What’s your plan for a market downturn?

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Cunir
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What’s your plan for a market downturn?

Post by Cunir » Sat Jun 30, 2018 5:32 pm

Hello. First post, and I was just wondering if anyone has put any plans in place already for the long-predicted downturn. Do you know what you’re going to do when it happens?

I realise that it’s basically impossible to predict when a prolonged dowturn is going to happen — some clever economists are saying maybe next year, some are saying maybe the year after that, but no one really knows — I guess we’ll only know when it happens!
And I also appreciate that trying to guess where the bottom is, and the eventual turn, is also a mug’s game, so, given all of that, I guess my “plan” is thus: resist the temptation to sell any of my funds (I’m 100% in equity funds), even when their prices are in free-fall, and just keep topping them up with my wages every month as they go down. It will be painful to watch for a year or two, but topping them up all the way down will hopefully bear fruit in the long run.

The only other plan I’m possibly thinking about is selling some of the funds next year and keeping the cash ready to buy back near the bottom. But that seems to rely a lot on luck, guessing the best times to do it, and I’m not a very lucky guy! And I could end up missing a year or more of gains.

Just wondering what everyone’s thoughts are

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Ged
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Re: What’s your plan for a market downturn?

Post by Ged » Sat Jun 30, 2018 6:13 pm

Re balance every 6 months.

Cunir
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Re: What’s your plan for a market downturn?

Post by Cunir » Sat Jun 30, 2018 6:25 pm

If you rebalance during a downturn, though, when everything is going down, (so you’re actually selling funds to buy other funds), doesn’t that just mean your locking in your losses?
If you mean rebalancing by adding new money though, then I see the benefit in that

BoggledHead2
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Re: What’s your plan for a market downturn?

Post by BoggledHead2 » Sat Jun 30, 2018 6:32 pm

-Buy more shares accordingly
-Laugh at the hysteria
- Go on with life

PhilosophyAndrew
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Re: What’s your plan for a market downturn?

Post by PhilosophyAndrew » Sat Jun 30, 2018 6:40 pm

No matter what the markets do, I’ll continue implementing my written investment plan, which Includes annual rebalancing If necessary to maintain my planned asset allocations.

Andy.

Dottie57
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Re: What’s your plan for a market downturn?

Post by Dottie57 » Sat Jun 30, 2018 6:42 pm

Retired - decumulation is occuring. I’ll withdraw a bit of my cash stash. + some 401k funds, tighten the spending belt. Maybe rebalance once a year.

BoggledHead2
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Re: What’s your plan for a market downturn?

Post by BoggledHead2 » Sat Jun 30, 2018 6:47 pm

BoggledHead2 wrote:
Sat Jun 30, 2018 6:32 pm
-Buy more shares accordingly
-Laugh at the hysteria
- Go on with life
* rebalance with NEW money ideally

UpperNwGuy
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Re: What’s your plan for a market downturn?

Post by UpperNwGuy » Sat Jun 30, 2018 6:47 pm

I will continue to invest according to my plan. Why would I do otherwise? What kind of response were you hoping to get from us?

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Re: What’s your plan for a market downturn?

Post by averagedude » Sat Jun 30, 2018 6:51 pm

Im only guessing, but i believe you are under 40 years old. Im 48, WAS 100 percent in stocks, and this was my plan when i was young. I got on my knees every night, and prayed for bear markets. Stayed the course by dollar cost averaging and accepting market returns. I mostly ignored the financial news, and everytime the market was going down i tried to find ways to put additional money in stocks. Looking back, i made most of my money in 2000-2002 and 2008-2010 during bear markets. My advice, set your asset allocation, stay the course, and think of market downturns as your friend. When you see the finish line, reevaluate your asset allocation, and tongue in cheek, pray for bull markets.
Last edited by averagedude on Sat Jun 30, 2018 11:11 pm, edited 2 times in total.

dbr
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Re: What’s your plan for a market downturn?

Post by dbr » Sat Jun 30, 2018 6:52 pm

UpperNwGuy wrote:
Sat Jun 30, 2018 6:47 pm
I will continue to invest according to my plan. Why would I do otherwise? What kind of response were you hoping to get from us?
He wants to see if anyone will support the suggestion of selling some of his equities and buying back in when the market falls.

livesoft
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Re: What’s your plan for a market downturn?

Post by livesoft » Sat Jun 30, 2018 6:56 pm

Cunir wrote:
Sat Jun 30, 2018 6:25 pm
If you rebalance during a downturn, though, when everything is going down, (so you’re actually selling funds to buy other funds), doesn’t that just mean your locking in your losses?
If you mean rebalancing by adding new money though, then I see the benefit in that
I think you have rebalancing mixed up with something else.

In every downturn in the past 20 years, I have exchanged fixed income assets (bond funds) into equity assets (stock funds). So yes, I was selling funds to buy other funds. And yes, sometimes the bond funds had gone down before I sold them. I have absolutely no problem selling funds that have gone down. I have no problem buying funds that have gone down and may continue to go down.
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Re: What’s your plan for a market downturn?

Post by triceratop » Sat Jun 30, 2018 6:58 pm

I have about 10% in US treasuries which would get moved into stocks. I also have free cash flow which would also go to stocks.

I would stick to my asset allocation, most importantly — which includes anywhere from 0-10% bonds.
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MathWizard
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Re: What’s your plan for a market downturn?

Post by MathWizard » Sat Jun 30, 2018 7:08 pm

Cunir wrote:
Sat Jun 30, 2018 6:25 pm
If you rebalance during a downturn, though, when everything is going down, (so you’re actually selling funds to buy other funds), doesn’t that just mean your locking in your losses?
If you mean rebalancing by adding new money though, then I see the benefit in that
No, you are likely buying stocks on sale with bonds, assuming that stocks have dropped by a higher percentage than stocks.

So you are buying stocks when they go on sale.

Having cash on the sidelines waiting for a drop in stocks works the same way, but you lose out on the average return
of bonds, which exceeds that of cash, so don't keep cash outside of what you need short term, usually called an Emergency Fund.

UpperNwGuy
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Re: What’s your plan for a market downturn?

Post by UpperNwGuy » Sat Jun 30, 2018 7:08 pm

dbr wrote:
Sat Jun 30, 2018 6:52 pm
UpperNwGuy wrote:
Sat Jun 30, 2018 6:47 pm
I will continue to invest according to my plan. Why would I do otherwise? What kind of response were you hoping to get from us?
He wants to see if anyone will support the suggestion of selling some of his equities and buying back in when the market falls.
If he has been reading this board for any length of time, he should know without asking that those who are committed to the Boglehead approach to investing would not support such a suggestion.

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Re: What’s your plan for a market downturn?

Post by FrugalInvestor » Sat Jun 30, 2018 7:09 pm

I plan to stick with my plan which says nothing about 'downturns' although when one occurs it may influence when and to what degree I rebalance. Since I'm retired, a severe and/or very prolonged downturn may impact how much I choose to withdraw and spend but that's a judgement call and primarily to help me get a good night's sleep.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

autopeep
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Re: What’s your plan for a market downturn?

Post by autopeep » Sat Jun 30, 2018 7:10 pm

Cunir wrote:
Sat Jun 30, 2018 6:25 pm
If you rebalance during a downturn, though, when everything is going down, (so you’re actually selling funds to buy other funds), doesn’t that just mean your locking in your losses?
If you mean rebalancing by adding new money though, then I see the benefit in that
The above mantra about "locking in your losses" is frequently repeated here as a psychological tool to promote long term buy and hold investing and it drives me crazy. The only situation where it is maybe kinda true is going to cash after a market downturn to avoid further losses. If you need to sell assests during retirement to pay expenses during a downturn, do it! If you need to sell a fund with losses to maintain your assest allocation, do it! (Also, bonus tax loss harvest!).

MIretired
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Re: What’s your plan for a market downturn?

Post by MIretired » Sat Jun 30, 2018 7:17 pm

My plan in case of a downturn, is I have 4-5 yrs. of needed withdrawals in CDs, money markets, short bonds, and some intermediate. I'll watch unneccessary spending in a downturn, too.

runner3081
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Re: What’s your plan for a market downturn?

Post by runner3081 » Sat Jun 30, 2018 7:18 pm

Nothing. Though if it gets real bad, will try to find a way to scrounge up extra money to invest more.

JBTX
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Re: What’s your plan for a market downturn?

Post by JBTX » Sat Jun 30, 2018 7:22 pm

Mostly enjoying the inevitable hysteria in the "stocks in freefall" thread.

Overall nothing. Periodically rebalance. If it falls a lot, I'll probably increase equity allocation.

I've been through approx 50% drops. Didn't do anything dramatic in either case.

supernova
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Re: What’s your plan for a market downturn?

Post by supernova » Sat Jun 30, 2018 7:27 pm

I plan to keep doing what I do. Put money in when I have the money available and re-balance twice a year. If the market is low when I re-balance, then great, because I am buying cheap stocks. If not, then also great, because I am locking in some gains.

Trying to time the market is a fool's errand. Even Warren Buffett says he can't do it, doesn't know anyone who can do it, and doesn't know anyone who knows anyone who can do it. What makes you think you can?

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Re: What’s your plan for a market downturn?

Post by 02nz » Sat Jun 30, 2018 7:34 pm

Cunir wrote:
Sat Jun 30, 2018 5:32 pm
I realise that it’s basically impossible to predict when a prolonged dowturn is going to happen — some clever economists are saying maybe next year, some are saying maybe the year after that, but no one really knows — I guess we’ll only know when it happens!
It's very hard to know not only when it's going to happen, but even more importantly how it will happen. Big fall followed by relatively quick recovery? Or will the recovery be slower? Will the fall take place over a period of weeks, months, or years? Or will it be just years of zig-zagging that net out to basically a flat market? As is often noted on this forum, to time the market successfully, not only do you have to be right about when to sell out of it, but you also have to get the timing of buying back in right. Not saying it's impossible, but it probably takes more luck than you realize.
Last edited by 02nz on Sat Jun 30, 2018 7:46 pm, edited 1 time in total.

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Re: What’s your plan for a market downturn?

Post by Grt2bOutdoors » Sat Jun 30, 2018 7:35 pm

Cunir wrote:
Sat Jun 30, 2018 5:32 pm
Hello. First post, and I was just wondering if anyone has put any plans in place already for the long-predicted downturn. Do you know what you’re going to do when it happens?

I realise that it’s basically impossible to predict when a prolonged dowturn is going to happen — some clever economists are saying maybe next year, some are saying maybe the year after that, but no one really knows — I guess we’ll only know when it happens!
And I also appreciate that trying to guess where the bottom is, and the eventual turn, is also a mug’s game, so, given all of that, I guess my “plan” is thus: resist the temptation to sell any of my funds (I’m 100% in equity funds), even when their prices are in free-fall, and just keep topping them up with my wages every month as they go down. It will be painful to watch for a year or two, but topping them up all the way down will hopefully bear fruit in the long run.
Sure, that's a great plan, so long as you remain employed. Extended bear markets may cause certain sectors of the economy to lay off employees, finding a new job may be easy or harder, much harder.
So long as your wages continue to roll in, by all means buy. Just make sure that you have a contingency plan in place before the next recession that enables you to weather it - a 6 months to 1 year emergency fund would not be a bad idea, holding it in 100% equities is a bad plan, markets can go down and stay down for longer than you can remain solvent.


The only other plan I’m possibly thinking about is selling some of the funds next year and keeping the cash ready to buy back near the bottom. But that seems to rely a lot on luck, guessing the best times to do it, and I’m not a very lucky guy! And I could end up missing a year or more of gains.
Timing the market is a loser's game, the better plan is to remain invested, if/when markets go down and you experience losses, tax loss harvest the position, by selling say 500 Index Fund and purchasing Large Cap Index instead, locking in losses and waiting for the elevator to begin moving up. Who says you can't make lemonade with lemons?
Just wondering what everyone’s thoughts are
P.S. Welcome to the forum!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: What’s your plan for a market downturn?

Post by drk » Sat Jun 30, 2018 7:43 pm

I plan to TLH when I can and sell my bond funds to buy more equities. Oh, and continue to buy more every month when my paycheck hits.
Cunir wrote:
Sat Jun 30, 2018 5:32 pm
The only other plan I’m possibly thinking about is selling some of the funds next year and keeping the cash ready to buy back near the bottom. But that seems to rely a lot on luck, guessing the best times to do it, and I’m not a very lucky guy! And I could end up missing a year or more of gains.
You already know, but don't do this. Just search the board for people waiting for a crash. There are people still holding cash since 2012, 2013, 2014, etc. Especially if you get it right once, you'll always find a way to convince yourself that you're Cassandra.
Last edited by drk on Sun Jul 01, 2018 1:13 pm, edited 1 time in total.

AlwaysWannaLearn
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Re: What’s your plan for a market downturn?

Post by AlwaysWannaLearn » Sat Jun 30, 2018 8:26 pm

.....
Last edited by AlwaysWannaLearn on Wed Jul 18, 2018 10:29 pm, edited 1 time in total.

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TheTimeLord
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Re: What’s your plan for a market downturn?

Post by TheTimeLord » Sat Jun 30, 2018 8:53 pm

I do, but it is specific to my situation (FI and near retirement) and not standard BH fare. It triggers down 30% from all-time high in the S&P 500.
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Re: What’s your plan for a market downturn?

Post by KlangFool » Sat Jun 30, 2018 8:57 pm

Cunir wrote:
Sat Jun 30, 2018 5:32 pm

And I also appreciate that trying to guess where the bottom is, and the eventual turn, is also a mug’s game, so, given all of that, I guess my “plan” is thus: resist the temptation to sell any of my funds (I’m 100% in equity funds), even when their prices are in free-fall, and just keep topping them up with my wages every month as they go down. It will be painful to watch for a year or two, but topping them up all the way down will hopefully bear fruit in the long run.
Cunir,

1) How can you do that if you are unemployed? The market downturn, unemployment, and recession tend to happen together?

You can only succeed if you survive.

2) My plan is to survive 5 years of recession with market downturn and unemployment.

3) In a recession, how do you know how long the recession and unemployment will last? Can you survive long enough to outlast the recession?

KlangFool

Daedalus
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Re: What’s your plan for a market downturn?

Post by Daedalus » Sat Jun 30, 2018 9:24 pm

Keep investing according to my personal written investment plan. Try not to worry a single bit as I will be investing at least 30 more years until "retirement". As a young investor, I perceive a downturn as a major opportunity for long term growth.

CascadiaSoonish
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Re: What’s your plan for a market downturn?

Post by CascadiaSoonish » Sat Jun 30, 2018 9:34 pm

I'm waiting for a downturn to open up some commercial real estate opportunities in our HCOL area using the SBA 504 program for owner-occupied businesses. Right now with everything booming and the market confidence of existing building owners, few properties are available and those that are are ludicrously overvalued. My hope is that a downturn might squeeze some of the exuberance out of the market and make it possible for me to move our business from leasing to owning. If I'm off track here, though, I'd love to hear the feedback as I'm new to the commercial RE game.

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Re: What’s your plan for a market downturn?

Post by MN-Investor » Sat Jun 30, 2018 9:39 pm

My husband and I have always been heavily into stocks, probably about 90% stocks in 2008. We kept buying stocks in 2009. At 12/31/2014 we were 80% stocks, 20% bonds and cash.

When my husband retired mid-2016, we shifted to 40% stocks, 60% bonds and cash. I'll probably stay with that percentage for a few years. It will stand me well if there is a stock market downturn. I figure 40% stocks is high enough for early retirement.
The key to success - Save early, save often, invest well.

AlwaysWannaLearn
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Re: What’s your plan for a market downturn?

Post by AlwaysWannaLearn » Sat Jun 30, 2018 9:40 pm

.....
Last edited by AlwaysWannaLearn on Wed Jul 18, 2018 10:36 pm, edited 1 time in total.

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Taylor Larimore
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Re: What’s your plan for a market downturn?

Post by Taylor Larimore » Sat Jun 30, 2018 9:42 pm

Cunir wrote:
Sat Jun 30, 2018 5:32 pm
Hello. First post, and I was just wondering if anyone has put any plans in place already for the long-predicted downturn. Do you know what you’re going to do when it happens? -- Just wondering what everyone’s thoughts are?
Cunar:

Welcome to the Bogleheads Forum!
What’s your plan for a market downturn?
Mr. Bogle answers your question in his classic, "Common Sense on Mutual Funds," page 42.
Stay the course. No matter what happens, stick to your program. I've said, "Stay the course" a thousand times, and I meant it ever time. It is the most important single piece of investment wisdom I can give to you.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Taylor Larimore
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Re: What’s your plan for a market downturn?

Post by Taylor Larimore » Sat Jun 30, 2018 9:44 pm

Cunar:

Welcome to the Bogleheads Forum!
What’s your plan for a market downturn?
Mr. Bogle answers your question in his classic, "Common Sense on Mutual Funds," page 42.
Stay the course. No matter what happens, stick to your program. I've said, "Stay the course" a thousand times, and I meant it ever time. It is the most important single piece of investment wisdom I can give to you.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Daedalus
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Re: What’s your plan for a market downturn?

Post by Daedalus » Sat Jun 30, 2018 10:15 pm

AlwaysWannaLearn wrote:
Sat Jun 30, 2018 9:40 pm
Daedalus wrote:
Sat Jun 30, 2018 9:24 pm
Keep investing according to my personal written investment plan. Try not to worry a single bit as I will be investing at least 30 more years until "retirement". As a young investor, I perceive a downturn as a major opportunity for long term growth.
Woo hoo!! Exactly!! :sharebeer Time is SOOO on your side....

P.S. You've aptly chosen your forum name, Daedalus. No danger of you following the path of Icarus.
Please help others on the forum in the same age-range, with a similar time horizon. The elder folks here are doing as best one can. But nothing resonates more than a peer saying, "Dude, don't be an idiot. Here's how it works and why you'll be better off if you just stay the course...." (duh)
I have a thing for Greek mythology! Well chosen name yourself. The life long learner achieves true wisdom. Thanks for the encouragement!

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Re: What’s your plan for a market downturn?

Post by Toons » Sat Jun 30, 2018 11:11 pm

I don't have a plan.
More than likely ,,though
I will just leave things the way they are.


🙈🙉🙊




🐵
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MJS
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Re: What’s your plan for a market downturn?

Post by MJS » Sat Jun 30, 2018 11:21 pm

Maybe it's market timing ... I'm retired with a pension. After 3 months of 10%+ stock downturn, I'll start Social Security early & invest it in Total Stock Market instead of rebalancing. After 11 months max, I'll stop SocSec & let it go back to earning 8%/year.

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Re: What’s your plan for a market downturn?

Post by arcticpineapplecorp. » Sat Jun 30, 2018 11:42 pm

Cunir wrote:
Sat Jun 30, 2018 5:32 pm
Hello. First post, and I was just wondering if anyone has put any plans in place already for the long-predicted downturn. Do you know what you’re going to do when it happens?

I realise that it’s basically impossible to predict when a prolonged dowturn is going to happen — some clever economists are saying maybe next year, some are saying maybe the year after that, but no one really knows — I guess we’ll only know when it happens!
And I also appreciate that trying to guess where the bottom is, and the eventual turn, is also a mug’s game, so, given all of that, I guess my “plan” is thus: resist the temptation to sell any of my funds (I’m 100% in equity funds), even when their prices are in free-fall, and just keep topping them up with my wages every month as they go down. It will be painful to watch for a year or two, but topping them up all the way down will hopefully bear fruit in the long run.

The only other plan I’m possibly thinking about is selling some of the funds next year and keeping the cash ready to buy back near the bottom. But that seems to rely a lot on luck, guessing the best times to do it, and I’m not a very lucky guy! And I could end up missing a year or more of gains.

Just wondering what everyone’s thoughts are
Welcome to the group.

read these articles:

http://www.etf.com/sections/index-inves ... nopaging=1
http://www.etf.com/sections/index-inves ... nopaging=1
http://www.etf.com/sections/index-inves ... -out-again

now that you've read that do you think you should be putting any credence into what the "experts" say?

Pick an allocation you can stick with and just stay the course. If you change allocations everytime you (or someone else) thinks something is going to happen, you'll never get the returns you should, because you'll be changing allocations all the time.

You know the answer to what to do when a bear market strikes is buy more. Whether you do that with new money or by selling bonds to buy stocks, either is fine. But you can't do the latter if you have no bonds. So you will have to rely on new money buying lower priced shares. The question is, will you stay the course and keep buying in a down market or will you panic and sell because others are (and experts are telling you to get out of the market)? These are questions only you can answer.

You're asking if you should time the market. Do you sell some stock to buy some bonds to have dry powder to invest when stocks decline? If you do, then you worry about selling stocks and stocks continue to go up, not down and you've created a missed opportunity to have made more. There's no answer to this because we only know in hindsight what was the right thing to do.

It's time in the market, not timing the market that matters.

You're also assuming the bear only lasts 1-2 years. That may be the case, or it might not. Just because the bear only lasts on average 18 months doesn't mean you get back to where you were before the market went down. It could take several years (5-7 for instance) to get back to where you were. Could be sooner considering you're adding more money at lower prices that will then make you money as the market goes back up. But I wouldn't count on a speedy recovery. Even in the last recession the top of the market was I believe in Oct 2007 before it started falling. Even though the market reached its bottom in March 2009 it would have taken a 100% stock investor until 2012 to have broken even. That's over 4 years, not 1-2 years. Are you prepared for a prolonged period to get back to where you started? (by the way, a 50-50 investor would have gotten back to break even point by the end of 2010 I believe. Vanguard had a white paper about this).

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

The recession before that from 2000-2002 took until the end of 2005 to recover (get back to break even). That's a total of 6 years to get from peak to trough then back to where you started.

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

Are you sure you have it right that you'll recover fully in 1-2 years??
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

AlwaysWannaLearn
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Re: What’s your plan for a market downturn?

Post by AlwaysWannaLearn » Sun Jul 01, 2018 12:04 am

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Last edited by AlwaysWannaLearn on Wed Jul 18, 2018 10:34 pm, edited 1 time in total.

DVMResident
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Re: What’s your plan for a market downturn?

Post by DVMResident » Sun Jul 01, 2018 12:22 am

The steps of my plan:
(1) Stay employed
(2) Use that paycheck to Dollar Cost Average (DCA) my investments

That's it. The only major action a downtown might inspire is buying a house. Right now, buy:rent ratio favors renting. Last recession, the math changed to favoring purchasing and I purchased. I don't know, yet; we'll see where the math and job market take me next recession.

Cunir
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Re: What’s your plan for a market downturn?

Post by Cunir » Sun Jul 01, 2018 5:24 am

arcticpineapplecorp. wrote:
Sat Jun 30, 2018 11:42 pm

Are you sure you have it right that you'll recover fully in 1-2 years??
Not anymore! But I suppose at least the charts are heading upwards for the second half, so it probably won’t feel so bad at that point. It’s when they’re only heading downwards every day that you start to second guess your plans.

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Re: What’s your plan for a market downturn?

Post by midareff » Sun Jul 01, 2018 7:19 am

70.5 and now into year 7 of retirement. Somewhere between 17 and 18 years of draw in bonds without counting dividends. ... probably 22 + if I do. I've been so busy the last few years II have a huge backlog of all the doin' nothing I was supposed to be doin'. I suppose I'll just try and catch up on all the doin' nothing I was supposed to be doin'.

I do not plan on selling off my bonds to buy equities as the market declines. Don't risk the money that you do have and need for the possibility of making money that you don't need.

Dandy
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Re: What’s your plan for a market downturn?

Post by Dandy » Sun Jul 01, 2018 7:31 am

I'm 70 and in good financial shape. I have a certain level of "safe" assets that I will maintain to fund my retirement lifestyle.
I'm sure I would do some buying to keep my equity allocation at 40%. If the market continued downward i would opt to keep my "safe" assets and not continue to rebalance.

I'm sure I would be somewhat careful about spending.

I think, in general, stay the course has merit. If you have "enough" it makes less sense in retirement with the loss of human capital, to put dollars you need to fund your retirement at further risk. I think there should be a dollar threshold at which point you freeze the stay the course fully rebalance approach until some market recovery takes place. Yes, you may be giving up future growth but you are basically trading that for preserving needed assets.

I feel most retirees when faced with the dual need to tap their fixed income to support their retirement needs and to rebalance to support their declining equity allocation will reach a point where they will stop fully rebalancing when there is a steep and/or prolonged equity market decline. They should probably think this issue through and address it in their investment plan.

My view is in retirement there are no do overs, little chance to earn decent income, and no one is going to bail me out. Not the government, the investment guru's that guided me, my children, etc. -- it's all on me and the pot is all I've got. My success has been largely due to the wise investment advice that most of us value but failure will be on me. So there are rare times when I will grab the wheel and change course.

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Re: What’s your plan for a market downturn?

Post by pkcrafter » Sun Jul 01, 2018 7:55 am

Cunir wrote:
Sat Jun 30, 2018 6:25 pm
If you rebalance during a downturn, though, when everything is going down, (so you’re actually selling funds to buy other funds), doesn’t that just mean your locking in your losses?
If you mean rebalancing by adding new money though, then I see the benefit in that
Cunir, most investors have some bonds/cash and it's those where the money comes from to rebalance up to target. If you have 100% stock you are simply shuffling money around as best you can and aren't really adding new money unless you direct new contributions to equities that are down the most. This is one reason why 100% equity isn't the best idea.
I suppose at least the charts are heading upwards for the second half, so it probably won’t feel so bad at that point. It’s when they’re only heading downwards every day that you start to second guess your plans.
If you haven't been through a hard fall, it can be very stressful if only from all the negative news and talk you will hear.
10th March, 2000 – the technology-heavy Nasdaq index peaked at 5,133, only to fall 78% in the following 30 months.

15th September, 2008 – The FTSE 100 sunk 47%, though many of these losses were caused by the banks, which saw major falls. Those who bought at the very peak had to wait until May 2013 for the FTSE 100 to recoup its losses,
https://www.boringmoney.co.uk/quick-rea ... o-recover/

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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CyclingDuo
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Re: What’s your plan for a market downturn?

Post by CyclingDuo » Sun Jul 01, 2018 8:47 am

Cunir wrote:
Sat Jun 30, 2018 5:32 pm
Hello. First post, and I was just wondering if anyone has put any plans in place already for the long-predicted downturn. Do you know what you’re going to do when it happens?

I realise that it’s basically impossible to predict when a prolonged dowturn is going to happen — some clever economists are saying maybe next year, some are saying maybe the year after that, but no one really knows — I guess we’ll only know when it happens!
And I also appreciate that trying to guess where the bottom is, and the eventual turn, is also a mug’s game, so, given all of that, I guess my “plan” is thus: resist the temptation to sell any of my funds (I’m 100% in equity funds), even when their prices are in free-fall, and just keep topping them up with my wages every month as they go down. It will be painful to watch for a year or two, but topping them up all the way down will hopefully bear fruit in the long run.

The only other plan I’m possibly thinking about is selling some of the funds next year and keeping the cash ready to buy back near the bottom. But that seems to rely a lot on luck, guessing the best times to do it, and I’m not a very lucky guy! And I could end up missing a year or more of gains.

Just wondering what everyone’s thoughts are
We've lived through all of the bear markets in the red box:

Image

That's more or less (for my life so far):

4,576 days in bear markets
15,864 days not in bear markets (my spouse tops me as she has experienced 17,324 days not in bear markets)

Nobody can predict the duration of the downturn, nor the % of decline, but the list above provides perspective of possible scenarios based on what happened in the past.

Image

Look what the "average investor" experienced the past 20 years because rather than staying the course, they tried to "time" the market and made all of the usual emotional mistakes along the way (study based on Dalbar Inc.):

Image

Makes sense why keeping funds one needs for expenses in time frames of 5 years or less in bonds/CD's/Cash to ride out downturns without having to sell equities at lows. You mention your 100% in equities. Do you have expenses or goals you will need any of that in the next 5 years? How long will your current emergency fund last if need be? Preparation prior to an event that has the potential of triggering an emotional response is key to surviving the event.
Last edited by CyclingDuo on Sun Jul 01, 2018 9:08 am, edited 2 times in total.
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3funder
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Re: What’s your plan for a market downturn?

Post by 3funder » Sun Jul 01, 2018 8:54 am

I'm 33 years old. I plan to stay the course. My AA includes bonds, so the inevitability of a market downturn doesn't bother me.

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Re: What’s your plan for a market downturn?

Post by The Wizard » Sun Jul 01, 2018 9:00 am

Cunir wrote:
Sat Jun 30, 2018 6:25 pm
If you rebalance during a downturn, though, when everything is going down, (so you’re actually selling funds to buy other funds), doesn’t that just mean your locking in your losses?
No.
He means selling bond funds to buy more stock funds at lower prices...
Attempted new signature...

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Re: What’s your plan for a market downturn?

Post by dbr » Sun Jul 01, 2018 9:02 am

A person holding 100% stocks also has a plan for a market downturn. The plan is to do nothing and recognize that the higher expected return comes with more long term uncertainty, of which market downturns are steps on the path. An advantage is that such an investor does not have to buy any other asset classes or have a plan to rebalance.

This is not advice to hold 100% stocks, just pointing out the obvious. Of course, if one does not like the sound of this plan, the option is there to not be 100% stocks.

Cunir
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Re: What’s your plan for a market downturn?

Post by Cunir » Sun Jul 01, 2018 9:03 am

Okay I think I’ve changed my plan now, reading all of these posts. I’m in the uk so I’ve got 20grand of new money to put into my ISA next April. Normally I’d use it to rebalance all of my equity funds, but maybe I’ll put the whole lot into a bond fund instead. Then when the downturn comes, whenever that is, I can withdraw a bit every month or two and top up my equity funds with it.

lostdog
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Re: What’s your plan for a market downturn?

Post by lostdog » Sun Jul 01, 2018 9:10 am

Not making any changes based on market conditions. Still contribute to 401k as scheduled. Still contribute to Roth IRA's as scheduled. Any extra goes into taxable.

KlangFool
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Re: What’s your plan for a market downturn?

Post by KlangFool » Sun Jul 01, 2018 12:55 pm

Cunir wrote:
Sun Jul 01, 2018 9:03 am
Okay I think I’ve changed my plan now, reading all of these posts. I’m in the uk so I’ve got 20grand of new money to put into my ISA next April. Normally I’d use it to rebalance all of my equity funds, but maybe I’ll put the whole lot into a bond fund instead. Then when the downturn comes, whenever that is, I can withdraw a bit every month or two and top up my equity funds with it.
Cunir,

The first question that you should ask how much is your emergency fund? If there is a recession and you are unemployed, how long can you last before you need to sell stock and take the losses?

In the old days, the common advice is to prepare for 2 years of unemployment if a recession is imminent. After 10+ years of bull market, folks forgot that risk is real. 100% stock is in fashion again.

KlangFool

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Re: What’s your plan for a market downturn?

Post by bosocal » Sun Jul 01, 2018 1:19 pm

lostdog wrote:
Sun Jul 01, 2018 9:10 am
Not making any changes based on market conditions. Still contribute to 401k as scheduled. Still contribute to Roth IRA's as scheduled. Any extra goes into taxable.
:sharebeer

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