What do you do with index funds when...

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Locked
bigfoot12
Posts: 38
Joined: Thu Dec 19, 2013 1:17 pm

What do you do with index funds when...

Post by bigfoot12 » Fri Feb 21, 2014 2:37 pm

the stock market begins to crash?

Very important. Do you sell your stock index funds to buy safe bonds, or do you hold?


Got any plans?

linuxizer
Posts: 1553
Joined: Wed Jan 02, 2008 7:55 am

Re: What do you do with index funds when...

Post by linuxizer » Fri Feb 21, 2014 2:40 pm

What does your IPS say?

Most around here say you should sell your safe bonds to buy stock index funds....

User avatar
roymeo
Posts: 1213
Joined: Sat Apr 28, 2007 7:19 pm
Location: Oakland, CA
Contact:

Re: What do you do with index funds when...

Post by roymeo » Fri Feb 21, 2014 2:51 pm

The stock market "begins to crash"?

You mean 'goes down a bit' or 'all the media noiseboxes freak out' or 'several months later we realize it was a crash''?

That's sort of like how when I'm walking or running, much of the time I'm "starting to fall". Except I've done this walking/running thing often enough I can anticipate when I'll be falling, how far I'll fall, and what I need to do to correct my course (most of the time, anyway).

Most of us here have bought into the idea that no one seems very good at beating or matching the market with active management over time, so we'll just buy the market and hold. If you're timing the market with index funds, you're saying that you don't trust an active manager who spends his/her whole career trying to make gains by being smarter than the market, but you do trust yourself to be smarter than that person and the market.

If you really are that smart, you'd have already sold right before the market 'begins to crash', right?

I'd hold my index funds other than rebalancing as per my usual formula/schedule. Most of this rebalancing would be via new purchases as per my usual schedule unless something gets far enough out of whack that I need to exchange between funds.

roymeo
Last edited by roymeo on Fri Feb 21, 2014 3:02 pm, edited 1 time in total.
The sewer system is a form of welfare state. | -- "Libra", Don DeLillo

FafnerMorell
Posts: 686
Joined: Mon Sep 15, 2008 10:27 am

Re: What do you do with index funds when...

Post by FafnerMorell » Fri Feb 21, 2014 3:00 pm

Stay the course (which generally means keep on buying per normal (hold if you're no longer accumulating wealth), and rebalance).

Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: What do you do with index funds when...

Post by Professor Emeritus » Fri Feb 21, 2014 3:05 pm

You can:

a) ************** OR
b) rebalance as needed OR
c) decide that in the future you prefer to be cheated by investment advisors who sell you snake oil

Your call
Last edited by Professor Emeritus on Fri Feb 21, 2014 3:28 pm, edited 1 time in total.

Jack FFR1846
Posts: 7037
Joined: Tue Dec 31, 2013 7:05 am

Re: What do you do with index funds when...

Post by Jack FFR1846 » Fri Feb 21, 2014 3:10 pm

I have the perfect solution. I've purchased a Delorean automobile, a nuclear reactor and a haz mat suit. Once I find the flux capacitor, I'll be able to go ahead in time and find out when that real market crash occurs so I can come back here and get out.

If I can't find a flux capacitor, I'll just rebalance as planned and move on.
Bogle: Smart Beta is stupid

User avatar
pennstater2005
Posts: 2449
Joined: Wed Apr 11, 2012 8:50 pm

Re: What do you do with index funds when...

Post by pennstater2005 » Fri Feb 21, 2014 3:10 pm

Turn the t.v. off, smile, and drink a beer.
“If you think nobody cares if you're alive, try missing a couple of car payments.” – Earl Wilson

livesoft
Posts: 61045
Joined: Thu Mar 01, 2007 8:00 pm

Re: What do you do with index funds when...

Post by livesoft » Fri Feb 21, 2014 3:16 pm

So far, I always buy more index funds.
Wiki This signature message sponsored by sscritic: Learn to fish.

supernova
Posts: 279
Joined: Fri Feb 21, 2014 8:45 am

Re: What do you do with index funds when...

Post by supernova » Fri Feb 21, 2014 3:17 pm

Trying to predict a crash or time the market is a fool's errand. No one knows what will happen 10 minutes from now, much less tomorrow or even further in the future. Just keep putting money in at regular intervals if you can do so and you will be fine.

User avatar
nisiprius
Advisory Board
Posts: 35896
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: What do you do with index funds when...

Post by nisiprius » Fri Feb 21, 2014 3:19 pm

The National Bureau of Economic Research (NBER) refuses to declare anything about a recession until it is over. Similarly, with a market crash.

Sudden shocking dips in the market occur in all sizes, and you simply do not know whether they are the start of a crash, or not. People are already starting to think as if 2009 to the present was one uninterrupted smooth climb, and forgetting just how badly spooked people were in 2011.

What would you have done here? Would you have shifted from stocks into bonds or cash?

Image

That is what preceded the crash of 2008-2009. What would you have done here? A far worse drop...

Image

That was 2011, and it was a false alarm--over the next two years, the stock market gained 30%.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

bigfoot12
Posts: 38
Joined: Thu Dec 19, 2013 1:17 pm

Re: What do you do with index funds when...

Post by bigfoot12 » Fri Feb 21, 2014 3:55 pm

if the s&p 500 index goes down a lot in a year, then your index fund earning will go down a lot too - since s&p 500 index fund tracks the s&p 500 index.

I don't understand... Why would you want to hold when all your money goes down very fast? That would mean once your earnings go down, it would put you back where you started when you started invested.

Take my mom for example... My mom started with 8, 000 in American Funds. The market was doing good for a number of years, and my mom ended up with
32, 000. By the time 2008 hit, that $32,000 got to low as around 8,000 again. That means another 6 years or so to accumulate interest and get back to 32,000. Which was a waste of time actually.

The market will recover quickly, but your earnings won't recover as quickly as the market recovers, because for example compound interest on 8, 000 will be very low.

Using the drop from the 2000 peak as an example, most people who were buy-and-hold investors, and who were fully invested in 2000, recovered only in 2013.
That's 13 years to recover back to where you were. Do you have that much time for retirement?

supernova
Posts: 279
Joined: Fri Feb 21, 2014 8:45 am

Re: What do you do with index funds when...

Post by supernova » Fri Feb 21, 2014 4:04 pm

bigfoot12 wrote:if the s&p 500 index goes down a lot in a year, then your index fund earning will go down a lot too - since s&p 500 index fund tracks the s&p 500 index.

I don't understand... Why would you want to hold when all your money goes down very fast? That would mean once your earnings go down, it would put you back where you started when you started invested.

Take my mom for example... My mom started with 8, 000 in American Funds. The market was doing good for a number of years, and my mom ended up with
32, 000. By the time 2008 hit, that $32,000 got to low as around 8,000 again. That means another 6 years or so to accumulate interest and get back to 32,000. Which was a waste of time actually.

The market will recover quickly, but your earnings won't recover as quickly as the market recovers, because for example compound interest on 8, 000 will be very low.

Using the drop from the 2000 peak as an example, most people who were buy-and-hold investors, and who were fully invested in 2000, recovered only in 2013.
That's 13 years to recover back to where you were. Do you have that much time for retirement?
But how do you know when the market is going to crash? You don't know if the market is going to go up or down tomorrow, the next day, the day after, the week after, the month after, etc... Stocks could go down 3% next week, then up 5% the week after.

You are best to continuously put money in; that way, you put money in at the good times and the bad times, so it averages out to the best.

DSInvestor
Posts: 10796
Joined: Sat Oct 04, 2008 11:42 am

Re: What do you do with index funds when...

Post by DSInvestor » Fri Feb 21, 2014 4:05 pm

Here at bogleheads, we suggest that investors spend time to select an asset allocation, a mix of stocks and bonds that the investor would be comfortable holding through all market conditions. Once you have an asset allocation it is critical to stick with the plan to try to maintain that asset allocation.

Let's say you have 100K portfolio and you want 50% stocks and 50% bonds. Stocks double, bonds flat. Your 50K stocks grew to 100K and your new portfolio total is now 150K. 50/50 on a 150K portfolio would hold 75K stocks and 75K bonds. The asset allocation plan tells you to sell 25K stocks and buy 25K bonds. The asset allocation plan is helping you to sell the asset class that is high to buy the asset class that is low (or less high).

Now stocks crash and bonds rise. Your 75K stocks become 40K, and 75K bonds becomes 80K. The new portfolio total is 120K. To maintain 50/50 AA,you need 60K stocks and 60K bonds. To rebalance, you need to sell 20K bonds to buy stocks. Now you're buying stocks low.

Nobody has the ability to time the market and sell at peak just before a crash and buy at lows just before a huge run up. An asset allocation plan can help you control risk.

When you add money to the portfolio, an asset allocation plan will help you decide how to deploy it. You buy the asset class that is below target.
Last edited by DSInvestor on Fri Feb 21, 2014 4:08 pm, edited 1 time in total.
Wiki

John3754
Posts: 1289
Joined: Tue Mar 19, 2013 8:56 pm

Re: What do you do with index funds when...

Post by John3754 » Fri Feb 21, 2014 4:06 pm

bigfoot12 wrote:if the s&p 500 index goes down a lot in a year...
And how do I know beforehand if the index is going to go down a lot in a year? If the market goes down 8% today, how do I know if it's going to go down another 10% tomorrow or up 10%? Should I have sold out to cash during the recent market dip? Did you?
Last edited by John3754 on Fri Feb 21, 2014 4:07 pm, edited 2 times in total.

jf89
Posts: 426
Joined: Sun Aug 11, 2013 11:53 pm

Re: What do you do with index funds when...

Post by jf89 » Fri Feb 21, 2014 4:06 pm

From this thread and the one you started yesterday I think you need to do a little more reading. Check out the full list of recommended reading here: http://www.bogleheads.org/readbooks.htm

The Investor's Manifesto was particularly helpful to help me understand the concepts of this thread.

It sounds backwards but you as a young 20-something should actually be HOPING for a "crash" to accumulate as much as possible now when you don't need it.
"Save as much as you can, diversify diversify diversify, and you can't go wrong with tech stocks" | -First investing advice I recall from my parents in the 90's (two outta three ain't bad)

User avatar
abuss368
Posts: 12420
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: What do you do with index funds when...

Post by abuss368 » Fri Feb 21, 2014 4:07 pm

I follow Jack Bogle's advice and "stay the course".

It creates a buying opportunity. We buy additional shares in the funds that have declined to bring them back inline with the overall asset allocation.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

FafnerMorell
Posts: 686
Joined: Mon Sep 15, 2008 10:27 am

Re: What do you do with index funds when...

Post by FafnerMorell » Fri Feb 21, 2014 4:12 pm

bigfoot12 wrote: Using the drop from the 2000 peak as an example, most people who were buy-and-hold investors, and who were fully invested in 2000, recovered only in 2013.
That's 13 years to recover back to where you were. Do you have that much time for retirement?
This soft of statement gets made a lot (whether it's about 2000 or 2008 peak), and it's nonsense.

And more importantly, a lot of folks here have been investing in index funds since then (I think I started around 95 or so), so statements like "You didn't recover until 2013" are, well, kind of like someone telling you that it's impossible for a human to travel faster than 20 mph otherwise they'd die (supposedly this was a belief around the late 1700s to argue against early locomotion/trains). You recover a lot faster - especially with rebalancing.

While it might be flattering for someone to repeatedly tell you that you've accomplished the impossible, after awhile they just sound really silly.

barnaclebob
Posts: 2708
Joined: Thu Aug 09, 2012 10:54 am

Re: What do you do with index funds when...

Post by barnaclebob » Fri Feb 21, 2014 4:20 pm

Its not just index funds that get hit in a crash, near all stock mutual funds will take the same hit contrary to what fund managers want you to believe.

From this post and your last ones, its clear you are not ready to invest in anything yet. But if you truly think you can time the market then go for it, best of luck.

bigfoot12
Posts: 38
Joined: Thu Dec 19, 2013 1:17 pm

Re: What do you do with index funds when...

Post by bigfoot12 » Fri Feb 21, 2014 4:23 pm

supernova wrote:
But how do you know when the market is going to crash? You don't know if the market is going to go up or down tomorrow, the next day, the day after, the week after, the month after, etc... Stocks could go down 3% next week, then up 5% the week after.

You are best to continuously put money in; that way, you put money in at the good times and the bad times, so it averages out to the best.
You wouldn't know. But If the market keeps dropping for weeks, I would get very suspicious.

But I have been questioning this, and I don't know if I am right or wrong.

If the stock market crashes, that would mean the prices of stocks go down. Since the price of stocks would be so cheap, then would you recommend buying a huge amount of shares at that time as opposed to buying them when the stock market is bullish?

That would work out right? If you buy many more shares when prices are low, would that mean once the stock market goes bullish again, the stock prices would rise, and you would get twice as much income as you did as opposed to if you didn't buy any shares during the bear market at all?



I hope I am understanding this correctly. Correct me if I am failing my logic. It doesn't make sense to buy a huge majority of stocks at high prices would it, but to buy a huge majority of them when the prices are extremely low(in a recession)?
Last edited by bigfoot12 on Fri Feb 21, 2014 4:29 pm, edited 1 time in total.

barnaclebob
Posts: 2708
Joined: Thu Aug 09, 2012 10:54 am

Re: What do you do with index funds when...

Post by barnaclebob » Fri Feb 21, 2014 4:28 pm

What you are failing to grasp in this and every other post you have made is the ability to predict when stocks are high or overpriced and when they are low or underpriced. If anybody knew and could do this consistently they would be incredibly rich. You are also misusing the terms like income, earnings, interest, etc.
Last edited by barnaclebob on Fri Feb 21, 2014 4:30 pm, edited 2 times in total.

John3754
Posts: 1289
Joined: Tue Mar 19, 2013 8:56 pm

Re: What do you do with index funds when...

Post by John3754 » Fri Feb 21, 2014 4:29 pm

bigfoot12 wrote:You wouldn't know. But If the market keeps dropping for weeks, I would get very suspicious.
So you would wait for the market to drop for weeks, get suspicious, and then sell out to cash? Is that what you're proposing? Then what, wait for the market to go up and then buy?

jacoavlu
Posts: 347
Joined: Sun Jan 06, 2013 12:06 pm

Re: What do you do with index funds when...

Post by jacoavlu » Fri Feb 21, 2014 4:29 pm

If your mother had kept investing in an index fund during market downturn, and continuing during the subsequent rise, well then she would have far more than when she started.

If your mother was in a position where she was done investing, then she should not be 100% invested in equities in the first place.

DSInvestor
Posts: 10796
Joined: Sat Oct 04, 2008 11:42 am

Re: What do you do with index funds when...

Post by DSInvestor » Fri Feb 21, 2014 4:30 pm

bigfoot12 wrote:You wouldn't know. But If the market keeps dropping for weeks, I would get very suspicious.

If the stock market crashes, that would mean the prices of stocks go down. Since the price of stocks would be so cheap, then would you recommend buying many more shares as opposed to buying them when stock market is bullish?

That would work out right? If you buy many more shares when prices are low, would that mean once the stock market goes bullish again, the stock prices would rise, and you would get twice as much income as you did as opposed to if you didn't buy any shares during the bear market at all?



I hope I am understanding this correctly. Correct me if I am failing my logic. It doesn't make sense to buy stocks at high prices would it, but to buy when the prices are extremely low(in a bear market)

Is that how it works?
I would frame it differently. Forget about bullish or bearish. Pick an asset allocation. Once you have an asset allocation, look at your current holdings compare to desired allocation and invest accordingly. If stocks are above target (high) and bonds are flat, your asset allocation plan will tell you to not buy stocks but buy bonds. If you're not adding money, the plan will tell you to sell stocks while they're above target (high) and buy bonds.

Once you have this kind of plan in place, you can pretty much ignore all the noise. No CNBC! They just get folks excited when market is high and fearful when markets are falling.
Wiki

User avatar
swimirvine
Posts: 367
Joined: Tue May 28, 2013 7:51 am

Re: What do you do with index funds when...

Post by swimirvine » Fri Feb 21, 2014 4:39 pm

bigfoot12 wrote:the stock market begins to crash?

Very important. Do you sell your stock index funds to buy safe bonds, or do you hold?


Got any plans?

Bigfoot12 ... please tell us what to do! Should we get in the Fast lane?
The way I invest my money is not the right way to invest, it's the right way for ME to invest.

jf89
Posts: 426
Joined: Sun Aug 11, 2013 11:53 pm

Re: What do you do with index funds when...

Post by jf89 » Fri Feb 21, 2014 4:40 pm

bigfoot,
It just occurred to me that perhaps you're not talking about investing for retirement but still talking about investing now to live off of the dividends now (thus your repeated use of the word "income").

Just checking... if this is the case we all need to take a very different approach at you.
"Save as much as you can, diversify diversify diversify, and you can't go wrong with tech stocks" | -First investing advice I recall from my parents in the 90's (two outta three ain't bad)

bigfoot12
Posts: 38
Joined: Thu Dec 19, 2013 1:17 pm

Re: What do you do with index funds when...

Post by bigfoot12 » Fri Feb 21, 2014 4:46 pm

barnaclebob wrote:What you are failing to grasp in this and every other post you have made is the ability to predict when stocks are high or overpriced and when they are low or underpriced. If anybody knew and could do this consistently they would be incredibly rich. You are also misusing the terms like income, earnings, interest, etc.

I know what you are talking about, but what I what I mean is... ok currently the stock prices for VG S&P 500 are around $160 per share.
If stock prices in the VG S&P 500 go down to lets say $32.00 per share during a recession (I don't know if its ever been that low), that would mean I could get 6 or 7 shares for each 200 dollars I put in with dollar cost averaging. That's 6 or 7 potential dividends.
And then when the stock prices rise on all these shares, that means I would get much more dividends.

Am I correct in thinking that more shares = more potential dividends???


But if I bought shares instead at $160, that would only make 1 share per $200 invested, and only 1 dividend.
Last edited by bigfoot12 on Fri Feb 21, 2014 4:52 pm, edited 1 time in total.

barnaclebob
Posts: 2708
Joined: Thu Aug 09, 2012 10:54 am

Re: What do you do with index funds when...

Post by barnaclebob » Fri Feb 21, 2014 4:48 pm

bigfoot12 wrote: I know what you are talking about, but what I what I mean is... ok currently the stock prices for VG S&P 500 are around $160 per share.
If stock prices in the VG S&P 500 go down to lets say $32.00 per share during a recession (I don't know if its ever been that low), that would mean I could get 6 or 7 shares for each 200 dollars I put in with dollar cost averaging.
And then when the stock prices rise on all these shares, that means I would get much more dividends.

Am I correct in thinking that more shares = more potential dividends???
Yes if you could do that and the share price recovers then yes you would likely have more dividends. Also this wouldn't be dollar cost averaging, it would just be buying shares of a mutual fund. If I could pick the winning lottery numbers my personal assistant would be typing this to you too while I dictated.

User avatar
roymeo
Posts: 1213
Joined: Sat Apr 28, 2007 7:19 pm
Location: Oakland, CA
Contact:

Re: What do you do with index funds when...

Post by roymeo » Fri Feb 21, 2014 4:55 pm

That's probably not a realistic drop as far as history has played out so far.

Yes, it is good buy buy low instead of high. Can you really predict that? You've already said you'd be 'suspicious' when prices drop for several weeks--thus you'd be ready to panic sell low. Just like housing, you want to buy when houses are cheap and not when they're expensive, but people aren't always a good judge of what 'reasonable' is, thus there are some people in San Francisco who thought houses were too expensive in the 70's who are still waiting for the prices to drop so they can get into the market.

As I noted in my previous response: We don't think we're smarter than the unknown future, but there are quite a lot of studies that show, over time, buying and holding a diversified portfolio of low cost index mutual funds does better over time than almost every other method--and if there's a method that beats it, you won't know it til after the fact, anyway.

You're asking very, very basic questions, which is just fine, but you may want to check out the books in the reading list which are intended to give someone that basic background.

roymeo
The sewer system is a form of welfare state. | -- "Libra", Don DeLillo

bigfoot12
Posts: 38
Joined: Thu Dec 19, 2013 1:17 pm

Re: What do you do with index funds when...

Post by bigfoot12 » Fri Feb 21, 2014 5:00 pm

But if you just pay $5,000 for some shares in the s&p 500 and then never contribute again, you wouldn't be making much money over the long run would ya? (due to the rise and fall of the stock market)


I know a person who contributed to the VG S&P 500 index fund only once and that was $10, 000. 15 years later of holding and essentially forgetting about the account, do you want to know what that investment is now worth?

Only $12, 000.

So that person must have made a mistake somewhere.


But most people during the 2008 stock market crash didn't buy lots of shares low, did they?
Last edited by bigfoot12 on Fri Feb 21, 2014 5:05 pm, edited 1 time in total.

barnaclebob
Posts: 2708
Joined: Thu Aug 09, 2012 10:54 am

Re: What do you do with index funds when...

Post by barnaclebob » Fri Feb 21, 2014 5:04 pm

bigfoot12 wrote:But if you just pay $5,000 for some shares in the s&p 500 and then never contribute again, you wouldn't be making much money over the long run would ya? (due to the rise and fall of the stock market)


I know a person who contributed to the VG S&P 500 index fund only once and that was $10, 000. 15 years later of holding and essentially forgetting about the account, do you want to know what that investment is now worth?

Only $12, 000.

So that person must have made a mistake somewhere.
What do you want? Are you trying to disprove index investing?
Last edited by barnaclebob on Fri Feb 21, 2014 5:05 pm, edited 1 time in total.

User avatar
greg24
Posts: 3106
Joined: Tue Feb 20, 2007 10:34 am

Re: What do you do with index funds when...

Post by greg24 » Fri Feb 21, 2014 5:04 pm

What do you do with actively managed funds in the same markets? They are going to suffer a similar fate, or actually a worse one.

User avatar
greg24
Posts: 3106
Joined: Tue Feb 20, 2007 10:34 am

Re: What do you do with index funds when...

Post by greg24 » Fri Feb 21, 2014 5:05 pm

bigfoot12 wrote:But if you just pay $5,000 for some shares in the s&p 500 and then never contribute again, you wouldn't be making much money over the long run would ya? (due to the rise and fall of the stock market)


I know a person who contributed to the VG S&P 500 index fund only once and that was $10, 000. 15 years later of holding and essentially forgetting about the account, do you want to know what that investment is now worth?

Only $12, 000.

So that person must have made a mistake somewhere.
The stock market isn't guaranteed to go up. If you want guaranteed investments, buy CDs.

TFinator
Posts: 175
Joined: Thu Jan 09, 2014 5:03 pm

Re: What do you do with index funds when...

Post by TFinator » Fri Feb 21, 2014 5:06 pm

I think it would help if you slowly re-read DSInvestor's explanation of how maintaining and rebalancing to a certain Asset Allocations works. I am pretty new to all this but I've read alot of blogs and am working on a list of books and it was the most straight forward I've heard. I think it will answer many of your questions.

bigfoot12
Posts: 38
Joined: Thu Dec 19, 2013 1:17 pm

Re: What do you do with index funds when...

Post by bigfoot12 » Fri Feb 21, 2014 5:09 pm

barnaclebob wrote:
bigfoot12 wrote:But if you just pay $5,000 for some shares in the s&p 500 and then never contribute again, you wouldn't be making much money over the long run would ya? (due to the rise and fall of the stock market)


I know a person who contributed to the VG S&P 500 index fund only once and that was $10, 000. 15 years later of holding and essentially forgetting about the account, do you want to know what that investment is now worth?

Only $12, 000.

So that person must have made a mistake somewhere.
What do you want? Are you trying to disprove index investing?
No I am trying to say buy and hold (meaning essentially buying and forgetting about the account) doesn't work over the long run. Meaning you never contribute to your account again.

barnaclebob
Posts: 2708
Joined: Thu Aug 09, 2012 10:54 am

Re: What do you do with index funds when...

Post by barnaclebob » Fri Feb 21, 2014 5:12 pm

bigfoot12 wrote:No I am trying to say buy and hold (meaning essentially buying and forgetting about the account) doesn't work over the long run. Meaning you never contribute to your account again.
Of course it doesn't make as much money as making the correct stock picks or successful market timing, what is your point.

AlohaBill
Posts: 91
Joined: Thu Jan 24, 2008 1:20 pm
Location: California

Re: What do you do with index funds when...

Post by AlohaBill » Fri Feb 21, 2014 5:19 pm

In 1997 after my dad died, I invested $20k in the Vanguard Tax Managed Growth and Income Fund (soon to belong to the S&P 500 fund). In 17 years, it is worth over $60,000 today.

bigfoot12
Posts: 38
Joined: Thu Dec 19, 2013 1:17 pm

Re: What do you do with index funds when...

Post by bigfoot12 » Fri Feb 21, 2014 5:23 pm

barnaclebob wrote:
bigfoot12 wrote:No I am trying to say buy and hold (meaning essentially buying and forgetting about the account) doesn't work over the long run. Meaning you never contribute to your account again.
Of course it doesn't make as much money as making the correct stock picks or successful market timing, what is your point.
If that is your reasoning, why did somebody make that mistake then? You said of course, so that means to the obvious person, that they shouldn't buy and hold.

Yet what I am referring to is that the person who held 10,000 only got up to 12,000 in 15 years. "Buy and Hold" strategy is very popular in the media.

User avatar
pjstack
Posts: 1308
Joined: Tue Feb 20, 2007 5:03 am
Location: Harbor City, CA

Re: What do you do with index funds when...

Post by pjstack » Fri Feb 21, 2014 5:24 pm

bigfoot12 wrote:the stock market begins to crash?

Very important. Do you sell your stock index funds to buy safe bonds, or do you hold?


Got any plans?
I continue to buy my balanced fund (60% stocks, 40% bonds) every month automatically on the 5th. That's it.

You don't really have a plan for saving, do you?
pjstack

User avatar
ogd
Posts: 4854
Joined: Thu Jun 14, 2012 11:43 pm

Re: What do you do with index funds when...

Post by ogd » Fri Feb 21, 2014 5:24 pm

bigfoot12 wrote:No I am trying to say buy and hold (meaning essentially buying and forgetting about the account) doesn't work over the long run. Meaning you never contribute to your account again.
Over precisely the last 15 years, which were troublesome by historical standards, S&P 500 with dividends reinvested has returned 93%. This is if you'd bought at one of the worst times in recent memory. One year earlier, and your return would have been 135%.

The worst 15 year period, I believe, was that ending March 08, 2009. The return has been 91%. This is if you sold at the worst possible time during the crisis. Waiting until today instead moves the returns to 456%.

The worst case returns, where the stock market merely doubled, are nothing to write home about. However, this was what was available with sound investment strategies. There were far better returns in various individual stocks, market timing, the lottery and the casino, if only you could pick the ticker symbols, moments in time or numbers. This is very easy in hindisght and next to impossible looking forward.

You are trying to say that one should feel bad about not playing the lottery, because the $400M jackpot makes other returns look miserable. In reality, it's the only winning move.

barnaclebob
Posts: 2708
Joined: Thu Aug 09, 2012 10:54 am

Re: What do you do with index funds when...

Post by barnaclebob » Fri Feb 21, 2014 5:25 pm

bigfoot12 wrote:If that is your reasoning, why did somebody make that mistake then? You said of course, so that means to the obvious person, that they shouldn't buy and hold.

Yet what I am referring to is that the person who held 10,000 only got up to 12,000 in 15 years. "Buy and Hold" strategy is very popular in the media.
Look its very simple. If you can predict stock market movement and use your predictions to buy the best performing stocks or get get out of the market before it crashes and then get back in before it goes on a run you will be a very rich man looking down on all of us while flying in your personal jet.

If you try to do that and fail then you will be worse off than the fools who buy and hold.

bigfoot12
Posts: 38
Joined: Thu Dec 19, 2013 1:17 pm

Re: What do you do with index funds when...

Post by bigfoot12 » Fri Feb 21, 2014 5:29 pm

AlohaBill wrote:In 1997 after my dad died, I invested $20k in the Vanguard Tax Managed Growth and Income Fund (soon to belong to the S&P 500 fund). In 17 years, it is worth over $60,000 today.

Considering the stock market crashes? You would have lost a bunch and would have had a hard time gaining it back.


When you say over $60, 000 - what do you precisely mean? $80,000..... $100,000... etc...


My dad originally put in around 25,000 and in about 18 years it grew to 300,000 - but that was only because his strategy he pulled his money out of the market before the stock market crashed in both 2001 and 2008.

FafnerMorell
Posts: 686
Joined: Mon Sep 15, 2008 10:27 am

Re: What do you do with index funds when...

Post by FafnerMorell » Fri Feb 21, 2014 5:42 pm

bigfoot12 - it does seem like there are some fundamental communication gaps / assumptions in what you're talking about (i.e. the notion that buy-and-hold is only done "once", or that folks only buy either a stock or bond index fund rather than having both and rebalancing, or that dividends aren't reinvested).

Now, if you're trying to get folks frustrated with you as they attempt to correct you and you ignore them, hey, that's a great approach. Try going to a baseball game and screaming out how they're playing cricket wrong. Or go to a soccer match and scream about why don't they kick field goals over the goal posts or run with the ball in their hands - why aren't they playig football the way you think it should be? It might be great fun if you like negative attention, but it's probably not a really productive use of your time, and will just annoy folks watching/playing the game.

AlohaBill
Posts: 91
Joined: Thu Jan 24, 2008 1:20 pm
Location: California

Re: What do you do with index funds when...

Post by AlohaBill » Fri Feb 21, 2014 5:47 pm

It has grown from my initial investment of $20,000 in 1997 to over $60,000 today. I didn't add any more money to that account. It grew magically over the years-dividends were reinvested of course. In 2000, it was up to $40000 and by 2003 it was down to around $26,000. It goes up and goes down, but so far usually up. It will start going down when my wife retires.
Bigfoot, the most important thing to investing is deciding how much you can save each paycheck. The next most important thing is how much will your investment cost. And third, chose an investment (asset allocation) that will let you sleep at night especially when the markets are rumbling.
Most of my investments are in the Vanguard Target Retirement and Income Fund which charges .16 er (which bothers my wife to no end). We are/were teachers and didn't make too much over the years, but we have saved ENOUGH.

bigfoot12
Posts: 38
Joined: Thu Dec 19, 2013 1:17 pm

Re: What do you do with index funds when...

Post by bigfoot12 » Fri Feb 21, 2014 5:49 pm

FafnerMorell wrote:bigfoot12 - it does seem like there are some fundamental communication gaps / assumptions in what you're talking about (i.e. the notion that buy-and-hold is only done "once", or that folks only buy either a stock or bond index fund rather than having both and rebalancing, or that dividends aren't reinvested).

Now, if you're trying to get folks frustrated with you as they attempt to correct you and you ignore them, hey, that's a great approach. Try going to a baseball game and screaming out how they're playing cricket wrong. Or go to a soccer match and scream about why don't they kick field goals over the goal posts or run with the ball in their hands - why aren't they playig football the way you think it should be? It might be great fun if you like negative attention, but it's probably not a really productive use of your time, and will just annoy folks watching/playing the game.
no I am just trying to gain some understanding and some good strategy about investing.


Remember, this forum wouldn't exist at all if John Bogle had not challanged the traditional mutual fund theory.

livesoft
Posts: 61045
Joined: Thu Mar 01, 2007 8:00 pm

Re: What do you do with index funds when...

Post by livesoft » Fri Feb 21, 2014 5:53 pm

bigfoot12 wrote:Yet what I am referring to is that the person who held 10,000 only got up to 12,000 in 15 years. "Buy and Hold" strategy is very popular in the media.
That person spent all the annual dividends and distributions paid out by their investment. If they had reinvested all those distributions, then they would have over $19,000 from investing 15 years ago and that is despite 2 drops of the S&P500 of more than 40%.

I think that "Buy and Hold" is not as good as "Buy and Hold and Rebalance".
Wiki This signature message sponsored by sscritic: Learn to fish.

Stan Dup
Posts: 762
Joined: Fri May 10, 2013 10:25 am

Re: What do you do with index funds when...

Post by Stan Dup » Fri Feb 21, 2014 5:55 pm

bigfoot12 wrote:
Remember, this forum wouldn't exist at all if John Bogle had not challanged the traditional mutual fund theory.
John Bogle had a firm understanding of the stock market before changing it. So far you have demonstrated that you do not have a firm understanding of it.

All of your questions are answered in the books I mentioned.
"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti

jf89
Posts: 426
Joined: Sun Aug 11, 2013 11:53 pm

Re: What do you do with index funds when...

Post by jf89 » Fri Feb 21, 2014 5:59 pm

Then sit back and try to learn from these people who have made mistakes and learned what not to do instead of throwing out "well why didn't it work this time?!?!" then ignoring the well-thought-out answer.
"Save as much as you can, diversify diversify diversify, and you can't go wrong with tech stocks" | -First investing advice I recall from my parents in the 90's (two outta three ain't bad)

amoeba
Posts: 88
Joined: Tue Jul 09, 2013 11:26 am

Re: What do you do with index funds when...

Post by amoeba » Fri Feb 21, 2014 6:01 pm

bigfoot12 wrote: Take my mom for example... My mom started with 8, 000 in American Funds. The market was doing good for a number of years, and my mom ended up with
32, 000. By the time 2008 hit, that $32,000 got to low as around 8,000 again. That means another 6 years or so to accumulate interest and get back to 32,000. Which was a waste of time actually.

Do you have the specific fund symbol? I'm curious which fund lost 75% of its value in 2008. This seems to be a significantly bigger drop than most index funds during this period. In fact I suspect this particular fund your mom was invested in is not an index fund at all and likely charged hefty fees on top of poor performance.

User avatar
Raybo
Posts: 1612
Joined: Tue Feb 20, 2007 11:02 am
Location: San Francisco
Contact:

Re: What do you do with index funds when...

Post by Raybo » Fri Feb 21, 2014 6:02 pm

The current value of your stock investments are not relevant unless you need to sell today. The value is always changing. In fact, if you own stocks, you never really quite know your true net worth as you can only reliably value them when the market is closed. When it is open (the only time you can sell them), their values are fluctuating moment by moment.

But, why care how much a stock is worth if you aren't going to sell it? Is there any other asset you do this with? How about your car, house, or art collection? Do you think about selling your house when its price goes down? How about your car?

If you are worried about the value of your stock investments, maybe you shouldn't be investing in stocks. Find another place to put your money and stop worrying as investing doesn't seem to suit you.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.

User avatar
LadyGeek
Site Admin
Posts: 45631
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: What do you do with index funds when...

Post by LadyGeek » Fri Feb 21, 2014 6:08 pm

I removed a few off-topic comments. This thread has run its course and is locked (inflammatory remarks).

(After a temporary lock for moderator review, the decision was to make the lock permanent.)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Locked