Retirees - Were you ready for the Great Recession?

[street]

NW-Bound >>>> that is some interesting data. Thanks

 

[brucethebroker]

A tad off center...but for any of you interested in rental property for diversification...

Although the housing market crashed (value wise) and my career cratered (real estate broker), our rental houses did just fine. Rents stayed level and no vacancies. (It was an interesting lesson to see values drop and rents not). In 2013, with the RE market finally pulling out of the nose dive, we made 2 of our best purchases on depressed homes.

 

[audreyh1]

Appreciate the feedback. Perhaps I am missing where you say my comments are off?? Your additional comments in your revised post seem to match my comments?

I was really trying to illustrate for myself, and perhaps others, the effects of strictly following the re-balance formula (in this case 60/40) regardless of individual balances for stocks & bonds. In my example, after re-balancing and taking your annual distribution, the stock allocation does not get back to the original balance until 2014, yet the "strict" re-balance method told me to sell stocks every year except 2008. Yes, stocks improved so the formula says sell, however, I got the sense from many here that they were trying to avoid selling stocks while they were below their starting balance and instead continue to pull from their bond/cash allocation. This would arguably not keep a re-balance purest properly balanced for that year(s) as their AA would sway more heavily into stocks. I get the logic, just making an observation. To me, the good news is the true dedicated re-balancer could still retire right before a big drop, hit their 4% WR, and eventually see their portfolio exceed their starting balance (at least in this specific example).

Makes me feel better about my plan. Just thought I would share the good news.

Some of my confusion is just the terminology for the year used. Are you rebalancing at the end of each year or the beginning of the next? I think of rebalancing as happening at the beginning of each year the same time as the draw. So you talk about buying selling stock to buy bonds in 2008 (meaning at the end of 2008) and I think of it as buying stock at the beginning of 2009. Interestingly your spreadsheet comments for each year matched the latter case which added to my confusion.

Note that for every year where the stock allocation has grown to more than 60% by the end of the year, some stock will be sold in the next rebalance. That's simple to understand and how it is supposed to work.

You are also drawing from the portfolio each year. Talking about whether stocks have "recovered" while you are also drawing them down - that's a bit tricky. Are you comparing before or after withdrawal? Before or after rebalancing?

I note that even though the end of 2009 stock portion did not reach the initial after withdrawal value of $576K in 2008, it had exceeded $560K by the end of 2009. In my book that's pretty darn close to consider the stock portion to have "recovered". And at the end of 2010 the stock portion was $581K, exceeding the start of 2008 value in spite of another year's worth of withdrawals and rebalancing. That's definitely recovered. I don't think you can look at the after rebalancing and withdrawal amount and say that the stocks haven't recovered. I claim your recovery year was definitely by the end of 2010 (even making up for a year of withdrawals), and extremely close by the end of 2009, not so late as 2014.

You bring up a good point overall. If someone is rebalancing, then talk of "not selling stocks when they are down" is a red herring. If you buy more stock when it's been cut in half, and then it has a great recovery year, chances are very high your stock allocation is going to exceed your AA just as it had by the end of 2009, so of course that is going to be sold to rebalance/fund withdrawals. Saying "stocks are still down" is kind of meaningless. Maybe it makes sense if someone is not rebalancing and didn't buy more when stocks were low, but just waited for them to recover (actually, quite a few folks did this - it is so scary to buy when stocks are down hard). But if you do buy stocks when down and they recover a good chunk, you'll sell some soon.

The 2008/2009 bear market was brutal but brief. I'm sure other periods can be found in which stocks stayed mostly down for several years and the draw was from bonds for several years until stocks experienced a decent rally.

 

[kcowan]

I think the results are keyed to the frequency of rebalancing. Yearly at the beginning versus quarterly versus monthly. That would be instructive for us all.

 

[brett]

We muddled through. More good luck than anything else. For a variety of reasons we were very cash heavy at the time. Nothing to do with smarts, simply dumb luck.

Came close to selling equities at a substantial loss. DW talked me around and we did not. We increased our equities substantially at the end as things were getting better. Should have done it a little earlier but the market made us a little gun shy.

Staying in the market was key to us. I had a few colleagues who bailed and did not re-enter the market. They took a pounding. It had a very negative on their retirement plans.

We came out at the end but I still think to this day that it was dumb luck and perhaps one or two average decisions. Looking back, one smarter thing that I did was sell most of my company stock and exercise options prior to the hit. Decided that I did not want our investments and my job so closely intertwined. The 2001 tech meltdown was in my mind since a number of my colleagues suffered greatly after accepting a DB to DC buyout/conversion and subsequently experiencing significant declines in their self administered DC accounts.

 

[kcowan]

We bought our condo in 2007 for cash. The exchange (they are priced in USD) was 1.065. So we reduced our equity and bought a USD investment. Since the exchange is now 0.80, we made out on the exchange while holding less equities going into the dumper.

Not foresight, just luck.

 

[Sunset]

I was working during the 2007 time, so as the market tanked, I put away as much as I could in stocks.
as everything was on sale.
I even borrowed some $$$ to invest, only about $60K but it helped juice the returns.

All that helped accelerate our retirement.

Now, it would be different, as I certainly don't want to return to work, about the only advantage to a big drop would be to a conversion to Roth of stock holdings.

 

[scrabbler1]

I looked back at records to see what I sold in my stock funds starting in 2007. In my main, taxable stock fund, I made no sales or redemptions after May of 2007 until I made a small rebalancing move to a bond fund in early 2014. I made 6 rebalancing purchases from 2008 and 2010 and that doesn't include all the reinvestment buys in that time. Basically, I saw the recession as a buying opportunity.


In my 401k/IRA, I don't have my exact transaction records from 2007 and 2008, before I liquidated the 401k into a rollover IRA. I did make two buys in late 2008 of the stock fund due to combining two smaller funds, one mixed and the other bond, into the main stock fund in preparation for doing the rollover IRA. My AA at the time was 55/45 and I made a few rebalancing moves in 2009-2010 to maintain it. I have had to make several of those moves in the last few years to stay close to my AA which has gradually dropped to 46/54 in the last 8 years.

 

[cyber888]

1930s first great depression, 2009 second great depression, ... maybe 2070 or 2080 will be the next big one in the cycle.

 

[REWahoo]

1930s first great depression, 2009 second great depression, ... maybe 2070 or 2080 will be the next big one in the cycle.

You might want to do a little more research on the definition of "depression". What happened in 2008-2009 was definitely depressing, but not a depression.

 

[athena53]

Staying in the market was key to us. I had a few colleagues who bailed and did not re-enter the market. They took a pounding. It had a very negative on their retirement plans.

I agree. The people who really got hurt are the ones who were holding too many speculative investments that never recovered, who sold out in a panic, or who weren't able to decrease their withdrawal rate on the diminished portfolio to a sustainable level.

During the last recession I was still employed and stashing lots of money away, which wont be true the next time, so I'm just trying to avoid the 3 behaviors above.

 

[cyber888]

You might want to do a little more research on the definition of "depression". What happened in 2008-2009 was definitely depressing, but not a depression.

everyone including the Feds called it a depression.

 

[cyber888]

You might want to do a little more research on the definition of "depression". What happened in 2008-2009 was definitely depressing, but not a depression.

http://thegreatdepressioncauses.com/now/great-depression-2009/

 

[REWahoo]

everyone including the Feds called it a depression.

Can you provide a Fed link to verify? If so, I will sit corrected.

 

[REWahoo]

Great Depression 2009 | Effects of The Great Depression, Facts

Not sure who the author is, but it isn't the Fed.

 

[audreyh1]

everyone including the Feds called it a depression.

No, it was called the Great Recession, it was not called a depression.

 

[Danmar]

No, it was called the Great Recession, it was not called a depression.

Agree. It didn’t meet the test of a depression. Corrected too quickly.

 

[cyber888]

Can you provide a Fed link to verify? If so, I will sit corrected.

Here’s a quote from ex Fed Chair Bernanke who said 2009 was worst than the 1930s. So what could be worst than the Great Depression, but another Greater Depression

http://money.cnn.com/2014/08/27/news/economy/ben-bernanke-great-depression/index.html

Potato .. potaaatoo ... symantics. Great recession .. Great depression .. i dont see much difference. Before it got corrected after a few years, it was a Great Depression and heard it from the fed chair himself.

 

[Sunset]

Here’s a quote from ex Fed Chair Bernanke who said 2009 was worst than the 1930s. So what could be worst than the Great Depression, but another Greater Depression

2008 crisis: Worse than the Great Depression? - Aug. 27, 2014

Potato .. potaaatoo ... symantics. Great recession .. Great depression .. i dont see much difference. Before it got corrected after a few years, it was a Great Depression and heard it from the fed chair himself.

That was not the only thing Bernanke was wrong about... Just because he said it, doesn't make it true.

There are differences like:

"
That much is clear. During the Great Depression, unemployment spiked to 25%, and the country's output plummeted by nearly 50%.
At its peak, the unemployment rate never climbed above 10% during the Great Recession. That was the highest rate since the early 1980s, but nearly as bad as the 1930s."

 

[audreyh1]

Begs the questions...

- Many of you said you avoided selling stocks and lived out of cash/bond allocation. Does that mean you really let your allocation swing to a higher stock allocation during the years between 2008 - 2012 (assuming you had the portfolio above) as opposed to staying with your predetermined AA and automatically rebalancing?

I don't think people actually did that. I think some people think that's what they will do but it doesn't actually match how asset allocation and rebalancing works.

After rebalancing and withdrawals, how can anyone know whether their stocks are "still down"? If the 60/40 portfolio is lower than where you started after a couple of years of withdrawals, but the stocks are above 60% and the bonds below 40%, how can you say stocks have not recovered enough to draw from them? What is the criteria? Are you ignoring that you drew on your portfolio when it is down? Are you ignoring that you bought more stocks when they where cut in half and during the second year the original stock plus added stock have each appreciated 29% and the stock position at the end of 2009 is at $560K, almost back to the $576K level where it was after the initial 2008 withdrawal?

OK, so I have listened to many of your responses and it sounds like many of you just grinned and bared it, cut expenses, relied on multiple years of cash to avoid catching the falling knife and selling stocks on the down swing.

So I ran a little exercise I would like to get feedback on, especially from you all that lived through it. I made the following assumptions and tried to chart it out (attached)...

- You retired at the end of 2007
- $1M Portfolio as of 12/31/2007
- 60/40 AA split 60% Vanguard Total Stock (VTSAX), 40% Total Bond (VBTLX)
- 4% WR adjusted annually for inflation
- Annual withdrawal at 1st of every year followed by re-balance (1st withdrawal 1/1/08)

Observations...

- Total portfolio does not get back to $1M until 2013
- Despite falling stock balance, AA says to sell stocks between 2009 - 2012
- As of end of 2017, portfolio balance approximately 30% higher than starting balance

VTSAX wasn't falling during 2009-2012. It rose every single year 2009-2017. So of course after 2008 initially you would have rebalanced from bonds to buy stocks, but 2009, 2010, and 2012 had very strong stock performance, so it's not surprising that stocks would be sold for withdrawal and to buy bonds for the next year.

In fact VTSAX was just shy of it's 1/1/2008 level by the end of 2009 and recovered very early in 2010. So I don't think you can claim that stocks went down until 2013 in your example. For VTSAX, which did better than the S&P500, it went down during 2008 and the first part of 2009 and recovered most of the way back by the end of 2009.

Because someone is drawing from stocks and rebalancing from stocks into bonds each year it doesn't mean that stocks were going down. You have to look at the values pre-rebalance and pre-withdrawal before saying how an asset class performed.

I just bring this up again because I don't think it's very useful for people to talk about whether "stocks are down" and "not selling stocks if they are down" when they are rebalancing and withdrawing from their portfolio.