 2018 off lease car this fall, so it sounds like prices will be attractive.

I looked and you’re right. There are a lot better deals on offer than last week. At this rate, there may only be used cars soon. I should know, as I still drive a 2006 SAAB. [emoji592]

 

[Starsky]

This is starting to look a lot like the beginning of the Great Depression where we started a deflationary spiral where production greatly exceeded consumption. We had very similar drops in GDP and employment, and the collapse in oil today is directly related to an oversupply and subsequent collapse in demand. Printing money didn't slow down the process.

The interesting thing in the depression was that nominal interest rates were extremely low, but because of deflation, real interest rates were actually quite high (about 17%). (If deflation is -10% and the nominal interest rate is 2%, then the real interest rate is 12%). It's a reminder that ROI can be a matter of perspective.

It's interesting to consider that some of the recent share price losses could be offset by a shift downward in overall price levels. Given that so much of what we consume comes from China, that doesn't sound like a sure thing...but fuel costs are a big deal, so.... Right now it's impossible to tell how much economic capacity we will end up destroying in this pandemic - and where it will go.

The fact that we removed energy and food from the calculation of so-called 'core' inflation means that there will be an enormous difference between the reported inflation/deflation rate and the actual rate. The decoupling is for handling brief price shocks in those commodities; it's not meant to capture sustained collapses of those industries (and cartels), as is the case today.

Our recovery from these shocks will depend on people getting back to work safely, and coming up with protocols that properly calibrate social contact. It seems anytime we relax our standards, things get out of control quickly. This will be an interesting test of social cohesion and shared sacrifice for a long time.

FWIW, It was fascinating to notice the increase in population in the Western states after the 1918 pandemic. Could it happen again?

 

[youbet]

Continue to spend less than you earn, and save the difference. You’ll be fine. That is all!

I assume you're talking about folks still earning a living. For us long FIRE'd folks who are busy partying and withdrawing from savings, it doesn't work that way!

 

[ER Eddie]

Speaking of the basics, I got this from Fidelity. They give some tips for managing your portfolio during a down market. I know this will be old hat to a lot of people here, but I'll pass it along, in the hopes that it might provide some useful information to someone.

https://www.fidelity.com/learning-c...t-and-market-volatility?ccsource=email_weekly


Here's a 4-step plan to weather the current downturn, and future ones too.

1. Start with a strong plan

For most people nearing or in retirement, the key question is: How much can I withdraw from savings without running out of money prematurely? Our rule of thumb is to limit withdrawals to 4% to 5% of your initial balance when you enter retirement and make annual adjustments for inflation.

Your plan should also account for your essential expenses. Consider an income strategy that includes enough guaranteed money—including Social Security, pensions, or annuities1—to cover housing, food, and other essential expenses. And have a good solid emergency fund for the unexpected. That way, your investment accounts are funding entertainment, travel, gifts, and other discretionary expenses, giving you the comfort to live with additional risk without worrying about your essentials, and giving you the flexibility to pare back the spending from your investment accounts during down markets if it makes you more comfortable.

If you have a strong plan in place, you should not be forced to make changes during a down market.

2. Look at cash before selling securities

When the market is down, cash can be a valuable shock absorber. Consider using the cash portion of your portfolio or savings to delay the need to sell stocks while the market is down.

Selling stocks in a downturn can leave a portfolio with less stock exposure than your plan calls for, hurting your performance during any potential recovery, and turning what may be a temporary market decline into a permanent dent in your income stream.

3. Reconsider Social Security

If you are short on cash, and you have not claimed Social Security, you may want to look at your strategy. For many people, it makes sense to delay claiming Social Security, since the higher monthly benefit that you receive if you delay claiming can help fund your retirement over the long term. But, if you are cash strapped and considering selling stocks in a down market, you may want to reconsider. If you are between 62 and your full retirement age, you could claim retirement benefits now, and then suspend benefits anytime after your full retirement age and before 70—this strategy allows you to gain income now while leaving your money invested during a potential recovery. Although your Social Security benefit will be reduced due to claiming early, you limit the impact by suspending the benefits after you reach your full retirement age. After you suspend your benefits, your future monthly benefit will grow about 8% for each year you suspend, until age 70.

4. If you do sell, be strategic and tax-smart

Even with a plan designed to try to weather down markets, you may need to sell securities to free up cash to pay bills, replenish the cash portion of your portfolio, rebalance your portfolio, or buy attractive securities during the down market. Here are a few things to keep in mind.

Rebalance back to your plan. If the downturn in stocks has left your portfolio tilted to bonds, you may want to sell bonds first. That could help raise cash while leaving your stocks invested for a potential rebound. If, on the other hand, your portfolio has more stocks than your long-term strategy calls for, consider rebalancing out of stocks.

Start by selling investments you no longer want. Consider selling investments that no longer fit your strategy, or whose outlook or qualities have changed since you bought them. Even if you are forced to sell to generate cash, it can be a good opportunity to clean up your portfolio.

Take advantage of tax losses. You shouldn't make investment decisions based exclusively on taxes, but if you are looking to sell, you may want to identify securities trading for a loss. A loss on the sale of a security can be used to offset any realized investment gains, and then reduce taxable income by up to $3,000 annually.

Consider short-term vs. long-term capital gains. Securities held for more than 12 months are considered long term. If the security is then sold for a gain, the long-term gains are taxed at a top federal rate of 23.8% versus 40.8% for short-term gains.2 Being conscious of holding periods is a simple way to avoid paying higher tax rates. Taxes are, of course, only one consideration. It's important to consider the risk and return expectations for each investment before trading.

 

[targatom2019]

I see bear markets as opportunities for new money so I bought close to 580K right before DOW 18K even after being down close to 800K.

Edited: thanks

 

[Aerides]

I see bear markets as opportunities for new money so I bought close to 580K right before DOW 18K even after being down close to 800K. Thank you to those who sold their shares and ran for the hills.

What's the point of that last sentence, are there some noses you are trying to rub in something? because it's not necessary, and most here are the long-hold types, so those you bought from are not here to see your "thanks."

 

[copyright1997reloaded]

I believe running man thinks we are around the yellow arrow on this chart (I did the crude annotation):

 

[Doribe]

You have a tremendous opportunity to get out of the market now not too far off of the top, If anyone thinks this is like anything in American history I think you have not looked at American history, it is worse than 1929 and in 1929-1932 the market sank 80% the stock market will fall further than that, and any money you obtain by selling on Monday will be money to invest in the future, that is not panicking that is rational behavior.After the market falls 30-40% you will be powerless to make moves as the market will have moved you to a lower stock allocation. I really wish people would stop and think what individuals and companies are going to have to do over the coming year.

+1

 

[street]

Exactly! Don't panic. I haven't even paid much attention where the DOW has been. For me my plan for financing my retirement was almost bullet proof IMO.

We have enough in cash investments to nevah have to touch our investments as long as we live. Things can happen, but we have well over 40 years, with SS and cash to live on before we would have to use investments.