Talk me out of selling everything

[donheff]

It's always different this time because it is different: 2000 dot com implosion, 2008 financial system in collapse, 2020 Armageddon. Even in 1929, the market eventually recovered. You know the mantra: "don't panic and lock in losses, wait for the market to recover." Maybe this time Putin will kick off a nuclear holocaust. If the end is truly nigh, we will all be going down with you.

 

[big-papa]

Yeah don't do it. History isn't on your side, especially if done via a "feeling."

In 2008, I was so busy at work that I wasn't looking directly at my portfolio very often. When I did look late in the year, I panicked and got out of everything and stopped contributing to my 401K. I spent the next month learning all about asset allocation as I was doing some pretty silly things. A month later I was back in.

I got lucky.
- During the time I was out, the market didn't move much at all, so I was able to participate in the recovery without falling behind.
- Because of the sales in my taxable account, I had so much capital losses that I had $3K loss carryovers for a really long time.


If you feel the need to "do something" then Tax Loss Harvesting is something you might be able to do. Plenty of sources out there about this.

Another thing to consider as you go into decumulation mode is how you want to treat your bonds. Bonds, especially Treasury issues, when purchased and held to maturity will provide an income stream that is just about as deterministic as you're going to find. Whether you do this via a bond ladder or by duration matching using 2 or more bond funds, this now allows you to ignore what the current market value of your bond holdings are as you move through retirement. Doing this can at least help you ignore the fluctuations of one part of your portfolio, allowing you to spend all of your time worrying about the stock portion instead!

 

[copyright1997reloaded]

You buy bonds when inflation is raging, like now.

How did bond holders do in hyper inflation environments like the Weimar Republic? Answer: They were wiped out because their paper return was crushed due to inflation.

How have bond holders done this year who went long on bonds after they were down a coup,e percent, e.g. bought 30 year when the yield was 2%?

Even now, my near 4% T-Bill is not good in inflation adjusted terms. I’m buying them only because -5 is better than -15.

My point to the OP is that being 0% in equities has its own set of risks, and loss of buying power due to inflation is one of them.

Bonds can be good when the inflation rate has peaked and is falling and the REAL rate on the bond is positive. For example, if I could buy TIPs with a 3.5% real I would be buying them hand over fist for my retirement portfolio,

 

[freedomatlast]

Rarely a good idea to make financial decisions based on emotion.

 

[COcheesehead]

How did bond holders do in hyper inflation environments like the Weimar Republic? Answer: They were wiped out because their paper return was crushed due to inflation.

How have bond holders done this year who went long on bonds after they were down a coup,e percent, e.g. bought 30 year when the yield was 2%?

Even now, my near 4% T-Bill is not good in inflation adjusted terms. I’m buying them only because -5 is better than -15.

My point to the OP is that being 0% in equities has its own set of risks, and loss of buying power due to inflation is one of them.

Bonds can be good when the inflation rate has peaked and is falling and the REAL rate on the bond is positive. For example, if I could buy TIPs with a 3.5% real I would be buying them hand over fist for my retirement portfolio,

Ladder your bonds. Buy the best yield at good to great quality levels, sit back and relax. Rates will come down and anyone with 6% yields will be very happy. Right now my ladders throw off way more than we need - an inflation hedge in itself -and will get us to social security - our return sequence hedge.

If the OPs portfolio falls even more - and it’s likely - they will need a big market surge just to get back to where they were on Friday let alone last January. What kind of inflation protection is that? They where not prepared to take on many of the risks in the five years before and after retirement - Kitces calls it the retirement danger zone and fixed income would have resolved a lot of that.

Kitces has done some good work on the subject. https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

 

[11522914]

I like to invest for security and tranquility, not more risk for more money we don't need. It seems like you currently have more risk than you need or feel comfortable with. We sold off some equities early on in the great recession and missed the worst of it. No regrets. We've had a very conservative portfolio since then and have zero angst, including this year.

You have a lot of choices in between selling everything right now and selling nothing. If it were me I would start dollar cost averaging money out of equities into TIPS, your I-bond limits, and individual fixed income.

This^^^^

Build some cash equivalents to cover expenses for several years.

 

[Aerides]

I'm not comfortable seeing what we have in our taxable and nontaxable accounts potentially decline by another 20+ percent.

Then don't look.

It might well go down another 10, 20, or more. But then it will at some point go the other way. If you sell, you'll never see either.

I'm not thrilled with our YTD losses but I stopped looking. The only way to get them back - and more - is to sit and wait. I don't need that money today or 3 years from now. But I do need it for the next 40 or so.

With your wife returning to work, you won't need to touch anything for a while. Aside from your 100% equity allocation, do you have any carve out for expenses, or do you have to look and sell something every few months? I don't, because I keep a few years in cash equivalents that I draw from.

 

[eytonxav]

As most know, we cannot predict the bottom or when the rebound will begin and trying to time that is not wise. Much better to transition to an allocation that allows you to sleep better at night. If you want to do that in one swoop or $ cost average in over several months time to get there, only you can make that call.

 

[REWahoo]

For what it's worth, I sort of hoped we'd make an average of 7% a year in equities with some down years and some up years but average 7%.

So this is one of those down years, just as you anticipated.

As others have suggested, find an AA that will allow you to sleep at night. Markets fluctuate but the right AA should prevent your emotions from reflecting the same level of ups and downs.

 

[MarieIG]

OP-

I was in your situation in 2009; FI and on the verge of retiring at the conclusion of my current assignment. I bit the bullet, continued to invest (investing all bonuses in the face of losses), cut some discretionary spending, and continued working for a few more years. I’m glad I did.

My advice is: continue your consulting gig (extend it if possible), ask DW to continue working for income + health insurance, cut discretionary spending as much as you can without making your life suck, and stay invested. You’ll come out the other end (likely in just a few years) in a financially sound position, confident about retiring.

BTW, the primary reason you think “it’s different this time” is because of the timing of this Bear market with your retirement plans, and that’s not sound reasoning. Best to you & DW.

This. Continue to work for now. Have wifey take the job. Stack some Benjamins and get used to it. The market is going to continue to fluctuate, and may go down more before it goes up. There is a reason a number of people put in OMY.

 

[aaronc879]

If my math is right then you should still have around $2.5M left. That is $100K/yr you can spend. That should be plenty if your mortgage is payed off. If it's not then maybe downsize rather than sell your equities beyond what you need for the current years spending. Remember that most of the money you need to withdraw will very likely be at a higher basis than it is now because it won't be withdrawn for 15+ years. You are only down 22% on equities that you sell now. The market will eventually come back up to where it is now and beyond and that is where you will withdraw most of your money. Think long term, you should be fine.

 

[connor77]

Can someone school me a bit about buying and laddering bonds? Where would I do this? I just recently learned about I bonds last year so I bought two and will buy 2 more in 2023. Sucks that we're limited to $10k for these.
Are there things I could do with Vanguard that would mirror buying individual bonds or come close to it? I'd prefer, if I can, to keep all of my investing within Vanguard although I've contemplated moving everything to Schwab or Fidelity based on Vanguard's customer service lately. A different thread - don't need to go there.

I will probably sell a fund or two without liquidating everything just to shore up cash for expenses for a couple to 3 years. I have a year's worth of cash now as I mentioned.
I thought I had an AA that I liked until my bond funds started to go down as much as my equity funds. It was then that I thought I'd get clever and roll the dice with an all equity portfolio. Not my best work.

I have no illusions that I'd be successful timing the market but protecting what we have left is why I have considered taking money - and maybe most of it - out of equities. I wouldn't stay out. I would do what others are doing which is averaging it back in...which I know is akin to timing.
I'll figure it out. Thanks for everyone's suggestions.

 

[DJRR]

We have a portfolio of 100% equities... I could handle an occasional 10% decline and possibly a bit more

I think I see the problem. Have you done any investing prior to 2010?

Assuming you lost ~ 20% you had a portfolio of $3.5M which is now $2.8M. Congrats on having a net worth larger than 95% of Americans, it is a substantial achievement.

Ideally, the market recovers in 2 years and your cash + spouse income gets you through the interim. This leaves you exposed to another potential 20-30% loss or so if we end up like 2008. If that makes you uncomfortable then best to eat the loss and get an asset allocation that works and has an expected max drawdown of about 10%. At your age you are probably at about a 3% SWR so you will have to accept that your annual income is down $21k due to your error. If the market turns you will hopefully improve on that, but only you can decide if you want to cut the losses or ride it out.

 

[njhowie]

How have bond holders done this year who went long on bonds after they were down a coup,e percent, e.g. bought 30 year when the yield was 2%?

The bondholder who bought 30 year when yield was 2% did so knowing that he/she was going to lock in 2%, be guaranteed 2% annually through maturity in 30 years, and decided that it worked with their portfolio and what they were looking to accomplish with their investment objective. That bondholder has done just fine, collecting the 2% that he bought, and will continue collecting through maturity. Yes, the bottom line on his/her portfolio shows an amount lower than what the purchase price was, but that means absolutely nothing, unless being forced to sell today. That investor is receiving the cash flow that he/she purchased - no differently than someone who purchased a CD or immediate annuity. It's really of no importance what the market value is today, next week, next month, or any time unless the investor is considering selling. Most individual retail bond investors are looking for the low risk cash flow, and bonds have provided and continue providing that.

I find that folks who are not bond investors do not "really" understand how they work or where they fit in to an investment portfolio. They blindly accept that they pick some AA they say they feel comfortable with for some reason which they likely can't cogently explain. Then, when SHTF they flip out, as we are now seeing new threads like this one, with regard to both equities and bonds - folks mentally getting squeezed because they can't handle seeing lower numbers. Going up 10% to 30% a year for 5 to 10 years is great, but a loss of 20% or more and they're going insane. I believe we're going to see a lot more of this before this downturn is done.

 

[connor77]

If my math is right then you should still have around $2.5M left. That is $100K/yr you can spend. That should be plenty if your mortgage is payed off. If it's not then maybe downsize rather than sell your equities beyond what you need for the current years spending. Remember that most of the money you need to withdraw will very likely be at a higher basis than it is now because it won't be withdrawn for 15+ years. You are only down 22% on equities that you sell now. The market will eventually come back up to where it is now and beyond and that is where you will withdraw most of your money. Think long term, you should be fine.

Aaron - your math is correct.

We have no mortgage or car payments or any other debt aside from regular monthly expenses. We can live frugally. It's not fun and not what I planned but we can do it. I can almost cut in half the yearly number I was using for retirement. Backing off discretionary spending by a lot and postponing some home improvement projects that are nice to haves not need to haves.

 

[Markola]

Most of this advice is about stocks and bonds, as if those are the only choices. Everyone can see that 100% stocks is way beyond the OP’s risk tolerance and that he and his wife have not done the work to understand why. Now the OP is in a classic panic on the eve of retirement, unfortunately.

The OP and his wife need a professional guide through the wilderness, someone who can compile all of their assets and liabilities, not just stocks and bonds, into a lifelong PLAN. Income, home equity, Social Security timed optimally, necessary and unnecessary spending plans, where to live, whether to leave anything for posterity, long term care insurance….everything goes in the plan. And you both need to be on the same page about it, which is another reason you need a guide. Deciding this stuff in an emotional panic will be disastrous.

And you should pay as little as possible in fees for the guide and plan. We value Vanguard Personal Advisors very much but Fidelity and Schwab would be in running too. I would not even consider anyone else.

The stock bull market is probably over for a while and it’s time to admit that you don’t know what you’re doing and you need help. There is nothing wrong with that. None of us are born financial experts.

 

[kjpliny]

I'd rather make little than lose most. I've always been an extremely conservative investor. Sleeping well at night is more important than money to me. Perhaps your asset allocation is too high, but the risk was masked by all of the excessive CB intervention over the past decade.

If a 22% loss amounts to $700k, this means your nest egg is/was over $3M, which would provide income of $120K/year if it was in short term treasuries right now.

Only you can decide what is right for you.

 

[Ncc1701]

The day after you sell everything a benign inflation report comes out and Powell goes on TV to say inflation is headed in the right direction. You very well know that is EXACTLY what will happen.

 

[connor77]

The day after you sell everything a benign inflation report comes out and Powell goes on TV to say inflation is headed in the right direction. You very well know that is EXACTLY what will happen.

Yes...This would undoubtedly be my luck.

 

[pacergal]

Sounds like you are well aware that selling low is not advisable. So don't sell low! Remember, in a sense you have not lost a cent until you sell and lock in your losses.

Hang in there until the market is high again. Then when it's high enough that you won't lose money by doing so, sell and rebalance to an AA that is a better match to your risk tolerance.

Meanwhile, maybe you can tuck away a few stray dollars to get you through these tough times. Try cutting back on your spending if you can. And spend some time considering what AA you could put in place in the future, that would make you feel more comfortable during times like these.

++
If you have about a years worth in cash, and both you and DW are planning on continuing to work for now, you have no need to sell at this time.
Take a deep breath, take some time to read up in bogleheads or elsewhere on asset allocation. Then you and DW decide what is the "sleep at night" number for you. Obviously 100% equities is not it. But 100% bonds probably is not it either at your age.
Once you have made your AA decision, then dollar cost average into it over time, or do it all at once, whichever is easier to you.
You have a nice sized portfolio remaining. You have done well saving.
You are much better financially than many. Blessings to you.

 

[Dash man]

I have no illusions that I'd be successful timing the market but protecting what we have left is why I have considered taking money - and maybe most of it - out of equities. I wouldn't stay out. I would do what others are doing which is averaging it back in...which I know is akin to timing.
I'll figure it out. Thanks for everyone's suggestions.

The big market gains can happen in just a few individual days that no one can predict, so keep most of your funds in the market. If you want to take another year’s worth of living expenses out to sleep better at night, you should do that. We’ve always had about five years living expenses since retirement nearly ten years ago. Start rethinking what asset allocation you want to have in retirement. As others have said, 100% is too risky. Bond funds are risky in a rising interest rate environment. Schwab and Fidelity are great for buying individual bonds and CDs. I’ve never used Vanguard, so I can’t speak of them. Slowly adjust your asset allocation to what you will be comfortable with over a few years, but not all at once. We use a 55/45 not counting real estate, plus a small pension. We don’t use bond funds, but do buy individual bonds including corporate, treasuries and municipal bonds depending on the type of account whether taxable, deferred or Roth.

 

[Rianne]

Conner77, in your original post, this stood out to me:

"No debt except regular monthly expenses."

I think you are scaring yourself. Saying "what if" we all do that. We have $2.5M, what if we have $2M, what if we have $1M? We started out in debt in the late '70s (that was a scary time) and continued for many years. But continued to LBYM. The stock market may not come back for a few years. Or it could come back next year. Who knows? Adjust your plans, your living expenses, and your attitude.

Yellowstone could erupt next month, just as hurricane Ian hit FL without warning. Those people have lost everything. With no debt, you have control over your spending and have a positive NW. When you're in debt, you don't have that control. You have to pay your debtors or go bankrupt. A negative NW.

IMO, get to work on thinking positively and problem-solving.

 

[copyright1997reloaded]

I see that the Bonds solve everything crowd is out, including statements to the effect that anyone who doesn't agree with them just doesn't understand bonds.

No where in my post to OP did I say they shouldn't have bonds, nor am I opposed to laddering.

But please don't fool yourself into thinking that bonds at 4% when inflation is 8.5% are automatically good investments. YOU ARE LOSING 4.5% per year.

Now, you may argue that inflation will come down and thus that 4% or 5% or whatever bond is a good investment, or that the 2% 30-year treasury you bought is a good investment because it will be guaranteed to pay off after 30 year, so pricing now doesn't matter.

If the inflation rate remains higher than the bond yield over those 5, 10, 20 or 30 years - then it wasn't a good investment. YOU HAVE LOST MONEY in terms of buying power, period.

All that I said to the OP was that there is more in life than return risk. There is inflation risk, counter party risk, and a bunch of other factors.

I'm not here to tell the 100% bond folks that they shouldn't be. Your investments are on you.

But I will tell you that there have been periods of time when bond holders were hurt dramatically in terms of purchasing power, and to argue that it can't happen is nonsensical based on history.

 

[tulak]

If the inflation rate remains higher than the bond yield over those 5, 10, 20 or 30 years - then it wasn't a good investment. YOU HAVE LOST MONEY in terms of buying power, period.

Not necessarily. There have been conversations here where the official inflation rate doesn’t match an individual’s personal inflation rate. It all depends on what you’re buying.

I agree that you have to be careful locking in rates lower than inflation for long periods of time. That’s why I keep my durations short.

And no need for all caps…

 

[Rianne]

IMO, losing 4% due to inflation over time is a heck of a lot better than losing 30% in less than a year. I'll go with 4% treasuries for at least 50% of our portfolio.