Losing Money with Index Funds

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MissOptimist
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Losing Money with Index Funds

Post by MissOptimist »

I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Silk McCue
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Re: Losing Money with Index Funds

Post by Silk McCue »

I've never lost a dime investing in index funds. If you don't bail on your choice or have a forced sale to meet a financial need you don't have a loss.

Cheers
UpperNwGuy
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Re: Losing Money with Index Funds

Post by UpperNwGuy »

The only way to lose money with index funds to sell them at a loss soon after you buy them. The longer you hold them, the less likely that is to happen. For example, the COVID bottom price for VTSAX on March 23 was still higher than the prices were in 2016. The only way to lose money was to sell shares purchased in 2017, 2018, 2019, or early 2020. Selling a share purchased in 2016 or prior would still have yielded a capital gain.
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JoMoney
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Re: Losing Money with Index Funds

Post by JoMoney »

As a percentage of net-worth, I lost about 50% in 2008-9...might have lost a lot more if I had still been in a individual stock portfolio, or a lot less if I had been in cash/bonds rather than stocks... I don't think "index funds" were the relevant aspect of it rather than amount invested in stocks.

I can recall several snarky things people said in 2008-9 by people that had nothing in the stock market, laughing at how concerned other people were with the stock market. Sometimes I find it a 'funny' thing, how much stress people put themselves through worrying about their money relative to people who have no money at all. I had a job and some cash in the bank, I got through it just fine, one day at a time... as I would have if I had nothing in stocks or index funds.
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MissOptimist
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Re: Losing Money with Index Funds

Post by MissOptimist »

Are you able to tell you are losing money because you are selling shares for less than what you bought them for??
BalancedJCB19
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Re: Losing Money with Index Funds

Post by BalancedJCB19 »

Don't confuse volatility with losing money. Sure the stock market goes up and down dramatically at times, you can count on that, but as long as you have a plan you can stick with the chances of actually losing wealth through stock market index funds pretty much is non-existence if you are in it for the long term. Now, as a Boglehead I'm not 100% in a stock market index fund anyway, I'm a balanced fund guy all the way. I like to sleep at night!
mmcmonster
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Re: Losing Money with Index Funds

Post by mmcmonster »

I think the point the others are making is that you don't have a profit or loss until you sell (part of) the fund. Until you sell, all you have is net worth.

The net worth of an index fund, like all funds, goes up and down all the time. The more money you have in a fund, the more you can gain or lose.

As a percentage, with an S&P index fund your net worth will go up or down the same percentage as the S&P index (minus your expense ratio).
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Re: Losing Money with Index Funds

Post by whereskyle »

MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Don't sell at a loss and you'll never lose money 😉
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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MissOptimist
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Re: Losing Money with Index Funds

Post by MissOptimist »

whereskyle wrote: Sat Sep 19, 2020 8:15 am
MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Don't sell at a loss and you'll never lose money 😉

When you say this, do you mean never sell during a recession?
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Re: Losing Money with Index Funds

Post by whereskyle »

MissOptimist wrote: Sat Sep 19, 2020 8:20 am
whereskyle wrote: Sat Sep 19, 2020 8:15 am
MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Don't sell at a loss and you'll never lose money 😉

When you say this, do you mean never sell during a recession?
Well, if you're in retirement, I think it is perfectly defensible to sell and withdraw at a safe withdrawal rate, so technically I am not suggesting that a retiree never sell in a recession.

But the point that I was making is that index investors regularly see their balances go down. This is not a loss until the investor sells. The smart thing to do when the balance goes down at every single market drop in US history is to buy more, not sell. And if your balance goes down before it goes up, you did not lose any money.

So, the index has gone up and down but an index investor only "loses money" if the investor sells at a loss.
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livesoft
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Re: Losing Money with Index Funds

Post by livesoft »

MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
In March 2020, our portfolio dropped 7-figures. We got through it by rebalancing and thus the portfolio gained back 7-figures and more since.

BTW, I am sure something similar would have happened with non-index funds, too.
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snowox
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Re: Losing Money with Index Funds

Post by snowox »

I was down 700k in march but instead of selling I bought the dip with additional cash I was taking out as the market was running. Having said that I still didnt go over my yearly withdrawal (I am fire'd) I just have a higher cash position for various reasons including what happened in March because it helps me sleep at night.
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Re: Losing Money with Index Funds

Post by alex_686 »

MissOptimist wrote: Sat Sep 19, 2020 8:20 am
whereskyle wrote: Sat Sep 19, 2020 8:15 am
MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Don't sell at a loss and you'll never lose money 😉
When you say this, do you mean never sell during a recession?
This is a false statement based in a cognitive error. If the statement was true then nobody had lost any money investing in Pets.com or WeWork.

You mark your positions to the market. That is your gain or loss. Or at least how I do it as a professional in portfolio metrics.

On a more general note, there are a couple of ways to look at it. A popular was is to calculate ‘Value at Risk’, which is generally finding the standard deviation at 95%. Or could assume a 50% drop. Issues with both options. Sometimes it is just best to think through what could happen.
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Ed 2
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Re: Losing Money with Index Funds

Post by Ed 2 »

On a paper lost biggest amount $3000 when I was tax loss harvesting, twice in 20+ years investing experience. In actuality I haven’t lost a penny. Because I always stayed invested by selling and exchanging into different but similar index fund. Only you can loose when you realize your loss and stay cash.
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sycamore
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Re: Losing Money with Index Funds

Post by sycamore »

Barely lost anything in my bond index funds. My stock index funds on the other hand...
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Re: Losing Money with Index Funds

Post by nisiprius »

Between the start of 2008 and March of 2009, despite having a very conservative, timid stock allocation, the grand total of all our retirement savings decreased by an amount roughly equal to all of the contributions we had made for five years.

Five years of patient savings, five years of having a big bite out of the paycheck that could have made a real difference on buying cars, taking the kids on vacations, or maintaining the house. Five years. Shot to hell, just shot to hell.

Not so scary as a percentage.

As the time scale of charts contracts, the global financial crisis starts to look like nothing much, bad while it lasted but over quickly. People even have the impression that 2009-to-2020 was one long, smooth uninterrupted climb.

It did not feel that way while it was happening.

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rixer
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Re: Losing Money with Index Funds

Post by rixer »

It depends on which index fund. Some people have lost up to 75% investing in VDE (energy index fund).
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MissOptimist
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Re: Losing Money with Index Funds

Post by MissOptimist »

nisiprius wrote: Sat Sep 19, 2020 8:54 am Between the start of 2008 and March of 2009, despite having a very conservative, timid stock allocation, the grand total of all our retirement savings decreased by an amount roughly equal to all of the contributions we had made for five years.

Five years of patient savings, five years of having a big bite out of the paycheck that could have made a real difference on buying cars, taking the kids on vacations, or maintaining the house. Five years. Shot to hell, just shot to hell.

Not so scary as a percentage.

As the time scale of charts contracts, the global financial crisis starts to look like nothing much, bad while it lasted but over quickly. People even have the impression that 2009-to-2020 was one long, smooth uninterrupted climb.

It did not feel that way while it was happening.

Image
:shock: :shock: Would you say you have gotten all your retirement amount back at a desirable level??
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Re: Losing Money with Index Funds

Post by Jack FFR1846 »

Through Covid, about $300k. During this, I tax loss harvested and near the bottom, rebalanced from bond into stock. I was only a few dollars away from $2.9MM when things went south. I'm now a few dollars away from $3MM.
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Ed 2
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Re: Losing Money with Index Funds

Post by Ed 2 »

MissOptimist wrote: Sat Sep 19, 2020 9:03 am
nisiprius wrote: Sat Sep 19, 2020 8:54 am Between the start of 2008 and March of 2009, despite having a very conservative, timid stock allocation, the grand total of all our retirement savings decreased by an amount roughly equal to all of the contributions we had made for five years.

Five years of patient savings, five years of having a big bite out of the paycheck that could have made a real difference on buying cars, taking the kids on vacations, or maintaining the house. Five years. Shot to hell, just shot to hell.

Not so scary as a percentage.

As the time scale of charts contracts, the global financial crisis starts to look like nothing much, bad while it lasted but over quickly. People even have the impression that 2009-to-2020 was one long, smooth uninterrupted climb.

It did not feel that way while it was happening.

Image
:shock: :shock: Would you say you have gotten all your retirement amount back at a desirable level??
Look closer at the right corner if that chart. Most everyone had similar performance back in 2008-2012,those who invested in “3 fund portfolio”. His investment portfolio quadrupled probably since.
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Kelrex
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Re: Losing Money with Index Funds

Post by Kelrex »

I'm really confused about what you are asking.

People don't really lose money in whole market index funds, that's kind of the point of them. As mentioned by pp though, not all index funds are whole market.

You can invest in a single stock (or group of stocks) and lose everything without selling it because that stock (or group) may go to zero and never come back up.

A market index on the other hand can't go to zero because it follows the stock market itself. If the stock market goes to zero and never recovers then you will have much bigger fish to fry than worrying about your money...like trying to survive the apocalypse or whatever caused the global markets to permanently collapse.

So if you are invested in a large index, then you only lose money if you sell while the market is down, because unlike an individual company, it's highly likely to bounce right back up and rise even higher over time. That *is* the entire premise of passive investing.

Now, some people have to sell *some* of their index while the market is down if they are retired and depending on selling bits of it annually in order to live. However, it only involves selling a very small portion at a loss, and the withdrawal rate they choose is designed to expect to sometimes sell at a loss. It's factored into the calculation.

Meanwhile, some people take extra measures to never sell at a loss, some save a few years of expenses in cash for spending in down-market years, some people lower their annual spend if the market is down, etc, etc.
So some people with index investments will literally never ever sell at a loss, so technically will never ever lose anything.

In both of the above scenarios, the total market and the index can drop substantially, but no one loses money over time. That's the whole point.

Is that what you were asking???
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MissOptimist
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Re: Losing Money with Index Funds

Post by MissOptimist »

Kelrex wrote: Sat Sep 19, 2020 9:12 am I'm really confused about what you are asking.

People don't really lose money in whole market index funds, that's kind of the point of them. As mentioned by pp though, not all index funds are whole market.

You can invest in a single stock (or group of stocks) and lose everything without selling it because that stock (or group) may go to zero and never come back up.

A market index on the other hand can't go to zero because it follows the stock market itself. If the stock market goes to zero and never recovers then you will have much bigger fish to fry than worrying about your money...like trying to survive the apocalypse or whatever caused the global markets to permanently collapse.

So if you are invested in a large index, then you only lose money if you sell while the market is down, because unlike an individual company, it's highly likely to bounce right back up and rise even higher over time. That *is* the entire premise of passive investing.

Now, some people have to sell *some* of their index while the market is down if they are retired and depending on selling bits of it annually in order to live. However, it only involves selling a very small portion at a loss, and the withdrawal rate they choose is designed to expect to sometimes sell at a loss. It's factored into the calculation.

Meanwhile, some people take extra measures to never sell at a loss, some save a few years of expenses in cash for spending in down-market years, some people lower their annual spend if the market is down, etc, etc.
So some people with index investments will literally never ever sell at a loss, so technically will never ever lose anything.

In both of the above scenarios, the total market and the index can drop substantially, but no one loses money over time. That's the whole point.

Is that what you were asking???
Yes, thanks for explaining. Very clear to me now. 8-)
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MissOptimist
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Re: Losing Money with Index Funds

Post by MissOptimist »

Ed 2 wrote: Sat Sep 19, 2020 9:10 am
MissOptimist wrote: Sat Sep 19, 2020 9:03 am
nisiprius wrote: Sat Sep 19, 2020 8:54 am Between the start of 2008 and March of 2009, despite having a very conservative, timid stock allocation, the grand total of all our retirement savings decreased by an amount roughly equal to all of the contributions we had made for five years.

Five years of patient savings, five years of having a big bite out of the paycheck that could have made a real difference on buying cars, taking the kids on vacations, or maintaining the house. Five years. Shot to hell, just shot to hell.

Not so scary as a percentage.

As the time scale of charts contracts, the global financial crisis starts to look like nothing much, bad while it lasted but over quickly. People even have the impression that 2009-to-2020 was one long, smooth uninterrupted climb.

It did not feel that way while it was happening.

Image
:shock: :shock: Would you say you have gotten all your retirement amount back at a desirable level??
Look closer at the right corner if that chart. Most everyone had similar performance back in 2008-2012,those who invested in “3 fund portfolio”. His investment portfolio quadrupled probably since.
What if BEFORE 2008, they sell their shares or cash out, and after the economy recovers, they reinvest all that money again, will they be in a better situation??
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dratkinson
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Re: Losing Money with Index Funds

Post by dratkinson »

Data points.

During a crash...
--Stocks can lose 50-90% of their value.
--Bonds can lose 5-15% of their value.
--Stock/bond crashes are not typically coincidental.

During a stock crash, if you need to sell, then sell bonds.

Some retirees report keeping >5yrs of living expenses in bonds to avoid the Sequence of Returns Risk---being forced to sell stocks during a down market to pay for living expenses. This assumes most crashes recover within ~4yrs.


Disclosure. My AA was 90/10 before my forum review, after it was 50/50. During 2008-9, the market was down ~40%. I was down ~20%, exactly as predicted by my AA. Couldn't have been happier. Why? The forum's advice was the first I'd ever received/followed that had worked as advertised.


Idea. After filling your annual retirement plans, then begin adding multi-use bonds to taxable to use as: extended-tier EFs, home projects, new car, dry powder, ...retirement bonds.

Putting appropriate bonds in taxable allows you to skew retirement plans to equities for increased untaxed growth.

Having fat EFs (1st + extended tiers) causes financial emergencies to shrink to mere annoyances. Meaning you should never be forced to sell during a down market.
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Re: Losing Money with Index Funds

Post by livesoft »

dratkinson wrote: Sat Sep 19, 2020 10:13 amPutting appropriate bonds in taxable allows you to skew retirement plans to equities for increased untaxed growth.
But that is at the expense of putting appropriate equity funds in taxable that allows you to skew your overall portfolio for increased untaxed growth. :twisted:
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Re: Losing Money with Index Funds

Post by whereskyle »

alex_686 wrote: Sat Sep 19, 2020 8:49 am
MissOptimist wrote: Sat Sep 19, 2020 8:20 am
whereskyle wrote: Sat Sep 19, 2020 8:15 am
MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Don't sell at a loss and you'll never lose money 😉
When you say this, do you mean never sell during a recession?
This is a false statement based in a cognitive error. If the statement was true then nobody had lost any money investing in Pets.com or WeWork.

You mark your positions to the market. That is your gain or loss. Or at least how I do it as a professional in portfolio metrics.

On a more general note, there are a couple of ways to look at it. A popular was is to calculate ‘Value at Risk’, which is generally finding the standard deviation at 95%. Or could assume a 50% drop. Issues with both options. Sometimes it is just best to think through what could happen.
I understand your point, but the beauty of total-market index funds is that they never go to zero, unlike individual stocks. So even when an index fund purchase puts 1% on Pets.com, and pets.com fails, all the index investor needs to do is wait for the index to go back up before selling.

I agree with you entirely that a lower balance shows a loss in that the investor cannot go to the broker and get the money that she invested back. But I disagree that it shows that you lost money permanently because we both know that, if you can afford to wait, you will have more money than you put in eventually.
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NotWhoYouThink
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Re: Losing Money with Index Funds

Post by NotWhoYouThink »

livesoft wrote: Sat Sep 19, 2020 8:39 am
MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
In March 2020, our portfolio dropped 7-figures. We got through it by rebalancing and thus the portfolio gained back 7-figures and more since.

BTW, I am sure something similar would have happened with non-index funds, too.
Same
whereskyle wrote: Sat Sep 19, 2020 8:15 am
MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Don't sell at a loss and you'll never lose money 😉
Nope, you really lose money, you just don't have to document it for the IRS. But it's ok, you can make it back. See above.
What if BEFORE 2008, they sell their shares or cash out, and after the economy recovers, they reinvest all that money again, will they be in a better situation??
Oh good heavens no. You want to buy low and sell high, except you don't know in the moment whether you are at a low or a high. If you wait until the economy recovers you are not buying low. And you don't know when to sell either, because you don't know when the drop is going to come. So buy and hold, rebalance after a huge gain or loss, and spend the rest of your time growing aubergines or baking sourdough.
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Re: Losing Money with Index Funds???

Post by Taylor Larimore »

MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
MissOptimist:

I have difficulty relating to your post.

I started investing in 1950 when the S&P stocks were priced at 20. Today they are priced at 3,319.

Best wishes
Taylor
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Re: Losing Money with Index Funds

Post by nisiprius »

MissOptimist wrote: Sat Sep 19, 2020 10:11 amWhat if BEFORE 2008, they sell their shares or cash out, and after the economy recovers, they reinvest all that money again, will they be in a better situation??
You think the same thing as millions of other investors, maybe most of us when we begin. Doing this sure seems as if it ought to be easy to do.

Just as it seems as if it really ought to be easy to do much better than an index fund. What, hold the whole market, including all the bad stocks? Even if you can't pick the good ones, surely it must be easy to weed out the obvious dogs? No, it's not (and the track record of long-short funds, which try to short the obvious dogs, proves it.

Staying the course is just indexing over time. While you are accumulating, you just keep buying (and holding what you've bought). Some of the time you'll be buying stock when it's "expensive," some when it's "cheap," and it will average out. And the thing that is hard to believe is that you do not know at the time you are buying whether it is expensive or cheap. You get the good years and the bad years. You get the average--and it's surprisingly easy to get less than the average and surprisingly hard to get more.

I've been fully retired since 2013, and so far all has gone well. We stayed the course in 2008-2009. We didn't sell into the downturn. I've said a number of times that it might have been more like "deer in the headlights" than "virtuously, firmly staying the course," but my wife and I (she was involved) agreed that the best thing was to just not do anything. That was possible because we did not have too much invested in stocks. I have two acquaintances who sold heavily into the down market. I don't know a lot of the details, but one was a work colleague who had been at 100% stocks and sold around October of 2008. We were both laid off shortly thereafter and he wasn't someone I've kept in touch with. Another is the wife, the member of a couple I am friends with, but somehow it just isn't kind or wise to cross-examine people for details about their finances, particularly what I think was a serious mistake.
Last edited by nisiprius on Sat Sep 19, 2020 11:28 am, edited 3 times in total.
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Re: Losing Money with Index Funds

Post by flaccidsteele »

MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Interesting question

How does one lose money with US index funds?

It’s almost impossible...
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Losing Money with Index Funds

Post by flaccidsteele »

MissOptimist wrote: Sat Sep 19, 2020 10:11 am What if BEFORE 2008, they sell their shares or cash out, and after the economy recovers, they reinvest all that money again, will they be in a better situation??
Just like your example of a time “BEFORE 2008”, today, right now, we are in the period before the next massive crash... how do you know when to sell?

Are you selling now? Tomorrow? Next year? When? 🤷‍♂️
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Losing Money with Index Funds

Post by 7eight9 »

whereskyle wrote: Sat Sep 19, 2020 10:23 am
alex_686 wrote: Sat Sep 19, 2020 8:49 am
MissOptimist wrote: Sat Sep 19, 2020 8:20 am
whereskyle wrote: Sat Sep 19, 2020 8:15 am
MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Don't sell at a loss and you'll never lose money 😉
When you say this, do you mean never sell during a recession?
This is a false statement based in a cognitive error. If the statement was true then nobody had lost any money investing in Pets.com or WeWork.

You mark your positions to the market. That is your gain or loss. Or at least how I do it as a professional in portfolio metrics.

On a more general note, there are a couple of ways to look at it. A popular was is to calculate ‘Value at Risk’, which is generally finding the standard deviation at 95%. Or could assume a 50% drop. Issues with both options. Sometimes it is just best to think through what could happen.
I understand your point, but the beauty of total-market index funds is that they never go to zero, unlike individual stocks. So even when an index fund purchase puts 1% on Pets.com, and pets.com fails, all the index investor needs to do is wait for the index to go back up before selling.

I agree with you entirely that a lower balance shows a loss in that the investor cannot go to the broker and get the money that she invested back. But I disagree that it shows that you lost money permanently because we both know that, if you can afford to wait, you will have more money than you put in eventually.
Those who invested in the Nikkei back in December 1989 are still waiting. :happy
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Re: Losing Money with Index Funds

Post by Kenkat »

MissOptimist wrote: Sat Sep 19, 2020 10:11 am What if BEFORE 2008, they sell their shares or cash out, and after the economy recovers, they reinvest all that money again, will they be in a better situation??
Yes, they will be in a better situation. And rather than reinvest all that money again, they should have bet it all on the Pittsburgh Steelers to win the Super Bowl in 2009. Easy money.

...

What was that you said? How were you supposed to know the Steelers would win the Super Bowl that year? Why, you just need to be able to predict what happens in the future. Easy money, right?
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MissOptimist
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Re: Losing Money with Index Funds

Post by MissOptimist »

Ok so is it only recommended to sell when the economy is good? :confused When do you know if it is the RIGHT time to sell, let's say you have already accumulated a lot of money to meet your needs.
Last edited by MissOptimist on Sat Sep 19, 2020 11:10 am, edited 2 times in total.
heyyou
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Re: Losing Money with Index Funds

Post by heyyou »

Your car's value, changes over time, but the reduction is not realized until you do sell it.

We all own shares of stock index funds, and each day the value of those shares changes, but we try to only sell them as we need the money in retirement since we have seen how progressively higher inflation can decimate fixed rate savings accounts that do not have a buffer for that problem. We try to learn to live with stock market price fluctuations, and we have some savings allocated to bond funds from which to spend when stock fund prices have fallen. We have some cash in savings accounts, plus shares in bond index funds, and shares in stock index funds, all to diversify our assets as a buffer for various future risks, since each one of those is imperfect for some specific situations that could occur in the future.
Last edited by heyyou on Sat Sep 19, 2020 11:20 am, edited 1 time in total.
whereskyle
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Re: Losing Money with Index Funds

Post by whereskyle »

MissOptimist wrote: Sat Sep 19, 2020 10:55 am Ok so is it only recommended to sell when the economy is good? :confused When do you know if it is the RIGHT time to sell, let's say you have already accumulated a lot of money to meet your needs.
The 4% rule holds that when you retire, you can safely withdraw 4% from your portfolio every year regardless of market conditions, adjusting that amount for inflation every year. So, once you've accumulated "enough" that you can live off your 4% every year, you can theoretically make one sale in that amount every year regardless of where the market's at. Some people sell and withdraw every month.

There are many approaches to safe withdrawal rates. If you can live off less than 4%, it may be prudent to withdraw less.
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cheese_breath
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Re: Losing Money with Index Funds

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I'm curious as to why the question is specific to index funds. Are you implying you might have lost less in active funds?
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pasadena
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Re: Losing Money with Index Funds

Post by pasadena »

I had about $3,200 of losses when I sold my International funds in April to beef up my Emergency Fund. Expensive lesson, but a good one nonetheless.
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MissOptimist
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Re: Losing Money with Index Funds

Post by MissOptimist »

heyyou wrote: Sat Sep 19, 2020 11:04 am Your car's value, changes over time, but the reduction is not realized until you do sell it.

We all own shares of stock index funds, and each day the value of those shares changes, but we try to only sell them as we need the money in retirement since we have seen how progressively higher inflation can decimate fixed rate savings accounts that do not have a buffer for that problem. We try to learn to live with stock market price fluctuations, and we have some savings allocated to bond funds from which to spend when stock fund prices have fallen. We have some cash in savings accounts, plus shares in bond index funds, and shares in stock index funds, all to diversify our assets as a buffer for various future risks, since each one of those is imperfect for some specific situations that could occur in the future.
Ok, so you will sell them if you need them for retirement even if there is a pandemic or an economic downturn?
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MissOptimist
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Re: Losing Money with Index Funds

Post by MissOptimist »

cheese_breath wrote: Sat Sep 19, 2020 11:28 am I'm curious as to why the question is specific to index funds. Are you implying you might have lost less in active funds?
I only have index funds. VTSAX, VBTLX and VFIAX...I just recently opened my Vanguard account and am a complete beginner. :o
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HomerJ
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Re: Losing Money with Index Funds

Post by HomerJ »

MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
Ignore the people who say you don't lose until you sell.

If you have $500,000 in a stock index fund, and it drops 50%, you have actually lost $250,000. And it's hard.

The way I get through it is to have a large chunk of money in bonds, so I feel financially safer even when the market is dropping.

For instance, say one is 66/33 stocks/bonds with $750,000. $500,000 in stocks, and $250,000 in bonds.

2008-2009 happens, and your stock portfolio is cut in half. Now, you've lost $250,000 in stocks... And as far as you know, the market is going to keep dropping. That's what many of the talking heads of TV were saying in 2009. Almost nobody was saying at 50% down... "Okay that's it... We'll probably start heading back up now"...

Many of them were saying "we could drop ANOTHER 50% from here. Financial institutions are going to fail. The Great Depression II."... And that's scary.

But how you get through it is that $250,000 in bonds that hasn't dropped much at all (or maybe even gone up a little like in 2008-2009).

That's a ton of money. Not enough to live on forever, but you know, even if the market keeps dropping and even if you lose your job, your family is going to stay warm, fed, and dry for multiple years before that $250,000 runs out. That's a nice security blanket... And having that makes it possible for you to "stay the course" while waiting for stocks to come back.
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inbox788
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Re: Losing Money with Index Funds

Post by inbox788 »

MissOptimist wrote: Sat Sep 19, 2020 7:33 am I am curious, what was the biggest amount of money you ever lost with investing in index funds? And how did you get through it? :shock:
2000, 2008, March. Lost a lot, worried a bit, gained it back.

Kept investing adding small amounts (automatically via retirement contributions). Glad to see the returns on those small amounts grow substantially.

I worry more about when I'll be taking out during these types of periods.
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Re: Losing Money with Index Funds

Post by pasadena »

MissOptimist wrote: Sat Sep 19, 2020 11:36 am Ok, so you will sell them if you need them for retirement even if there is a pandemic or an economic downturn?
When you get closer to retirement, you should start planning your withdrawals, and that planning should include what to do / how to protect yourself during a market downturn.

A lot of people make sure that they have enough cash to live through a short-ish downturn without selling too much of their investments. But apart from that, yeah, if you *need* the money to live, then you have to take the losses at some point. But you also have a few levers to limit the impact, like reducing your expenses during that time, or postponing big ticket expenses, for example.
Last edited by pasadena on Sat Sep 19, 2020 11:46 am, edited 1 time in total.
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cheese_breath
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Re: Losing Money with Index Funds

Post by cheese_breath »

MissOptimist wrote: Sat Sep 19, 2020 11:37 am
cheese_breath wrote: Sat Sep 19, 2020 11:28 am I'm curious as to why the question is specific to index funds. Are you implying you might have lost less in active funds?
I only have index funds. VTSAX, VBTLX and VFIAX...I just recently opened my Vanguard account and am a complete beginner. :o
OK. Well then, you can lose money in almost any investment. Index funds aren't immune to losses, but they're better than most active funds. As you get acquainted with the forum you'll see threads on tax loss harvesting where we sometimes deliberately sell a losing investment (and reinvest the funds into a similar but not identical investment) to save on taxes.
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Re: Losing Money with Index Funds

Post by livesoft »

MissOptimist wrote: Sat Sep 19, 2020 10:11 amWhat if BEFORE 2008, they sell their shares or cash out, and after the economy recovers, they reinvest all that money again, will they be in a better situation??
Clearly, hindsight is wonderful and I can claim that my hindsight is better than 20/20. But instead of reinvesting "after the economy recovers" they would have to reinvest BEFORE the economy recovers, say in early March 2009.

And in a similar way, the economy has not recovered in 2020, but if they reinvested in late March 2020, then they would be in a better situation.
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Re: Losing Money with Index Funds

Post by Ed 2 »

MissOptimist wrote: Sat Sep 19, 2020 10:11 am
Ed 2 wrote: Sat Sep 19, 2020 9:10 am
MissOptimist wrote: Sat Sep 19, 2020 9:03 am
nisiprius wrote: Sat Sep 19, 2020 8:54 am Between the start of 2008 and March of 2009, despite having a very conservative, timid stock allocation, the grand total of all our retirement savings decreased by an amount roughly equal to all of the contributions we had made for five years.

Five years of patient savings, five years of having a big bite out of the paycheck that could have made a real difference on buying cars, taking the kids on vacations, or maintaining the house. Five years. Shot to hell, just shot to hell.

Not so scary as a percentage.

As the time scale of charts contracts, the global financial crisis starts to look like nothing much, bad while it lasted but over quickly. People even have the impression that 2009-to-2020 was one long, smooth uninterrupted climb.

It did not feel that way while it was happening.

Image
:shock: :shock: Would you say you have gotten all your retirement amount back at a desirable level??
Look closer at the right corner if that chart. Most everyone had similar performance back in 2008-2012,those who invested in “3 fund portfolio”. His investment portfolio quadrupled probably since.
What if BEFORE 2008, they sell their shares or cash out, and after the economy recovers, they reinvest all that money again, will they be in a better situation??
Market timing never right choice long term in any investable assets. Besides, what does it mean “ before 2008”and “after market recovered “. Do you have a time machine?
Last edited by Ed 2 on Sat Sep 19, 2020 12:11 pm, edited 1 time in total.
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MissOptimist
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Re: Losing Money with Index Funds

Post by MissOptimist »

livesoft wrote: Sat Sep 19, 2020 12:01 pm
MissOptimist wrote: Sat Sep 19, 2020 10:11 amWhat if BEFORE 2008, they sell their shares or cash out, and after the economy recovers, they reinvest all that money again, will they be in a better situation??
Clearly, hindsight is wonderful and I can claim that my hindsight is better than 20/20. But instead of reinvesting "after the economy recovers" they would have to reinvest BEFORE the economy recovers, say in early March 2009.

And in a similar way, the economy has not recovered in 2020, but if they reinvested in late March 2020, then they would be in a better situation.
So let's say they reinvested early March 2020, and let's say in 2024 the economy recovers, and they have a $3 million(maybe enough for retirement to them) will they be in a good situation if they decide to cash out ALL of their investments?? I guess I want to know what does everyone here think will be a "good" time to cash out if you can't do it during a downturn, you can't do it during the highs :confused
Last edited by MissOptimist on Sat Sep 19, 2020 12:12 pm, edited 1 time in total.
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Re: Losing Money with Index Funds

Post by pkcrafter »

Let's not forget John Maynard Keynes famous quote following the great crash of 1929 which resulted in the market losing 89%.
Markets can remain irrational longer than you can remain solvent.
The Dot Com bubble/crash of 2002 saw the NASDAQ lose 78%. New tech companies simply closed up, so many investors did not recover losses.

As the Sgt on the old Hill Street Blues show used to say at the end of each episode, "Let's be careful out there."

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cheese_breath
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Re: Losing Money with Index Funds

Post by cheese_breath »

pkcrafter wrote: Sat Sep 19, 2020 12:12 pm ...As the Sgt on the old Hill Street Blues show used to say at the end of each episode, "Let's be careful out there."...
At the beginning, just as he sent the cops out to hit the steets.
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btq96r
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Re: Losing Money with Index Funds

Post by btq96r »

I tried Vanguard's Health Care Index Fund a while back. Not sure if I lost money, but I for sure didn't feel good about it so one year I used what was in it to fund my Roth IRA for the year and reinvested what was left into another fund.
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