Stock Market Fears
Stock Market Fears
For many years now I have stayed the course, but lately I have begun to wonder if this is a wise plan. I recently read a post by a Boston economist who suggested moving everything to short-term Treasuries in anticipation of a market crash.
My husband and I have considerable assets and right now are at 50/50 in IRAs and Roths. I'm retired and my husband is two years away from retirement. At that time he will draw from a few small pensions and Social Security. I am already drawing a pension.
We also have funds in a money market that would cover living expenses for quite some time.
I know it's anybody's guess what the future holds, but do the old rules still apply today? And what is the downside to temporarily moving funds to Treasuries? If we were younger, I would feel more confident.
My husband and I have considerable assets and right now are at 50/50 in IRAs and Roths. I'm retired and my husband is two years away from retirement. At that time he will draw from a few small pensions and Social Security. I am already drawing a pension.
We also have funds in a money market that would cover living expenses for quite some time.
I know it's anybody's guess what the future holds, but do the old rules still apply today? And what is the downside to temporarily moving funds to Treasuries? If we were younger, I would feel more confident.
Re: Stock Market Fears
If you are going to read, then you should at least read the works of Larry Swedroe. He pretty much pokes holes in everything so-called experts and pundits tell you.
So start by reading this: http://www.etf.com/sections/index-inves ... nopaging=1
So start by reading this: http://www.etf.com/sections/index-inves ... nopaging=1
Re: Stock Market Fears
You'll lose in the end.
Emotionless, prognostication free investing. Ignoring the noise and economists since 1979. Getting rich off of "smart people's" behavioral mistakes.
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Re: Stock Market Fears
Irrational Exuberance
Re: Stock Market Fears
A lot people said the market was overvalued and pulled out at Dow 15,000. How'd that work out ? The next crash is indeed coming. Predicting when it will be is impossible.
I’d trade it all for a little more |
-C Montgomery Burns
Re: Stock Market Fears
Lots of retirees dial down risk. A 50/50 or 40/60 portfolio is common. Some may even go to 30/70 if they are quite conservative.
I don't think many investors think you can go to Treasuries, wait out a storm, then hop back into the market successfully.
Read a few books on the Wiki reading list. Bogleheads Guide to Investing is a terrific book. I recently read Make Your Money Last by Jane Bryant Quinn and thought it informative.
I don't think many investors think you can go to Treasuries, wait out a storm, then hop back into the market successfully.
Read a few books on the Wiki reading list. Bogleheads Guide to Investing is a terrific book. I recently read Make Your Money Last by Jane Bryant Quinn and thought it informative.
Re: Stock Market Fears
I had some money to invest last summer. I was worried because the Dow was near a peak at 18,000. The S&P 500 was just over 2,000. If I had sat on the money I would have missed the gains of the last 7 months. I don't know when the market will go down or by how much. I do believe that over time it will go up. I do have a conservative AA because it helps me sleep at night but I don't try to time the market.
Re: Stock Market Fears
I would go to 40% Stocks/60%bonds or even 30/70, if I was nervous and that close to retirement.
It is better you are at an Asset allocation you are able comfortable with and lets you sleep at night. The worst case is that you miss out on some of the gains you would have had if you had stayed at 50/50. Not the worst thing in the world. Will the social security and pensions cover most of your expense? If so, you have a lot less to worry about.
Personally I am staying the course @ 80/20 because I am nowhere near retirement and I want those stock market returns. We all know a correction/drop will eventually come, we have no idea if it will be after another 3% gain, or another 50% gain.
Market crashes dont occur because they are 'due' and work on some kind of schedule or regular interval. They are usually triggered by some sequence of events or change in environment. No one knows what they will be, and when it will come. The market could very well move sideways for the next 10 years without any crash and let inflation/earnings growth bring the CAPE ratio back to historical levels. Who knows?
It is better you are at an Asset allocation you are able comfortable with and lets you sleep at night. The worst case is that you miss out on some of the gains you would have had if you had stayed at 50/50. Not the worst thing in the world. Will the social security and pensions cover most of your expense? If so, you have a lot less to worry about.
Personally I am staying the course @ 80/20 because I am nowhere near retirement and I want those stock market returns. We all know a correction/drop will eventually come, we have no idea if it will be after another 3% gain, or another 50% gain.
Market crashes dont occur because they are 'due' and work on some kind of schedule or regular interval. They are usually triggered by some sequence of events or change in environment. No one knows what they will be, and when it will come. The market could very well move sideways for the next 10 years without any crash and let inflation/earnings growth bring the CAPE ratio back to historical levels. Who knows?
Re: Stock Market Fears
The Economist Intelligence Unit's Global Forecasting Service report is out today (it's updated monthly). I appreciate its view of the global economy from 35,000 feet, so to speak, because it cuts out A LOT of noise.
http://gfs.eiu.com/
http://gfs.eiu.com/
Re: Stock Market Fears
"For many years now I have stayed the course, but lately I have begun to wonder if this is a wise plan. I recently read a post by a Boston economist who suggested moving everything to short-term Treasuries in anticipation of a market crash."
What are your fears and how would this move address them? What would help you sleep at night?
What are your fears and how would this move address them? What would help you sleep at night?
Re: Stock Market Fears
Ever since 2013 I've heard people say, "The market will crash tomorrow!" Well, it's 2017 and it hasn't crashed yet. That said, I'm sure a crash WILL happen, but neither you, I, or a fancy Boston economist knows when it will happen. It may be tomorrow it may be two years from now. Stay true.
Re: Stock Market Fears
Do the old rules still apply today?
Without question.
Unless, of course a Boston economist thinks otherwise.
2b2
Without question.
Unless, of course a Boston economist thinks otherwise.
2b2
Re: Stock Market Fears
I've read many books over the years and understand the philosophy of not timing the market. My fears are based on the fact my husband is approaching retirement and the knowledge the market doesn't like uncertainty that prompted me to even ask. I've always read that a big market downturn is much more problematic when one is close to retirement and has less time to recoup the loss.
I don't mind missing a market upturn. I worry more about a loss at this point. I think lowering our stock allocation might help me sleep better at night for now. I can always increase it later if need be.
Thank you all for the advice. This has always been my go-to place for good counsel.
I don't mind missing a market upturn. I worry more about a loss at this point. I think lowering our stock allocation might help me sleep better at night for now. I can always increase it later if need be.
Thank you all for the advice. This has always been my go-to place for good counsel.
Re: Stock Market Fears
Hi Ann,AnnHW wrote:For many years now I have stayed the course, but lately I have begun to wonder if this is a wise plan. I recently read a post by a Boston economist who suggested moving everything to short-term Treasuries in anticipation of a market crash.
My husband and I have considerable assets and right now are at 50/50 in IRAs and Roths. I'm retired and my husband is two years away from retirement. At that time he will draw from a few small pensions and Social Security. I am already drawing a pension.
We also have funds in a money market that would cover living expenses for quite some time.
I know it's anybody's guess what the future holds, but do the old rules still apply today? And what is the downside to temporarily moving funds to Treasuries? If we were younger, I would feel more confident.
It may be prudent for you to transfer some money from the market into Treasuries and CDs. You should do it not because the market has recently risen but because as a soon-to-be a retiree you can't afford to lose. You provided your tIRA/Roth ratio but not your equities/fixed income ratio. Going down to 40/60 or 30/70 is not a bad idea.
Good luck,
Victoria
Inventor of the Bogleheads Secret Handshake |
Winner of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
Re: Stock Market Fears
Hi Ann,
Yes. The run-up to retirement can be anxiety producing. (Those of us who are retirees,if we are honest with ourselves, know that anxiety to a greater or lesser degree).
You wrote:
"I don't mind missing a market upturn. I worry more about a loss at this point. I think lowering our stock allocation might help me sleep better at night for now. I can always increase it later if need be."
If equity losses worry you (other asset classes can take losses as well), then by all means lower your equity risk. Sleep matters.
Lev
Yes. The run-up to retirement can be anxiety producing. (Those of us who are retirees,if we are honest with ourselves, know that anxiety to a greater or lesser degree).
You wrote:
"I don't mind missing a market upturn. I worry more about a loss at this point. I think lowering our stock allocation might help me sleep better at night for now. I can always increase it later if need be."
If equity losses worry you (other asset classes can take losses as well), then by all means lower your equity risk. Sleep matters.
Lev
Re: Stock Market Fears
Can you provide a link to this economist's post so we know who made it and why? Thanks.AnnHW wrote:For many years now I have stayed the course, but lately I have begun to wonder if this is a wise plan. I recently read a post by a Boston economist who suggested moving everything to short-term Treasuries in anticipation of a market crash.
My husband and I have considerable assets and right now are at 50/50 in IRAs and Roths. I'm retired and my husband is two years away from retirement. At that time he will draw from a few small pensions and Social Security. I am already drawing a pension.
We also have funds in a money market that would cover living expenses for quite some time.
I know it's anybody's guess what the future holds, but do the old rules still apply today? And what is the downside to temporarily moving funds to Treasuries? If we were younger, I would feel more confident.
Your asset allocation is generally based on your need, ability, and willingness to take risk. If you are increasingly worried about what the market might do and are beginning to believe the "crash" forecasts, consider lowering your equities. Staying the course means sticking with a course that is right for you, one that reflects your tolerance for risk.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Re: Stock Market Fears
+1Fallible wrote:Can you provide a link to this economist's post so we know who made it and why? Thanks.
Re: Stock Market Fears
This appears to be Laurence Kotlikoff, who has taken over from Scott Burns. This was his first column.
Now might be the time to sell your stocks
He's been predicting this for some time:
"[The financial system] will collapse. It is just a matter of when." - March 2015
His appearance on Econtalk in 2014 saying that the US is bankrupt
Him predicting a major sell-off of government bonds and high inflation in September 2010
I suspect he'll be right eventually and then take credit after years of being wrong.
My prediction, for the record, is that Kotlikoff will make a prediction, be wrong, and not mention it again.
Addendum: then there is this gem, thanks to Browser for posting it here:
The S&P 500 return from April 2013 (he moved his money out in late March) to the end of January 2017 according to this calculator was 54.924% including dividends, or an annualized rate of 12.382%.
Well done, Larry. Well done.
Now might be the time to sell your stocks
He's been predicting this for some time:
"[The financial system] will collapse. It is just a matter of when." - March 2015
His appearance on Econtalk in 2014 saying that the US is bankrupt
Him predicting a major sell-off of government bonds and high inflation in September 2010
I suspect he'll be right eventually and then take credit after years of being wrong.
My prediction, for the record, is that Kotlikoff will make a prediction, be wrong, and not mention it again.
Addendum: then there is this gem, thanks to Browser for posting it here:
http://usawatchdog.com/i-moved-my-money ... kotlikoff/“This morning, I moved my money out of the stock market . . . because I’m worried about Cyprus.” Dr. Kotlikoff explained his dire concern by saying, “The rich people are already running on these banks. That’s been going on for a year. . . . The everyday working people could start visibly running on these banks, and that could spread like wildfire throughout Southern Europe and Northern Europe and into the U.S.”
The S&P 500 return from April 2013 (he moved his money out in late March) to the end of January 2017 according to this calculator was 54.924% including dividends, or an annualized rate of 12.382%.
Well done, Larry. Well done.
Last edited by Whakamole on Wed Feb 15, 2017 7:26 pm, edited 2 times in total.
Re: Stock Market Fears
Ann,
You don't say what age you are but consider that for most people just starting retirement they likely need to plan for 30+ years still. So absolutely adjust your allocation in a way that is appropriate for the stage of life you are at now, but realize that most people will need to allow for some growth (and therefore some volatility) in order for their assets to support them through the latter 1/3 of their lives. I suspect that you likely won't even remember what's going on in today's market 25 years from now.
You don't say what age you are but consider that for most people just starting retirement they likely need to plan for 30+ years still. So absolutely adjust your allocation in a way that is appropriate for the stage of life you are at now, but realize that most people will need to allow for some growth (and therefore some volatility) in order for their assets to support them through the latter 1/3 of their lives. I suspect that you likely won't even remember what's going on in today's market 25 years from now.
Re: Stock Market Fears
AnnHW,AnnHW wrote:I've read many books over the years and understand the philosophy of not timing the market. My fears are based on the fact my husband is approaching retirement and the knowledge the market doesn't like uncertainty that prompted me to even ask. I've always read that a big market downturn is much more problematic when one is close to retirement and has less time to recoup the loss.
I don't mind missing a market upturn. I worry more about a loss at this point. I think lowering our stock allocation might help me sleep better at night for now. I can always increase it later if need be.
Thank you all for the advice. This has always been my go-to place for good counsel.
<<My fears are based on the fact my husband is approaching retirement >>
1) So, if the market crashes tomorrow and stays down, how long can you survive without selling any stock? 1 year? 2 Years? 5 years?
2) If the market dropped by 50% and stay down by X number of years, how much will you lose?
Instead of worrying about this, why don't you find out the exact number?
I have no job security. I could lose my job tomorrow and be permanently unemployed or under-employed. Plus, I have 2 kids going to college now. I am "cash flowing" my 2 kids' college education. I could only invest in stock if I know that I do not need to sell my stock for 5 years if I lose my job and be permanently unemployed. So, my AA is 64/36.
You should pick your number of years and make sure that your AA allowed for that.
Instead of worrying of something, you could be prepared for it.
KlangFool
P.S.: 8% of my portfolio is in short term treasury bond which tends to go up in a time of chaos.
Last edited by KlangFool on Wed Feb 15, 2017 7:28 pm, edited 1 time in total.
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
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Re: Stock Market Fears
My evil twinWhiteMaxima wrote:Irrational Exuberance
Of course he says that I am his evil twin!
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Last edited by letsgobobby on Fri Dec 27, 2019 10:07 am, edited 1 time in total.
Re: Stock Market Fears
50/50?
Don't budge.
You are set.
Don't budge.
You are set.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: Stock Market Fears
30% stock would seem right for a very conservative investor. Would that be as low as someone could go and still keep up with or maybe beat inflation by a bit? Even for a 30-year time frame? I've often wondered this, since 40% seems to be the floor for 3-4% SWR.letsgobobby wrote:this is a great idea. if you post in the suggested format you will get more specific advice, but in general if you have a low marginal utility of wealth, and a low desire to take risk, you should be a in a very low risk allocation. that could wasily be as low as 30% stocks.AnnHW wrote: I don't mind missing a market upturn. I worry more about a loss at this point. I think lowering our stock allocation might help me sleep better at night for now. I can always increase it later if need be.
Re: Stock Market Fears
Whakamole, you are correct. In my initial post, I mentioned the column and provided a link, but the moderator denied it because of politics, so I wrote a watered-down version. Actually, it's something that's been on my mind for a couple of months and I let the column spook me further.
Re: Stock Market Fears
Onourway,
Re: "I suspect that you likely won't even remember what's going on in today's market 25 years from now."
I suspect you are right! I'm 73.
Re: "I suspect that you likely won't even remember what's going on in today's market 25 years from now."
I suspect you are right! I'm 73.
Re: Stock Market Fears
Happy2BeFree,
What is a "low marginal utility of wealth"?
What is a "low marginal utility of wealth"?
Re: Stock Market Fears
So you are 50/50 stocks/bonds right now?
There's probably nothing wrong with going down to 30/70 stocks/bonds (or CDs) if that will help you sleep at night. It is indeed a good idea to lower risk at the start of retirement, because a big crash right when you start pulling money out can indeed cause problems. But this should be a permanent change. You don't need to be switching back and forth based on what you read on the Internet or hear on T.V.
There's probably nothing wrong with going down to 30/70 stocks/bonds (or CDs) if that will help you sleep at night. It is indeed a good idea to lower risk at the start of retirement, because a big crash right when you start pulling money out can indeed cause problems. But this should be a permanent change. You don't need to be switching back and forth based on what you read on the Internet or hear on T.V.
Re: Stock Market Fears
What it means is that MORE wealth might have a small effect on your lives. But losing wealth could have a big impact. So it's not as important to take risk in order to get big returns. You don't need big returns. Preserving your money might be more important at this point in your lives.AnnHW wrote:Happy2BeFree,
What is a "low marginal utility of wealth"?
But it's still not a good idea to completely get out of stocks... Dropping to 30/70 or 25/75 is about as low as most people recommend. Inflation is still a risk for someone who goes 100% cash or CDs or bonds.
It's hard to give you advice without knowing the full picture.
Do you have $500,000 and you are trying to pull $40,000 a year out?
Or do you have $2 million, and all your expenses are covered by Social Security and a pension?
Very different advice based on the actual financial situation.
Re: Stock Market Fears
HomerJ beat me to it!AnnHW wrote:Happy2BeFree,
What is a "low marginal utility of wealth"?
Re: Stock Market Fears
HomerJ, same question as I asked bobby above: Studies I've read indicate that you need to have at least 40% stock to safely maintain 3-4% withdrawals over 30 years. Is 25-30% stock sufficient to allow that W/D rate over the long term?HomerJ wrote:What it means is that MORE wealth might have a small effect on your lives. But losing wealth could have a big impact. So it's not as important to take risk in order to get big returns. You don't need big returns. Preserving your money might be more important at this point in your lives.AnnHW wrote:Happy2BeFree,
What is a "low marginal utility of wealth"?
But it's still not a good idea to completely get out of stocks... Dropping to 30/70 or 25/75 is about as low as most people recommend. Inflation is still a risk for someone who goes 100% cash or CDs or bonds.
It's hard to give you advice without knowing the full picture.
Do you have $500,000 and you are trying to pull $40,000 a year out?
Or do you have $2 million, and all your expenses are covered by Social Security and a pension?
Very different advice based on the actual financial situation.
Re: Stock Market Fears
AnnHW wrote:For many years now I have stayed the course, but lately I have begun to wonder if this is a wise plan. I recently read a post by a Boston economist who suggested moving everything to short-term Treasuries in anticipation of a market crash.
My husband and I have considerable assets and right now are at 50/50 in IRAs and Roths. I'm retired and my husband is two years away from retirement. At that time he will draw from a few small pensions and Social Security. I am already drawing a pension.
We also have funds in a money market that would cover living expenses for quite some time.
I know it's anybody's guess what the future holds, but do the old rules still apply today? And what is the downside to temporarily moving funds to Treasuries? If we were younger, I would feel more confident.
I too have wondered whether or not staying the course is a wise plan. I recently read a post by Bank of America Merril Lynch that the S&P was going to 3000 by 2019 and 5000 by 2024.
In fact, this is what I read yesterday:
http://www.marketwatch.com/story/as-eup ... 2017-02-13
"Stephen Suttmeier, a technical research analyst at Bank of America Merrill Lynch, predicted the S&P 500 will rally to 2,445-2,460 by July on its way to 3,000 by 2019, and then hit 5,000 by 2024.
“The secular bull market roadmap says that the best days are ahead,” said Suttmeier in a note distributed on Monday. “We believe that 2017 is the year of acceptance for the secular bull trend that began on the April 2013 upside breakout.”"
Should one give more weight to the Boston Economist or Stephen Suttmeier? It seems we are at an impasse.
Don't listen to the talking heads to influence your decision making. If your AA exceeds your comfort zone, reduce exposure. But don't invest by listening to what experts have to say.
Re: Stock Market Fears
How much of your current investments could you lose without it affecting your retirement spending? If you have a lot more money than you will actually spend, then you don't need to take as much risk.
How often do you rebalance?
If you are at 50/50 and the stock markets drop 25%, you would lose 12 1/2% of your investments if bonds were flat. If you rebalance on a regular basis, you would shift some money over from bonds to stocks to take advantage of the lower prices.
It would also not be unreasonable to move towards a 40/60 allocation in steps as your husband approaches retirement. You could go to 45/55 in one year and to 40/60 in the next, for instance.
How often do you rebalance?
If you are at 50/50 and the stock markets drop 25%, you would lose 12 1/2% of your investments if bonds were flat. If you rebalance on a regular basis, you would shift some money over from bonds to stocks to take advantage of the lower prices.
It would also not be unreasonable to move towards a 40/60 allocation in steps as your husband approaches retirement. You could go to 45/55 in one year and to 40/60 in the next, for instance.
Re: Stock Market Fears
OK. I think there are good reasons to adjust your asset allocation, many of them posted already in this thread so there's no reason to post them again. I think that article is not a good reason to - I believe there is more hyperbole than economics in the article though that is my personal view. Had you taken any of his advice I quoted, you would have missed out on a major bull market, and would have a smaller portfolio - a portfolio that now that will allow you to buy more bonds, or cash, or whatever you desire. I doubt the author of the article has apologized to anyone for encouraging them to exit the stock market in 2013 and missing a 50% increase.AnnHW wrote:Whakamole, you are correct. In my initial post, I mentioned the column and provided a link, but the moderator denied it because of politics, so I wrote a watered-down version. Actually, it's something that's been on my mind for a couple of months and I let the column spook me further.
Economists can be people too, and they are not infallible.
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Re: Stock Market Fears
HelloAnnHW wrote:For many years now I have stayed the course, but lately I have begun to wonder if this is a wise plan. I recently read a post by a Boston economist who suggested moving everything to short-term Treasuries in anticipation of a market crash.
My husband and I have considerable assets and right now are at 50/50 in IRAs and Roths. I'm retired and my husband is two years away from retirement. At that time he will draw from a few small pensions and Social Security. I am already drawing a pension.
We also have funds in a money market that would cover living expenses for quite some time.
I know it's anybody's guess what the future holds, but do the old rules still apply today? And what is the downside to temporarily moving funds to Treasuries? If we were younger, I would feel more confident.
You need to assess your financial needs in retirement. How much you will use your savings over other sources of income like pensions and Social Security.
Generally I would seek to keep a sizeable proportion of my assets at your age in Short Term and Intermediate Term bonds. Probably 50%.
Volatility should be limited for these compared to equity funds.
Re: Stock Market Fears
I've been gathering information and will try to answer the questions you have been so kind to pose.
1) My husband is 63 and plans to retire in two years but will probably defer SS benefits until at least age 66. I am 73 and draw a teacher pension of $25,200 a year after taxes, Medicare, and long-term care premiums. At 65, my husband will get $13,200 a year in pensions in addition to $26,484 in SS benefits at 66.
2) Until a few months ago we've always been at 60 equity/40 bonds and weathered the 2008 market drop. I rebalanced regularly during that time to keep our equity at 60.
I recently changed our allocation to 50/50, but not because the market was up. I hadn't really kept up with it. I just knew we were closer to retirement and thought we should take less risk.
We currently hold assets in (Admiral) Vanguard Total Stock Market Index, Total Bond Market Index, Inflation Protected Securities, and Total International Index in both Rollover and Roth accounts. Part of our bond allocation is also in BCOIX in my husband's 401k, which we will roll over to Vanguard when he retires. We also have $200k in a money market account at a local credit union I don't count as part of our investment portfolio. If I include it, we'd be at 42% equities, 42% bonds and 16% cash.
3) Because we have maxed out our 401k and Roth accounts for several years, we are currently living on close to the same amount of income we will have when my husband retires. As far as I can tell, we will need to withdraw from our IRAs only if we need a new car, have unexpected medical expenses, etc.
4) We are debt free except for $86k we owe on our house at 3% interest for 9 more years. It's worth approximately $275k. However, when my MIL dies, we plan to sell her house and pay ours off and might clear an extra $100k there.
5) If the stock market drops 50%, we would lose about $300k. If it drops 25% we'd lose $150k. A 12.5 % drop would be $75k. None of these scenarios really appeal to me, but I understand the need to keep up with inflation. I have not had a COLA increase since I retired in 2002. My husband hasn't had a raise in five years. We probably live frugally by many people's standards but we don't go without the things that are important to us.
I'm probably overlooking something here, so I'm counting on someone to clue me in. I grew up in poverty and started saving late in life, so I know what it's like to go without. As a result, I'm probably more prone to irrational fears.
1) My husband is 63 and plans to retire in two years but will probably defer SS benefits until at least age 66. I am 73 and draw a teacher pension of $25,200 a year after taxes, Medicare, and long-term care premiums. At 65, my husband will get $13,200 a year in pensions in addition to $26,484 in SS benefits at 66.
2) Until a few months ago we've always been at 60 equity/40 bonds and weathered the 2008 market drop. I rebalanced regularly during that time to keep our equity at 60.
I recently changed our allocation to 50/50, but not because the market was up. I hadn't really kept up with it. I just knew we were closer to retirement and thought we should take less risk.
We currently hold assets in (Admiral) Vanguard Total Stock Market Index, Total Bond Market Index, Inflation Protected Securities, and Total International Index in both Rollover and Roth accounts. Part of our bond allocation is also in BCOIX in my husband's 401k, which we will roll over to Vanguard when he retires. We also have $200k in a money market account at a local credit union I don't count as part of our investment portfolio. If I include it, we'd be at 42% equities, 42% bonds and 16% cash.
3) Because we have maxed out our 401k and Roth accounts for several years, we are currently living on close to the same amount of income we will have when my husband retires. As far as I can tell, we will need to withdraw from our IRAs only if we need a new car, have unexpected medical expenses, etc.
4) We are debt free except for $86k we owe on our house at 3% interest for 9 more years. It's worth approximately $275k. However, when my MIL dies, we plan to sell her house and pay ours off and might clear an extra $100k there.
5) If the stock market drops 50%, we would lose about $300k. If it drops 25% we'd lose $150k. A 12.5 % drop would be $75k. None of these scenarios really appeal to me, but I understand the need to keep up with inflation. I have not had a COLA increase since I retired in 2002. My husband hasn't had a raise in five years. We probably live frugally by many people's standards but we don't go without the things that are important to us.
I'm probably overlooking something here, so I'm counting on someone to clue me in. I grew up in poverty and started saving late in life, so I know what it's like to go without. As a result, I'm probably more prone to irrational fears.
Re: Stock Market Fears
+1Toons wrote:50/50?
Don't budge.
You are set.
You already have a conservative asset allocation. Stay the Course!! Market timing does not work and that is what it sounds like you are proposing.
If you really can't sleep at night, you may need to reevaluate your asset allocation, but keeping up with inflation is also important. People are living longer these days.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
Re: Stock Market Fears
I was thinking of going from 60/40 to 50/50 about a year ago because I thought that we were due for a recession. Now I'm glad that I didn't do that. I'm sure that we will get a crash but we just don't know when.
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Re: Stock Market Fears
At any given time you can always find experts saying a crash is something and other experts saying it's a great buying opportunity. Not that it matters, but who was this economist, and, just to be sure, does he or she have any obvious ideological or political slants?AnnHW wrote:For many years now I have stayed the course, but lately I have begun to wonder if this is a wise plan. I recently read a post by a Boston economist who suggested moving everything to short-term Treasuries in anticipation of a market crash.
Yes. It is. Stop right there.My husband and I have considerable assets and right now are at 50/50 in IRAs and Roths. I'm retired and my husband is two years away from retirement. At that time he will draw from a few small pensions and Social Security. I am already drawing a pension. We also have funds in a money market that would cover living expenses for quite some time. I know it's anybody's guess what the future holds
The fundamental things apply, as time goes by.but do the old rules still apply today?
Just a detail, but the suggestion of short-term Treasuries, is well, one of these things. Sounds like advice that applies to an "ultra high net worth" individual who's way over the $250,000 FDIC insurance limit. For a "mass affluent" person like me, I'd just use a bank account. The interest rates on bank accounts have always been about the same as Treasury bills, the interest rates on CDs about the same as those of Treasuries of the same term, the safety is about the same, and they are an awful lot easier to deal with.And what is the downside to temporarily moving funds to Treasuries?
Here's the downside. If you start paying attention, you will find that there is never a year when somebody isn't saying that the stock market is about to crash. In fact it is pretty easy to find individual experts who have predicted crashes virtually every year. If you let yourself get spooked by that, then you will never invest in stocks.
Well, then, perhaps you should dial down your stock percentage to a point where you feel comfortable, but just cut it down to what feels right and leave it there.If we were younger, I would feel more confident.
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Re: Stock Market Fears
You guys are doing amazingly well... In fact, maybe your husband could retire today, and you could use some of that saved money to bridge the gap from now until he turns 66.AnnHW wrote:Because we have maxed out our 401k and Roth accounts for several years, we are currently living on close to the same amount of income we will have when my husband retires. As far as I can tell, we will need to withdraw from our IRAs only if we need a new car, have unexpected medical expenses, etc.
Think about you just wrote. Your pensions and SS will cover all your living expenses.
And you have well over a million dollars in investments to cover "anything extra".
That's amazing. That's wonderful. You are in great shape!
50/50 is a good allocation, but you could drop to 30/70 if it will help you sleep better... You don't need large gains. You might feel better preserving what you have.
Congratulations!
Re: Stock Market Fears
If the stock market crashes, how long could you two live on the $200K cash, then the bonds, before you sold any stock shares at reduced prices? And you already know how to cut back if the crash did last a long time. Ann, you got to where you are by living below your income, those skills do not go away just because you haven't needed them lately. Reduce your stock allocation to a level that will let you sleep at night, then you will be okay, regardless of whatever the market does. When the crash occurs, start trying to cut back on expenses.
Re: Stock Market Fears
When the next correction or "crash" comes typically there is a big chorus of "it's different this time" or "the old rules don't apply"I know it's anybody's guess what the future holds, but do the old rules still apply today?
I don't see anything that makes the "old rules" inapplicable.
Fear and greed are to be avoided in managing your own money. OP has expressed fear. OP should consider implementing a solid IPS, which will include an asset allocation that she/her husband can follow regardless of market conditions (i.e. that will help them "sleep well").
Best of luck.
Re: Stock Market Fears
Thanks to all who have replied. I had never thought of it in terms of a dollar amount we'd lose if the market dropped X%. That helps me put it in perspective.
Thank you for your encouragement and support. I thought we were doing pretty well, but I wanted to be sure we had most of our bases covered.
Thank you for your encouragement and support. I thought we were doing pretty well, but I wanted to be sure we had most of our bases covered.
Last edited by AnnHW on Sat Feb 18, 2017 7:16 pm, edited 1 time in total.
Re: Stock Market Fears
HeyYou,
"Ann, you got to where you are by living below your income, those skills do not go away just because you haven't needed them lately."
Thank you for that reminder.
"Ann, you got to where you are by living below your income, those skills do not go away just because you haven't needed them lately."
Thank you for that reminder.
Last edited by AnnHW on Sat Feb 18, 2017 7:17 pm, edited 1 time in total.
Re: Stock Market Fears
+1goingup wrote:Lots of retirees dial down risk. A 50/50 or 40/60 portfolio is common. Some may even go to 30/70 if they are quite conservative.
I don't think many investors think you can go to Treasuries, wait out a storm, then hop back into the market successfully.
Read a few books on the Wiki reading list. Bogleheads Guide to Investing is a terrific book. I recently read Make Your Money Last by Jane Bryant Quinn and thought it informative.
I am getting close to retiring, so I have been gradually reducing my AA to the point that it is now 60/40 and I may reduce it even further. I'm okay if I miss out on some upside potential by not staying in the market at a higher stock allocation. But I would NEVER consider going 100% to treasuries because then I would be dramatically increasing my exposure to inflation, which can be equally hazardous to your long-term financial health.
And as goingup points out, trying to time the market by reentering it a later date to catch the recovery is darn near impossible.
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Re: Stock Market Fears
When did this bull market begin, and what kind is it?AnnHW wrote:For many years now I have stayed the course, but lately I have begun to wonder if this is a wise plan. I recently read a post by a Boston economist who suggested moving everything to short-term Treasuries in anticipation of a market crash.
My husband and I have considerable assets and right now are at 50/50 in IRAs and Roths. I'm retired and my husband is two years away from retirement. At that time he will draw from a few small pensions and Social Security. I am already drawing a pension.
We also have funds in a money market that would cover living expenses for quite some time.
I know it's anybody's guess what the future holds, but do the old rules still apply today? And what is the downside to temporarily moving funds to Treasuries? If we were younger, I would feel more confident.
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What is all this Business Cycle investing about and where are we, what phase are we in?
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Re: Stock Market Fears
AnnHW wrote: 5) If the stock market drops 50%, we would lose about $300k. If it drops 25% we'd lose $150k. A 12.5 % drop would be $75k. None of these scenarios really appeal to me, but I understand the need to keep up with inflation. I have not had a COLA increase since I retired in 2002. My husband hasn't had a raise in five years. We probably live frugally by many people's standards but we don't go without the things that are important to us.
AnnHW,
You will only lose money if you sell those equities in a down market. It appears you have enough pension/SS income and money in bonds to ride out even the worst equities crash.
Ask this poor guy how his adventure in market timing worked out:
viewtopic.php?t=208231
Last edited by weedf16 on Sun Feb 19, 2017 7:08 am, edited 1 time in total.
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Re: Stock Market Fears
If the market doesn't like uncertainty, then it is already priced-in.AnnHW wrote:I've read many books over the years and understand the philosophy of not timing the market. My fears are based on the fact my husband is approaching retirement and the knowledge the market doesn't like uncertainty that prompted me to even ask.
That said, if 50-50 has too much in stocks for you risk tolerance, dial it down.
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Re: Stock Market Fears
Stay the course. The market might be fully valued or slightly over but it isn't out of control. Of course that doesn't mean it won't go down 50% but it certainly isn't a 2000 type situation. You also might want to look at a fixed deferred annuity at some point. While variable annuities should be avoided at all costs some of the better financial planner recommend these in some cases to ensure you don't run out of money.