Boglehead investing through a major downturn

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SantaClaraSurfer
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Boglehead investing through a major downturn

Post by SantaClaraSurfer » Fri May 03, 2019 8:18 pm

I'm 50 and my wife is 40. We are both maxing out our 401(k) plans.

With her match that means $27,000 per year into a Vanguard Target Date Fund.
I have no match, but am 50, so my $25,000 per year goes into the best version of a 3 Fund portfolio I could construct in my Fidelity 401(k).

Given our situation overall, it is likely going to be 30 years till she takes RMDs from her 401(k) and it will be 21 years for me. Since she will work longer than me and we are building a strong taxable account, our 401(k)s are very likely to be "post 70 years old" accounts.

Realistically, we are anticipating that there will be market downturns along our way to get to that point.

My question: what was it like for people who held to a Boglehead approach through 2007/8/9/10? What did it feel like to simply keep contributing the max to your 401(k) into a down market that was an extremely down market? Did you rebalance into equities? Did you keep contributing the max?

I'm asking because I know what a good deal our 401(k)s are. Accounting for taxes and match, my wife basically contributes a $13,000 net cost to end up with $27,000 in her account. So, theoretically, she would still be ahead even in a massive 50% downturn.

But it would help me to know how other folks with more experience weathered the great recession. How did the "stay the course" conversation go in 2008/2009? What worked? What didn't? Did you actually stay the course?

livesoft
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Re: Boglehead investing through a major downturn

Post by livesoft » Fri May 03, 2019 8:27 pm

We kept contributing the maximums allowed and we rebalanced into equities and we tax-loss harvested.

Not everybody did what we did. There is a long thread where one can see things unfold in 2008. Let me see if I can find it and link it here for you to go look at.

Here is a post from 2 months ago with links to the discussions that I wanted to link:
viewtopic.php?p=4409852#p4409852
Last edited by livesoft on Fri May 03, 2019 8:32 pm, edited 1 time in total.
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DarkHelmetII
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Re: Boglehead investing through a major downturn

Post by DarkHelmetII » Fri May 03, 2019 8:31 pm

Here is an article called "What if You Only Invested at Market Peaks?": https://awealthofcommonsense.com/2014/0 ... ket-timer/.

Can read for yourself, but basically gives a point of view based on several decades of history that even if you only bought in at the single absolute worst possible time across several market cycles ... you would in the long run do alright if you didn't panic and cash out at the bottom.

mhalley
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Re: Boglehead investing through a major downturn

Post by mhalley » Fri May 03, 2019 8:31 pm

I stayed the course through 2000 then 2008. I am retired now with a 50/50 aa, but was 100% stocks back then. On retrospect, I wish I had not been so aggressive in my aa then. If you are doubting whether you can sleep during the next downturn, changing your aa to be more conservative is a reasonable move.

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Re: Boglehead investing through a major downturn

Post by Vanguard Fan 1367 » Fri May 03, 2019 8:33 pm

I am grateful that I kept contributing to my 401K through the great recession. In hindsight it was an incredible time to buy. At the time I just appreciated the tax deduction and felt like it was the thing to do.

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Re: Boglehead investing through a major downturn

Post by tibbitts » Fri May 03, 2019 8:34 pm

SantaClaraSurfer wrote:
Fri May 03, 2019 8:18 pm
I'm 50 and my wife is 40. We are both maxing out our 401(k) plans.

With her match that means $27,000 per year into a Vanguard Target Date Fund.
I have no match, but am 50, so my $25,000 per year goes into the best version of a 3 Fund portfolio I could construct in my Fidelity 401(k).

Given our situation overall, it is likely going to be 30 years till she takes RMDs from her 401(k) and it will be 21 years for me. Since she will work longer than me and we are building a strong taxable account, our 401(k)s are very likely to be "post 70 years old" accounts.

Realistically, we are anticipating that there will be market downturns along our way to get to that point.

My question: what was it like for people who held to a Boglehead approach through 2007/8/9/10? What did it feel like to simply keep contributing the max to your 401(k) into a down market that was an extremely down market? Did you rebalance into equities? Did you keep contributing the max?

I'm asking because I know what a good deal our 401(k)s are. Accounting for taxes and match, my wife basically contributes a $13,000 net cost to end up with $27,000 in her account. So, theoretically, she would still be ahead even in a massive 50% downturn.

But it would help me to know how other folks with more experience weathered the great recession. How did the "stay the course" conversation go in 2008/2009? What worked? What didn't? Did you actually stay the course?
It was less difficult to stay the contribution course because my income went down by about 80% along with the economy. So even with the max percentage contribution... it was not that much in dollar terms. I believe downturns are a different experience when you either lose your job or have a substantial reduction in income.

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Re: Boglehead investing through a major downturn

Post by Watty » Fri May 03, 2019 9:01 pm

SantaClaraSurfer wrote:
Fri May 03, 2019 8:18 pm
But it would help me to know how other folks with more experience weathered the great recession. How did the "stay the course" conversation go in 2008/2009? What worked? What didn't? Did you actually stay the course?
I was a bit over 50 then so I was not that far from retirement. I kept my asset allocation but I increased my savings as much as possible since my account values were dropping. I don't recall exactly but I think that back then I was about 75% stocks and 25% bonds having the bonds and ongoing contributions helped mitigate the loss some.

As concerning as the drop in the investments was to me at least the bigger concerns were;

1) That it would be a financial melt down and not just a bad bear market.

2) I would get laid off. With with all the turmoil companies were cancelling projects and not hiring so my job prospects would have been rough. My son was a teenager then and he was not able to find a part time job since all the jobs at places like McDonalds were taken by older adults that could not find any other work.

I was fortunate to have a lot of home equity and while my house value was way down I had enough equity that I could have sold it and moved somewhere that I might be able to find some work or a very low cost of living. My mortage payment was also relatively small. Many people had negative home equity and large mortage payments in addition to all the other problems so they were worse off than I was.

One of my fallback plans in case it turned into a depression was to move to midwest college town I know where OK duplexes could be bought for around $50K then buy one and hunker down while renting out the other half of the duplex to help cover the expenses.

As it turned out the extra money that I had saved during the market drop did very well and probably allowed me to retire a few years earlier.

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Re: Boglehead investing through a major downturn

Post by grabiner » Sun May 05, 2019 10:25 am

I don't recommend 100% stock unless you have already been through a bear market and know how you reacted to it.

For me, that was 2000-2002. I was 80% stock in 2000, but I was able to stay the course, and increased my stock allocation afterwards. From 2004 on, I was 90% stock with the risk of 100% stock (overweighting small-cap, value, and emerging markets). My new investments went into stock, and in October 2008, I had gone from my 10% bond target to 14%, so I sold bonds to rebalance into more stock. The net effect was that I lost 60% top to bottom in 2007-2009, but made it up because I kept essentially the same portfolio, as I have for fifteen years. (I am increasing my bond allocation gradually now as retirement approaches.)
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Re: Boglehead investing through a major downturn

Post by goodenyou » Sun May 05, 2019 10:43 am

I don't think one can under appreciate the difference of weathering a downturn during your working years and contributing to your nest egg and retired and having no earned income. I weathered 2000 and 2008 with a secure job knowing that I was continuing to make money and retirement was an afterthought. Having a job and having the luxury of maintaining an income is a different reality. My continued equity investment during the downturn obviously paid off handsomely. This is the point of staying the course. The urge to panic while retired during a major downturn is understandable.
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Re: Boglehead investing through a major downturn

Post by Scrapr » Sun May 05, 2019 10:58 am

We were 100% stock in '08. It hurt...a lot. Our business is construction and we lost 70% of our revenue. There was blood in the streets. We had to stop contributions for a couple years. We were not even sure if we had a viable business. Recovery came and we rebalanced to 70-30 in '14. That felt a lot better.

I wish we could have had some cash to invest. I have never had cash in any slump going back to 82-83. We do have a pile now....Bring on the recession!

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Re: Boglehead investing through a major downturn

Post by bradshaw1965 » Sun May 05, 2019 11:04 am

2008 and 2009 were miserable no other way to put it, but invest you must and the Boglehead way is the winning combo for mostly 401k investors.

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Re: Boglehead investing through a major downturn

Post by grabiner » Sun May 05, 2019 11:09 am

Scrapr wrote:
Sun May 05, 2019 10:58 am
We were 100% stock in '08. It hurt...a lot. Our business is construction and we lost 70% of our revenue. There was blood in the streets. We had to stop contributions for a couple years. We were not even sure if we had a viable business. Recovery came and we rebalanced to 70-30 in '14. That felt a lot better.
And this is another factor in your risk tolerance: is your human capital more like a stock or a bond, and what kind of stock? If you have a civil service job, or are a tenured professor, you can be more aggressive as an investor. Real estate agents should not be overweighting REITs.
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Re: Boglehead investing through a major downturn

Post by delamer » Sun May 05, 2019 11:17 am

We stayed the course and kept contributing and rebalanced a couple times to our preferred AA.

Retirement was roughly 10 years away (although we both have pensions).

At one point our retirement savings were down 35% from their previous peak.

If you are going to take the risk of investing in stocks in order to capture their superior return in the long run, you have to accept the short run volatility. And “accepting” means staying the course. If in order to do that you need to keep a relatively lower exposure to stocks, it is better to do so. Figure that you could lose half of your stock value at any time and plan accordingly. So if you don’t think you could stomach a 25% decline in your overall portfolio value, then put less than 50% in stocks.

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Re: Boglehead investing through a major downturn

Post by MnD » Sun May 05, 2019 11:24 am

In 87, 91, 00-02, 08-09 we continued contributing whatever our budget was for retirement savings at the time and rebalanced to our desired asset allocation on a periodic or rule-based approach. "Major downturn" didn't have any bearing other than to typically trigger one or more rebalancing events. If you haven't lost your job, "major downturns" are good times for upgrading your home, booking formerly pricey vacation destinations, buying lightly used big-ticket items at very deep discounts from individuals and businesses in financial trouble ect.
Last edited by MnD on Sun May 05, 2019 11:28 am, edited 1 time in total.

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Re: Boglehead investing through a major downturn

Post by KlangFool » Sun May 05, 2019 11:26 am

SantaClaraSurfer wrote:
Fri May 03, 2019 8:18 pm

But it would help me to know how other folks with more experience weathered the great recession. How did the "stay the course" conversation go in 2008/2009? What worked? What didn't? Did you actually stay the course?
SantaClaraSurfer,

With or without unemployment?

On 1/1/2009, my employer laid off 50% of the employees at my location.

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Re: Boglehead investing through a major downturn

Post by BarbBrooklyn » Sun May 05, 2019 11:31 am

I lived through '87, dot.com bubble and 2008. DH lost his job in the last debacle and I had to cut back my contributions from 11% to 7% but I never really looked at the totals on my accounts so didn't see the losses.

Set your AA where it needs to be, considering years from retirement, other income sources and risk tolerance. I've never been more aggressive than 60/40; am now at 40/60 In early retirement and will glide to 50/50. The fact that I have a pension helps enormously.

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Re: Boglehead investing through a major downturn

Post by FrugalInvestor » Sun May 05, 2019 11:34 am

I did not continue to contribute because I couldn't, I was already (early) retired.

I did rebalance most of the way to my target asset allocation but I couldn't bring myself to go all the way to it. I took that as a sign that that my target allocation was too aggressive and have kept it at the more conservative number since.

I also tax loss harvested. That reduced my taxes substantially until last year. I also took the the opportunity to simplify my portfolio substantially through the same process.

The Bogleheads site was very instrumental in helping me understand the concepts and have the psychological courage to take the above actions. I am MUCH better off financially due to those and other steps taken as a result of my association with Bogleheads.
Last edited by FrugalInvestor on Sun May 05, 2019 11:38 am, edited 2 times in total.
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Re: Boglehead investing through a major downturn

Post by dwickenh » Sun May 05, 2019 11:37 am

I went through 2000-2002 and 2008 with an AA of 65/35 and never changed it. I would like to claim that I bought more stock with bond funds, but the truth is I never looked. I was busy raising a family with my SAHW and just kept putting 15-24% into my 401 k. No job loss here, although I did take a pay cut for a job change in 2001. I am now at 50/50 and plan to stay there unless the conditions of my retirement change.
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Re: Boglehead investing through a major downturn

Post by delamer » Sun May 05, 2019 2:31 pm

KlangFool wrote:
Sun May 05, 2019 11:26 am
SantaClaraSurfer wrote:
Fri May 03, 2019 8:18 pm

But it would help me to know how other folks with more experience weathered the great recession. How did the "stay the course" conversation go in 2008/2009? What worked? What didn't? Did you actually stay the course?
SantaClaraSurfer,

With or without unemployment?

On 1/1/2009, my employer laid off 50% of the employees at my location.

KlangFool
This is an important point.

My spouse and I were both in jobs — given our seniority and functions — from which we were highly unlikely to be laid off. So it was relatively easy to stay the course.

If you see a significant probability that you could suffer an income loss during a stock market downturn, then that should be reflected in your allocation. That is particularly true if you don’t have a large emergency fund and/or the ability to cut back expenses.

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Re: Boglehead investing through a major downturn

Post by gmaynardkrebs » Sun May 05, 2019 2:48 pm

In general, most people realized they weren't as risk tolerant as they thought. Now that everyone thinks the Fed is likely to bail out the stock market anyway, the problem has only gotten worse. It's pretty easy to say that you are risk tolerant when you don't think there's much risk in the first place.

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Re: Boglehead investing through a major downturn

Post by theplayer11 » Sun May 05, 2019 3:01 pm

I have lived long enough to realize that when there is blood in the streets...buy as much as you can

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Re: Boglehead investing through a major downturn

Post by MathWizard » Sun May 05, 2019 3:04 pm

I was your age in 2008. I rebalanced into stocks and all new contributions were 100% stocks.

I buy on sale.

My wife didn't want to even look at the statements between Oct 2008 and April 2009, when every month the balance went down by more than what we contributed. I looked almost everyday, but didn't cash out.

We did pull back on spending, but did make very good buy on a used car in late 2009.

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Re: Boglehead investing through a major downturn

Post by Clever_Username » Sun May 05, 2019 3:13 pm

grabiner wrote:
Sun May 05, 2019 11:09 am
Scrapr wrote:
Sun May 05, 2019 10:58 am
We were 100% stock in '08. It hurt...a lot. Our business is construction and we lost 70% of our revenue. There was blood in the streets. We had to stop contributions for a couple years. We were not even sure if we had a viable business. Recovery came and we rebalanced to 70-30 in '14. That felt a lot better.
And this is another factor in your risk tolerance: is your human capital more like a stock or a bond, and what kind of stock? If you have a civil service job, or are a tenured professor, you can be more aggressive as an investor. Real estate agents should not be overweighting REITs.
Can you explain more about why a tenured professor could potentially be more aggressive in investments? I hold a fairly conservative AA but could potentially have tenure soon, and might reevaluate at that point given the new information.
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Re: Boglehead investing through a major downturn

Post by grabiner » Sun May 05, 2019 3:21 pm

Clever_Username wrote:
Sun May 05, 2019 3:13 pm
grabiner wrote:
Sun May 05, 2019 11:09 am
Scrapr wrote:
Sun May 05, 2019 10:58 am
We were 100% stock in '08. It hurt...a lot. Our business is construction and we lost 70% of our revenue. There was blood in the streets. We had to stop contributions for a couple years. We were not even sure if we had a viable business. Recovery came and we rebalanced to 70-30 in '14. That felt a lot better.
And this is another factor in your risk tolerance: is your human capital more like a stock or a bond, and what kind of stock? If you have a civil service job, or are a tenured professor, you can be more aggressive as an investor. Real estate agents should not be overweighting REITs.
Can you explain more about why a tenured professor could potentially be more aggressive in investments? I hold a fairly conservative AA but could potentially have tenure soon, and might reevaluate at that point given the new information.
If you become a tenured professor, you will not lose your job in an economic downturn; tenured professors are much harder to fire or lay off than ordinary employees. Therefore, you are less likely to need to spend down your portfolio (because of long-term unemployment or forced early retirement) when the market drops.
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Re: Boglehead investing through a major downturn

Post by JW-Retired » Sun May 05, 2019 4:08 pm

SantaClaraSurfer wrote:
Fri May 03, 2019 8:18 pm
My question: what was it like for people who held to a Boglehead approach through 2007/8/9/10? What did it feel like to simply keep contributing the max to your 401(k) into a down market that was an extremely down market? Did you rebalance into equities? Did you keep contributing the max?
.......
But it would help me to know how other folks with more experience weathered the great recession. How did the "stay the course" conversation go in 2008/2009? What worked? What didn't? Did you actually stay the course?
I stayed the "course" I've used since about 2000. I find it's easy to keep my AA to a maximum of a range near 60% equities, but I'm not about to sell bonds if stocks fall too low. No minimum of equities triggers me to buy stocks by selling bonds. If stocks stink for years and years DW and I would need all those bonds.

This allowed us to take no active re-balancing action, except a slow motion one kicked off early in the recession about November 2008. The extent of my recession re-balancing was to put all new 401k money contributions into equities. That helped the market get back to my 60/40 a little sooner. I think I recall my portfolio bottomed at about 48% stocks.

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Re: Boglehead investing through a major downturn

Post by Clever_Username » Sun May 05, 2019 11:36 pm

grabiner wrote:
Sun May 05, 2019 3:21 pm
Clever_Username wrote:
Sun May 05, 2019 3:13 pm
grabiner wrote:
Sun May 05, 2019 11:09 am
Scrapr wrote:
Sun May 05, 2019 10:58 am
We were 100% stock in '08. It hurt...a lot. Our business is construction and we lost 70% of our revenue. There was blood in the streets. We had to stop contributions for a couple years. We were not even sure if we had a viable business. Recovery came and we rebalanced to 70-30 in '14. That felt a lot better.
And this is another factor in your risk tolerance: is your human capital more like a stock or a bond, and what kind of stock? If you have a civil service job, or are a tenured professor, you can be more aggressive as an investor. Real estate agents should not be overweighting REITs.
Can you explain more about why a tenured professor could potentially be more aggressive in investments? I hold a fairly conservative AA but could potentially have tenure soon, and might reevaluate at that point given the new information.
If you become a tenured professor, you will not lose your job in an economic downturn; tenured professors are much harder to fire or lay off than ordinary employees. Therefore, you are less likely to need to spend down your portfolio (because of long-term unemployment or forced early retirement) when the market drops.
Good point. I hadn't thought of that. I should give some thought to what change(s) I want to make to my AA when/if I get tenure. Thank you!
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Re: Boglehead investing through a major downturn

Post by 22twain » Mon May 06, 2019 5:52 am

grabiner wrote:
Sun May 05, 2019 3:21 pm
If you become a tenured professor, you will not lose your job in an economic downturn; tenured professors are much harder to fire or lay off than ordinary employees.
It does happen, although not often. Western Illinois University lays off 132 faculty and staff (Chicago Tribune)
Of the faculty members losing their jobs, 18 are tenured or tenure-track
It also happens at small private colleges that get into severe financial difficulties. That's how I stopped teaching several years ago. The college let me move into a much lower paying staff position for a few years, so I could keep my employee health insurance until I could go on Medicare. (This was before the Affordable Care Act passed, so individual health insurance still had restrictions on pre-existing conditions.) Fortunately, DW and I had already saved up enough for a good retirement.
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Re: Boglehead investing through a major downturn

Post by bogledogle87 » Mon May 06, 2019 6:41 am

This might not be an option for everyone depending on their tax brackets, but If you have any traditional IRA's or 401k's from previous employers that can be rolled into IRA's, a Roth Conversion can be a great move during a recession.

This appeals mostly to those in lower tax brackets or perhaps already retired, but you can pay regular income tax on the amount converted and protect those shares from future taxes and RMD's altogether. In 2008, some were able to make conversions and only pay 50% of the taxes than would have been owed 12 months earlier for the same move.

I would have to think this would be one of the few, maybe the only boglehead-approved example of market timing.
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Re: Boglehead investing through a major downturn

Post by MikeG62 » Mon May 06, 2019 6:56 am

goodenyou wrote:
Sun May 05, 2019 10:43 am
I don't think one can under appreciate the difference of weathering a downturn during your working years and contributing to your nest egg and retired and having no earned income. I weathered 2000 and 2008 with a secure job knowing that I was continuing to make money and retirement was an afterthought. Having a job and having the luxury of maintaining an income is a different reality. My continued equity investment during the downturn obviously paid off handsomely. This is the point of staying the course. The urge to panic while retired during a major downturn is understandable.
This is very true.

Also, downturns while working and saving allow the opportunity to buy in at lower prices. Downturns are beneficial while saving. This benefit does not really exist (outside of some rebalancing) once retired and living off one’s assets. All the more important to have an appropriate asset allocation once retired - one that allows you to sleep at night without panicking. This is a very personal thing - no one size fits all here.
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Re: Boglehead investing through a major downturn

Post by dodecahedron » Mon May 06, 2019 7:15 am

grabiner wrote:
Sun May 05, 2019 3:21 pm
Clever_Username wrote:
Sun May 05, 2019 3:13 pm
Can you explain more about why a tenured professor could potentially be more aggressive in investments? I hold a fairly conservative AA but could potentially have tenure soon, and might reevaluate at that point given the new information.
If you become a tenured professor, you will not lose your job in an economic downturn; tenured professors are much harder to fire or lay off than ordinary employees. Therefore, you are less likely to need to spend down your portfolio (because of long-term unemployment or forced early retirement) when the market drops.
Many colleges are in precarious financial condition, so I would not assume this is true for tenured professors everywhere. Some colleges are in danger of going out of existence altogether. Others may decide they need to axe entire departments and programs to survive. There are exceptions to the protections of tenure if the institution´s survival is threatened due to ẅhat the AAUP calls financial exigency. I personally know someone with tenure at a public institution of higher ed who lost his job when his entire department was eliminated. He was the only tenured faculty member in the department.

Demographic realities mean that higher ed is not the safest segment of the economy to be in these days, especially if you teach a subject that does not translate into immediate employability. (During an economic downturn, there can be some countercyclical enrollment patterns as unemployed adults go back to school to retrain for new jobs. So a tenured professorship in fields like nursing or computer security might be safer than a tenured professorship in Italian literature.)
Last edited by dodecahedron on Mon May 06, 2019 7:35 am, edited 2 times in total.

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Re: Boglehead investing through a major downturn

Post by tennisplyr » Mon May 06, 2019 7:33 am

DW and I were both working then, so we didn't panic...we stayed the course at 50/50. Retired in 2011 and stayed the course with no changes (50/50). Things are good 8 years later :happy
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Re: Boglehead investing through a major downturn

Post by DoTheMath » Mon May 06, 2019 7:41 am

dodecahedron wrote:
Mon May 06, 2019 7:15 am
grabiner wrote:
Sun May 05, 2019 3:21 pm
Clever_Username wrote:
Sun May 05, 2019 3:13 pm
Can you explain more about why a tenured professor could potentially be more aggressive in investments? I hold a fairly conservative AA but could potentially have tenure soon, and might reevaluate at that point given the new information.
If you become a tenured professor, you will not lose your job in an economic downturn; tenured professors are much harder to fire or lay off than ordinary employees. Therefore, you are less likely to need to spend down your portfolio (because of long-term unemployment or forced early retirement) when the market drops.
Many colleges are in precarious financial condition, so I would not assume this is true for tenured professors everywhere. Some colleges are in danger of going out of existence altogether. Others may decide they need to axe entire departments and programs to survive. There are exceptions to the protections of tenure if the institution´s survival is threatened due to ẅhat the AAUP calls financial exigency.
Indeed. Several small colleges have closed entirely in the past few years. A mid-career professor is going to have an extremely hard time getting another faculty position. As with anything, this risk is a spectrum. A tenured professor at a large state school vs. one at a mid-sized regional school vs. one at a tiny liberal arts college are in different circumstances.

I really like grabiner's analogy of a person's career being thought of as somewhere on the equities -- bond spectrum. Certainly tenured professors are on the bond end of the spectrum, but some may be at the treasury end while others are in the range of corporate bonds.

I strongly agree with the importance of job stability when evaluating one's ability to weather a downturn. This is something which is given far too little attention in these discussions. KlangFool rightly keeps reminding people that it's not just your investments you have to worry about. Depending on your field, employer, age, likelihood of losing your job and likelihood of being able to find a replacement, you can put a weighting on how stable your employment will be in a big downturn. I think it is a good exercise for everyone to think carefully about their job stability and prospects for alternate employment. If you lose your job and have to worry about being un- or under-employed for years to come, then a slightly different AA isn't going to help you sleep at night.
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir

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Michael Patrick
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Re: Boglehead investing through a major downturn

Post by Michael Patrick » Mon May 06, 2019 7:46 am

I just kept telling myself that the shares I was buying at (what was hopefully) the bottom of the trough were the ones that were going to make me the most money when things turned around.

It wasn't easy. My take-home pay took a number of hits, first through unpaid furloughs and then in some pretty steep increase in benefit costs coupled with no wage increases. I knew state government jobs aren't as safe as some people assume, having already been through having a position eliminated due to budget cuts earlier in my career. Thankfully, my wife and I both kept our jobs.

It was all on automatic deposits, and I just let it ride. What else was I going to do? Put the money in my mattress? Bury it in my back yard?

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Re: Boglehead investing through a major downturn

Post by gmaynardkrebs » Mon May 06, 2019 9:09 am

Deleted duplicate
Last edited by gmaynardkrebs on Mon May 06, 2019 9:11 am, edited 1 time in total.

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gmaynardkrebs
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Re: Boglehead investing through a major downturn

Post by gmaynardkrebs » Mon May 06, 2019 9:10 am

Michael Patrick wrote:
Mon May 06, 2019 7:46 am
I just kept telling myself that the shares I was buying at (what was hopefully) the bottom of the trough were the ones that were going to make me the most money when things turned around.

It wasn't easy. My take-home pay took a number of hits, first through unpaid furloughs and then in some pretty steep increase in benefit costs coupled with no wage increases. I knew state government jobs aren't as safe as some people assume, having already been through having a position eliminated due to budget cuts earlier in my career. Thankfully, my wife and I both kept our jobs.

It was all on automatic deposits, and I just let it ride. What else was I going to do? Put the money in my mattress? Bury it in my back yard?
Are you perhaps showing a certain lack of imagination with your last statement? What about cash? TIPS? Bonds? Real estate? Those were valid options then -- and now.

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Re: Boglehead investing through a major downturn

Post by Michael Patrick » Mon May 06, 2019 9:38 am

gmaynardkrebs wrote:
Mon May 06, 2019 9:10 am
Michael Patrick wrote:
Mon May 06, 2019 7:46 am
I just kept telling myself that the shares I was buying at (what was hopefully) the bottom of the trough were the ones that were going to make me the most money when things turned around.

It wasn't easy. My take-home pay took a number of hits, first through unpaid furloughs and then in some pretty steep increase in benefit costs coupled with no wage increases. I knew state government jobs aren't as safe as some people assume, having already been through having a position eliminated due to budget cuts earlier in my career. Thankfully, my wife and I both kept our jobs.

It was all on automatic deposits, and I just let it ride. What else was I going to do? Put the money in my mattress? Bury it in my back yard?
Are you perhaps showing a certain lack of imagination with your last statement? What about cash? TIPS? Bonds? Real estate? Those were valid options then -- and now.
I was engaging in some hyperbole. Putting money in a mattress or burying it are the cliché responses to fear of the market.

It's true that those were and are valid options. However, that would have meant not sticking with my plan. The OP asked if we stayed the course, and that is exactly what I did.

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SantaClaraSurfer
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Re: Boglehead investing through a major downturn

Post by SantaClaraSurfer » Mon May 06, 2019 10:16 am

Thank you everyone for the excellent grounding and advice.

My wife and I are were mostly "survivors" of previous downturns (read: we left with debt on our backs). We were not investors/savers. That kind of stress is also bad, but it's a different kind of stress.

Coming out of the 2007-10 recession (over a long period of years) we fixed the income/skills component that was holding us back, and we have now resolved the debt component and added comprehensive budgeting with sensible money management and the appropriate insurances to a Boglehead approach.

Our 401(k) contributions are maxed out and set to a "stay the course" glide path (basically TDF or Boglehead 3 fund). Coupled with SSI and a pension, this is our bulwark for our retirement years.

Our Emergency Fund is set up with a mix of MMF (CA Municipals) and I Bonds.

Our taxable brokerage account is 60/40 equities/fixed income. Basically, we take a more conservative approach with this portion of our portfolio.

This thread has taught me just how important continuing to fund the I-Bonds component of the mix can be. In a downturn, that healthy protection layer could be crucial for staying the course and avoiding market stress and pressure.

Going forward, we will prioritize our annual I-Bonds contribution as a base we can use to push forward with our other strategies.

Once again, many thanks to all who shared their insights and experiences, it made an impact!!

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Re: Boglehead investing through a major downturn

Post by Abarn » Fri Nov 08, 2019 8:20 am

This is a bit off topic but how do you approach adjusting your AA during a downturn? Specifically if, based on your predetermined AA glide path, you are scheduled to increase your percentage of bonds and decrease your percentage of equities (and this happens to be during a downturn), does it make more sense to sell equities and buy bonds or adjust your contributions until you reach your desired AA?

I feel there are cons to both options but I may be thinking about it simplistically. If you adjust your AA by selling equities you are selling low but if you adjust your contribution you are missing out on buying low. In the end does it really make a difference?

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Re: Boglehead investing through a major downturn

Post by Brianmcg321 » Fri Nov 08, 2019 8:50 am

I rejoiced as everything was going on sale. By then end of 2009, my account was already above pre 2008 levels. I was 100% equities at the time.

Now it might take two yearsif we had a similar downturn. But my portfolio is much larger and my allocation is more conservative.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

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Re: Boglehead investing through a major downturn

Post by RadAudit » Fri Nov 08, 2019 9:05 am

SantaClaraSurfer wrote:
Fri May 03, 2019 8:18 pm
what was it like for people who held to a Boglehead approach through 2007/8/9/10? What did it feel like to simply keep contributing the max to your 401(k) into a down market that was an extremely down market? Did you rebalance into equities? Did you keep contributing the max?


Lot of interesting replies. I'm sure they truthfully describe the reactions of those who posted. And, I am happy for those who powered on through. But, for a slightly different viewpoint, I'd suggest you look here. (Note the date of the posts.)

viewtopic.php?t=25126
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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Re: Boglehead investing through a major downturn

Post by dziuniek » Fri Nov 08, 2019 9:32 am

Brianmcg321 wrote:
Fri Nov 08, 2019 8:50 am
I rejoiced as everything was going on sale. By then end of 2009, my account was already above pre 2008 levels. I was 100% equities at the time.

Now it might take two yearsif we had a similar downturn. But my portfolio is much larger and my allocation is more conservative.
True, but 'similar' is the big assumption here.

It could be several times longer. Let's hope not! :)

Twinsfan10
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Re: Boglehead investing through a major downturn

Post by Twinsfan10 » Fri Nov 08, 2019 9:50 am

Major downturns are easy to avoid in hindsight. Not so easy in real time. No one knew in real time (2008/09) how bad the recession would be.
In hindsight it would have been great to move most of my stock market investments to cash and avoid putting in new money for 2 years and then go back to 100% stocks. This is next to impossible to do in real time. Maybe someone else's crystal ball is better then mine.
Here is my crystal ball.
[urlhttps://www.michaels.com/mattel-magic-8-ball/10578881.html][/url]

Chicken Little
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Re: Boglehead investing through a major downturn

Post by Chicken Little » Fri Nov 08, 2019 10:07 am

I don’t know how useful these 2000/2008 exercises are. Eyeballing the chart and it looks like the Fed Funds rate was around 6% in 2000 and around 5.5% in 2008. It’s < 2% right now and trending down. That’s different.

I think there’s definitely a false bravado born out of mocking “it’s different this time”. The Fed Funds rate is different. If there is a significant recession, the US probably goes negative real? Where does that leave Germany and Japan? Negativer? Bogleheads have already told me they ain’t buying those bonds, but do they expect everyone else to buy? To buy all of them?

2000 - in retrospect it’s easy to see there were “new economy” internet companies with ridiculously high valuations.

2019 - it’s impossible to see that there are “new economy” “phone app” and “sharing” companies with ridiculously high valuations. No conclusions can be drawn from the number of people who list “marginally compensated contract driver/delivery person” as their occupation?

If there’s a lesson to learn from 2000, the time to apply it is right now.

Other than that, what do you think it means for the Fed to have a much shorter runway than in either of those two downturns?

If you don’t lose your job/income, you’ll probably be OK. If you do lose that, it depends.

Good luck

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Re: Boglehead investing through a major downturn

Post by Wiggums » Fri Nov 08, 2019 10:18 am

My DW and I had stable employment, although the company cancelled our pay raises twice in our careers. We continued to contribute the max to our 401Ks and we never sold. In terms of our pre-tax accounts, we were 100 equities, however, when you looked at all our accounts together, we had one years expenses in fixed assets. So now I know, we were never 100% equities.

I agree that the Feds fund rate is lower and the government spending is contributing about 24% to the US economy. So, conditions are not the same. On the other hand, the safe withdrawal rate was also based on having a decent rate on bonds. :-)

My advice to everyone is to have an AA that you can stand by in bad times. If your AA is wrong for you, there is no shame in changing it today! people should have fixed assets for portfolio stability and emergencies. Yes, there are exceptions and many ways to fund an emergency.

Good luck to you.

Chicken Little
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Re: Boglehead investing through a major downturn

Post by Chicken Little » Fri Nov 08, 2019 11:08 am

Here’s my problem...will bonds serve the same role if there’s a significant down turn in the economy as they did in 2000 and 2008?

I think that I have a very conservative asset allocation by age (40/60) in the part of my portfolio that isn’t target date. I am starting to wonder if that is true.

If a significant recession were to start soon, and the Fed wanted to move down 4%, is that going to happen? I actually think 50/50 might be more “conservative” in this environment than 40/60?

At some point, there won’t be buyers for this debt. At least not at those rates. If rates have to rise to attract buyers, that’s a whipsaw the likes of which nobody has seen. We’d be looking at;

1. Sharp decline in stocks (maybe 30-50-70%)
2. Negative real rates in US to rescue (bonds good ballast for stock decline)
3. Exhaustion of bond buyers
4. Rates start to rise
5. Rate rise accelerated
6. Bonds decimated
7. Flight to blue chips for quality?

If there’s anything resembling 2000 or 2008 in the stock market in the near term, the first thing I’ll do is shorten up duration after some amount of rate cuts (1 or 2%?) and increase cash equivalents and look to roll into equity after initial shockwave.

Hopefully nothing happens and we meander along until total world debt declines.

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Re: Boglehead investing through a major downturn

Post by illumination » Fri Nov 08, 2019 11:58 am

One thing to keep in mind, what happened in 2008 is not a normal "cycle" of the economy or stock market. It really was something unique. I think many people believe these just happen every 15 years or so where basically the whole system looks like it's going to implode, but it doesn't.

Bear markets happen and recessions happen, but the average bear market is something like 14 months and around 30% decline. I would argue we've had two bear markets since 2008 already. In 2011, there was a decline of 21.58% and in 2018 it went down 19.73% (in which case 20% is technically a "bear market" but that's close enough for me)

So I would expect the next bear market to be closer to the last few we've had than what happened in 2008, in which case things bounced back pretty quickly and you did well just staying the course.

That line from Peter Lynch comes to mind “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.”

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Re: Boglehead investing through a major downturn

Post by Dottie57 » Fri Nov 08, 2019 1:44 pm

2008 - I upped the contribution % of stocks in 401k. I also sold 1 year of stocks to move into bonds and it was a mistake. I was terrified that my investments would go to zero because of the financial system crisis.
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Re: Boglehead investing through a major downturn

Post by Clever_Username » Fri Nov 08, 2019 2:11 pm

Brianmcg321 wrote:
Fri Nov 08, 2019 8:50 am
I rejoiced as everything was going on sale. By then end of 2009, my account was already above pre 2008 levels. I was 100% equities at the time.

Now it might take two yearsif we had a similar downturn. But my portfolio is much larger and my allocation is more conservative.
It sounds as though your expected decline in such a situation, at least as far as a percent of your portfolio, is smaller.

Meanwhile, my allocation is so conservative (age in bonds, and have actively debated more-than-age in bonds) : I don't know how I'll react in a downturn, as I was barely invested in 2008.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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Re: Boglehead investing through a major downturn

Post by StealthRabbit » Fri Nov 08, 2019 2:32 pm

survived some considerable downturns since 1970's and a LOT of upside...

Had the BEST employer (fortune 50) until the 'witch' arrived and dismantled 60 yrs of greatness... tanked Market Valuation, and dissolved pensions, HC and 1000 hrs of accumulated sick leave + 300,000 high skilled jobs (of (3) companies. POOF Gone (far more tragic than the worst downturns). Several retirees died from the stress of losing their wealth (They should have diversified).

Hints:
Stay 100% into 'Matching' programs (Transition to Roth 401k if able / current tax situation allows)
Buy 60/40 during crash and 100% after major downturns (recoveries take much longer than crashes = benefit to lower cost basis)

Chicken Little
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Re: Boglehead investing through a major downturn

Post by Chicken Little » Fri Nov 08, 2019 3:10 pm

illumination wrote:
Fri Nov 08, 2019 11:58 am
One thing to keep in mind, what happened in 2008 is not a normal "cycle" of the economy or stock market. It really was something unique. I think many people believe these just happen every 15 years or so where basically the whole system looks like it's going to implode, but it doesn't.

Bear markets happen and recessions happen, but the average bear market is something like 14 months and around 30% decline. I would argue we've had two bear markets since 2008 already. In 2011, there was a decline of 21.58% and in 2018 it went down 19.73% (in which case 20% is technically a "bear market" but that's close enough for me)

So I would expect the next bear market to be closer to the last few we've had than what happened in 2008, in which case things bounced back pretty quickly and you did well just staying the course.

That line from Peter Lynch comes to mind “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.”
Do Bogleheads really care about bear markets? Do the declines in 2011 and 2018 even register compared to 2000 and 2008?

My recollection is that a lot of people lost their jobs in 2000, in addition to 2008. Moves in the stock market don’t bother me, but a job-crushing recession - especially in this environment - would.

How much time has been spent backtesting some obscure factor in an attempt to possibly eke out a small gain? How much time is spent considering what would happen if there is a genuine recession that starts with the US rate at < 2% and trillions of negative yielding debt already in the washing machine.

How can you equate now with any other time in the modern economic era? We’re coming off of years at practically zero for the rate, only recently crept above 2%, took a look around, and dove right back under 2%. There is speculation that an actual recession is on the way. That means it hasn’t started yet. We’re under 2% and nothing has even happened?

Before 2008 you have to go back to 1960 to see near zero rates, and even then they bounced off zero like a trampoline. We’re coming off 6-8 years (can’t make it out) of zero.

I doubt you can even have a real recession without a financial crisis. How could a significant recession start today and have nothing develop into “contagion”?

What I’m waiting for is an explanation on how debt (housing, student, auto, municipal, federal, emerging market, developed international with negative yield) is OK?
How is that going to be OK if we have a real recession? What are we going to do, lower rates and restart QE?

Why would you contend that this moment isn’t unique?

Here’s the new reality...nobody can afford an actual recession. It’s NIRP/QE from here on out.

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