It's worth remembering that bull markets don't last forever

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kathyauburn
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It's worth remembering that bull markets don't last forever

Post by kathyauburn » Sun Mar 19, 2017 12:05 pm

Aftermath

All the main stock indexes of the future G7 bottomed out between September and December 1974, having lost at least 34% of their value in nominal terms, and 43% in real terms.[1] In all cases, the recovery was a slow process. Although West Germany's market was the fastest to recover, returning to the original nominal level within eighteen months, it did not return to the same real level until June 1985.[1] The United Kingdom didn't return to the same market level until May 1987 (only a few months before the Black Monday crash), whilst the United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash

Valuethinker
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Re: It's worth remembering that bull markets don't last forever

Post by Valuethinker » Sun Mar 19, 2017 12:34 pm

kathyauburn wrote:Aftermath

All the main stock indexes of the future G7 bottomed out between September and December 1974, having lost at least 34% of their value in nominal terms, and 43% in real terms.[1] In all cases, the recovery was a slow process. Although West Germany's market was the fastest to recover, returning to the original nominal level within eighteen months, it did not return to the same real level until June 1985.[1] The United Kingdom didn't return to the same market level until May 1987 (only a few months before the Black Monday crash), whilst the United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash


https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash

Worse was the effect in the United Kingdom, and particularly on the London Stock Exchange's FT 30, which lost 73% of its value during the crash.


Note that inflation was raging at 20% or so at the time in the UK. Dividend yields were probably something like 8% or so. So total return indices fell something over 80% in real terms.

This with a Conservative government in power, no war, no revolution, no major civic unrest (outside of Northern Ireland).

So stock markets can lose a lot of value even without the usual suspects in play.

jebmke
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Re: It's worth remembering that bull markets don't last forever

Post by jebmke » Sun Mar 19, 2017 12:46 pm

The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .
When you discover that you are riding a dead horse, the best strategy is to dismount.

kathyauburn
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Re: It's worth remembering that bull markets don't last forever

Post by kathyauburn » Sun Mar 19, 2017 1:03 pm

jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]

minimalistmarc
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Re: It's worth remembering that bull markets don't last forever

Post by minimalistmarc » Sun Mar 19, 2017 1:07 pm

kathyauburn wrote:Aftermath

All the main stock indexes of the future G7 bottomed out between September and December 1974, having lost at least 34% of their value in nominal terms, and 43% in real terms.[1] In all cases, the recovery was a slow process. Although West Germany's market was the fastest to recover, returning to the original nominal level within eighteen months, it did not return to the same real level until June 1985.[1] The United Kingdom didn't return to the same market level until May 1987 (only a few months before the Black Monday crash), whilst the United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash



So jealous of those lucky enough to be picking up shares during a nice long period where they were so cheap

NibbanaBanana
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Re: It's worth remembering that bull markets don't last forever

Post by NibbanaBanana » Sun Mar 19, 2017 1:20 pm

kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Are you kidding? I rode through the last two 50% market crashes with 100% stock. Just kept buying as much as I could. And it paid off hugely. What's unnerving is buying now at these high prices.

kathyauburn
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Re: It's worth remembering that bull markets don't last forever

Post by kathyauburn » Sun Mar 19, 2017 1:24 pm

NibbanaBanana wrote:
kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Are you kidding? I rode through the last two 50% market crashes with 100% stock. Just kept buying as much as I could. And it paid off hugely. What's unnerving is buying now at these high prices.



How does one buy more stock in a meaningful fashion if one is already 100% in stock?

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bligh
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Re: It's worth remembering that bull markets don't last forever

Post by bligh » Sun Mar 19, 2017 1:34 pm

kathyauburn wrote:
NibbanaBanana wrote:
kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Are you kidding? I rode through the last two 50% market crashes with 100% stock. Just kept buying as much as I could. And it paid off hugely. What's unnerving is buying now at these high prices.



How does one buy more stock in a meaningful fashion if one is already 100% in stock?


With new money. He was obviously accumulating his portfolio. I too wish for a severe crash frankly. I am a buyer of stocks.. so I want them to be cheap. :)

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Re: It's worth remembering that bull markets don't last forever

Post by JFP_SF » Sun Mar 19, 2017 1:42 pm

bligh wrote:
kathyauburn wrote:
NibbanaBanana wrote:
kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Are you kidding? I rode through the last two 50% market crashes with 100% stock. Just kept buying as much as I could. And it paid off hugely. What's unnerving is buying now at these high prices.



How does one buy more stock in a meaningful fashion if one is already 100% in stock?


With new money. He was obviously accumulating his portfolio. I too wish for a severe crash frankly. I am a buyer of stocks.. so I want them to be cheap. :)


As always, there's a huge difference between an accumulation portfolio and a dis-accumulation portfolio. If you are accumulating, you can ride out crashes a lot easier. If you are a retiree who is drawing down their portfolio, it's can literally be impossible to ride out a crash.

Chip
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Re: It's worth remembering that bull markets don't last forever

Post by Chip » Sun Mar 19, 2017 1:47 pm

kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Or an understanding of market history, along with a case of Maalox. I went in to 2008 retired (no pension or SS), with a 72% stock allocation. Came out of 2008 with a 68% stock allocation, due to rebalancing into stocks. Back to 72% by the end of 2010, after rebalancing out of stocks; roughly the same amount as I'd put into them in 2008.

I did learn that my equity allocation was too high since I couldn't pull the trigger on more rebalancing in early 2009. Though I did some very profitable Roth conversions in that time frame.

I moved to 60% stocks in 2015 and expect to stay there.

jebmke
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Re: It's worth remembering that bull markets don't last forever

Post by jebmke » Sun Mar 19, 2017 2:01 pm

I was a lot higher and kept buying into the storm in the 2000-2002 down tick. My memory was that this one was a lot more of a psychological grind than '08-09. But I was working then. I retired in December 2007. We were at ~40% and I bought periodically all the way down - simultaneously doing TLH transactions with both US and International funds.

Just peeking back at confirmations -- I show a six figure purchase of the VG Value index on March 16, 2009.

Edit: first sentence should read "I was a lot higher percentage of equity." However, as written it is also true. I had a frozen shoulder and was on significant pain meds.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Chip
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Re: It's worth remembering that bull markets don't last forever

Post by Chip » Sun Mar 19, 2017 2:03 pm

jebmke wrote:Just peeking back at confirmations -- I show a six figure purchase of the VG Value index on March 16, 2009.


Wow, NICE market timing.

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Re: It's worth remembering that bull markets don't last forever

Post by nedsaid » Sun Mar 19, 2017 2:11 pm

Just as it is worth noting that bull markets don't last forever, it is also worth noting that the longer the bull runs the more optimistic that investors get. When everybody is an optimist, the market runs out of buyers. Don't get caught in the trap of excessive optimism.
A fool and his money are good for business.

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knpstr
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Re: It's worth remembering that bull markets don't last forever

Post by knpstr » Sun Mar 19, 2017 2:16 pm

When I look at the DJIA chart and hit "max", sure there are some small downward blips, but it looks like bull markets last forever

:beer
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kathyauburn
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Re: It's worth remembering that bull markets don't last forever

Post by kathyauburn » Sun Mar 19, 2017 2:33 pm

Chip wrote:
kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Or an understanding of market history, along with a case of Maalox. I went in to 2008 retired (no pension or SS), with a 72% stock allocation. Came out of 2008 with a 68% stock allocation, due to rebalancing into stocks. Back to 72% by the end of 2010, after rebalancing out of stocks; roughly the same amount as I'd put into them in 2008.

I did learn that my equity allocation was too high since I couldn't pull the trigger on more rebalancing in early 2009. Though I did some very profitable Roth conversions in that time frame.

I moved to 60% stocks in 2015 and expect to stay there.


Man, oh, man. Talk about a case of luck. Imagine if the recovery had not been V-shaped.

NiceUnparticularMan
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Re: It's worth remembering that bull markets don't last forever

Post by NiceUnparticularMan » Sun Mar 19, 2017 3:01 pm

Chip wrote:
jebmke wrote:Just peeking back at confirmations -- I show a six figure purchase of the VG Value index on March 16, 2009.


Wow, NICE market timing.


We tend to do our annual rebalancing in March since that is when my wife gets her bonus. As I recall in 2009, we missed the absolute market bottom by something like just a day, rebalancing a bunch out of a stable value fund into equities.

Pure dumb luck, but no complaints.

kathyauburn
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Re: It's worth remembering that bull markets don't last forever

Post by kathyauburn » Sun Mar 19, 2017 3:16 pm

JFP_SF wrote:
bligh wrote:
kathyauburn wrote:
NibbanaBanana wrote:
kathyauburn wrote:I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Are you kidding? I rode through the last two 50% market crashes with 100% stock. Just kept buying as much as I could. And it paid off hugely. What's unnerving is buying now at these high prices.



How does one buy more stock in a meaningful fashion if one is already 100% in stock?


With new money. He was obviously accumulating his portfolio. I too wish for a severe crash frankly. I am a buyer of stocks.. so I want them to be cheap. :)


As always, there's a huge difference between an accumulation portfolio and a dis-accumulation portfolio. If you are accumulating, you can ride out crashes a lot easier. If you are a retiree who is drawing down their portfolio, it's can literally be impossible to ride out a crash.



Yeah, there's no way that "new money" would ever save my portfolio if it were 100% in stocks and we experienced a prolonged market crash.

kathyauburn
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Re: It's worth remembering that bull markets don't last forever

Post by kathyauburn » Sun Mar 19, 2017 3:18 pm

nedsaid wrote:Just as it is worth noting that bull markets don't last forever, it is also worth noting that the longer the bull runs the more optimistic that investors get. When everybody is an optimist, the market runs out of buyers. Don't get caught in the trap of excessive optimism.


And times like right now, everyone is in the green.

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Youngblood
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Re: It's worth remembering that bull markets don't last forever

Post by Youngblood » Sun Mar 19, 2017 3:20 pm

kathyauburn wrote:Aftermath

All the main stock indexes of the future G7 bottomed out between September and December 1974, having lost at least 34% of their value in nominal terms, and 43% in real terms.[1] In all cases, the recovery was a slow process. Although West Germany's market was the fastest to recover, returning to the original nominal level within eighteen months, it did not return to the same real level until June 1985.[1] The United Kingdom didn't return to the same market level until May 1987 (only a few months before the Black Monday crash), whilst the United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash


It definitely is worth remembering. That and with individual life situations the chips don't always fall when and where you expect them to.

My father had considerable equity exposure in 1972. He had a stroke, died and my mother turned over the account to some advisor. Shortly thereafter the market crashed, most everything was lost, what was left sold and bonds purchased. I had just gotten out of the Air Force, married with a toddler, both wife and I in college. Later, my mother told me my father was planning on pulling the money out of the market figuring he had enough.

Those hoping for a crash, be careful what you wish for. My mother lived to 90 and lived in a trailer park.

Now that I am almost my father's age when he died I have reduced equity exposure to just 30%.

My impression is that many investors that post here really buy into high equity exposure. For the most part, I would agree. For those near or in retirement I would hope they heed your warning.

YB
"I made my money by selling too soon." | Bernard M. Baruch

MnD
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Re: It's worth remembering that bull markets don't last forever

Post by MnD » Sun Mar 19, 2017 3:23 pm

kathyauburn wrote:I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Maybe I need to change my username! :mrgreen:
I was 50% stock going in to Oct 1987, 75% in 2000/02 and 75% in 2007/09 and rebalanced back to my allocation each time. The 2nd and last six-figure rebalancing into equity in spring 2009 was tough. As I was about walking out the door to work I looked at the markets (Dow down another 600 I think) and my rebalancing bands were blown through AGAIN. Decided to take a 1/2 day off from work to calculate and do the trades in various accounts in a tax-smart way. By 11am or so I was done and had completely soaked through my work dress shirt in stress-sweat. Had to take a 2nd shower and a fresh change of clothes before going to work. I remember muttering throughout that morning - "This had better (bad word) work!" :shock:

minimalistmarc
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Re: It's worth remembering that bull markets don't last forever

Post by minimalistmarc » Sun Mar 19, 2017 3:28 pm

kathyauburn wrote:
nedsaid wrote:Just as it is worth noting that bull markets don't last forever, it is also worth noting that the longer the bull runs the more optimistic that investors get. When everybody is an optimist, the market runs out of buyers. Don't get caught in the trap of excessive optimism.


And times like right now, everyone is in the green.


Apart from the large amount of people that seem to be 100% cash. There is a lot of fear out there.

Chip
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Re: It's worth remembering that bull markets don't last forever

Post by Chip » Sun Mar 19, 2017 3:38 pm

kathyauburn wrote:Man, oh, man. Talk about a case of luck. Imagine if the recovery had not been V-shaped.


It isn't luck as much as having a plan and sticking with it. Sure, the relatively quick recovery was nice. I wasn't expecting it. And I'd be okay if we were still at '09 levels. Not happy, but okay.

Maybe it's your writing style, but you seem to see a mega-bear around every corner. And they might be there. But the chances are good that we might just muddle through.

EnjoyIt
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Re: It's worth remembering that bull markets don't last forever

Post by EnjoyIt » Sun Mar 19, 2017 3:42 pm

nedsaid wrote:Just as it is worth noting that bull markets don't last forever, it is also worth noting that the longer the bull runs the more optimistic that investors get. When everybody is an optimist, the market runs out of buyers. Don't get caught in the trap of excessive optimism.


^ This ^
I get a little nervous when everyone is talking buy, buy, buy. I prefer it when the market is overvalued threads are popping up and MSNBC is preaching doom and gloom.

lazyday
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Re: It's worth remembering that bull markets don't last forever

Post by lazyday » Sun Mar 19, 2017 3:42 pm

Say that in 2007 it was obvious to you Real Estate was so crazy that when it fell, it would take the stock market with it. What should you have done?

If you really had foresight into what a RE crash could do, you might have sold your S&P500/TSM to buy its sector indexes instead, leaving out Financials and Consumer Discretionary.

What if you didn’t? Is there some sane way you could have planned for the RE crash?

Today, maybe it’s obvious to you that stocks are crazy expensive because of low interest rates, and that when there’s a whiff of inflation and it seems clear that rates will really rise, stocks will plummet. What should you do?

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Uncle Pennybags
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Re: It's worth remembering that bull markets don't last forever

Post by Uncle Pennybags » Sun Mar 19, 2017 3:48 pm

Valuethinker wrote:So stock markets can lose a lot of value even without the usual suspects in play.
When I lose other people's money I blame it on black swans. It works every time. :mrgreen:
JFP_SF wrote: If you are a retiree who is drawing down their portfolio, it's can literally be impossible to ride out a crash.
If she can't stand the heat get into treasuries.
Last edited by Uncle Pennybags on Sun Mar 19, 2017 3:52 pm, edited 1 time in total.

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Toons
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Re: It's worth remembering that bull markets don't last forever

Post by Toons » Sun Mar 19, 2017 3:52 pm

Reversion to the mean...
Up and down,
cycle after cycle,
but compounding never stops,,,
Keep Investing...
It is about the economy ,,,100% :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Watty
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Re: It's worth remembering that bull markets don't last forever

Post by Watty » Sun Mar 19, 2017 3:53 pm

kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Not really.

If you are 40% stocks and stocks are down 40% then your overall portfolio would be down 16% but bonds often go the opposite of stocks and that would tend to mitigate that. Right now the stocks and bonds might pay a 2% dividend that would help keep you closer to even too.

A 16% drop in your portfolio would likely get your attention but would hardly be exceptional.

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bligh
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Re: It's worth remembering that bull markets don't last forever

Post by bligh » Sun Mar 19, 2017 4:07 pm

kathyauburn wrote:
JFP_SF wrote:
bligh wrote:
kathyauburn wrote:
NibbanaBanana wrote:
Are you kidding? I rode through the last two 50% market crashes with 100% stock. Just kept buying as much as I could. And it paid off hugely. What's unnerving is buying now at these high prices.



How does one buy more stock in a meaningful fashion if one is already 100% in stock?


With new money. He was obviously accumulating his portfolio. I too wish for a severe crash frankly. I am a buyer of stocks.. so I want them to be cheap. :)


As always, there's a huge difference between an accumulation portfolio and a dis-accumulation portfolio. If you are accumulating, you can ride out crashes a lot easier. If you are a retiree who is drawing down their portfolio, it's can literally be impossible to ride out a crash.



Yeah, there's no way that "new money" would ever save my portfolio if it were 100% in stocks and we experienced a prolonged market crash.


Agreed, that is why I assumed the original poster was accumulating his portfolio just as me. When I am in my 50s and have completed the bulk of my accumulation, I too would be in the boat where any new money would be insignificant in the grand scheme of things.

In fact, I am already at 80/20 and wouldn't dream of going 100% on stocks even in the midst of an enormous market crash.

whomever
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Re: It's worth remembering that bull markets don't last forever

Post by whomever » Sun Mar 19, 2017 5:01 pm

Man, oh, man. Talk about a case of luck. Imagine if the recovery had not been V-shaped.


I don't get it. I remember 2008 et al. Let's suppose I have $400k in stocks and $600k in fixed income. The market plunges 50%; I now have $200k in stocks and $600k in fixed income.

The worst case scenario is that the stock market drops to 0, and never comes back. That would mean accepting a loss of $200k (and adjusting to whatever lifestyle the $600k will support). This, however, is a very low probability scenario. Just for the sake of discussion, let's say the odds are 10%.

If I try to dodge that by selling the rest of my stocks, that's a 100% probability of making the existing $200k loss permanent, and a 100% chance of learning to live on $800k, which is only 33% more than riding stocks down in the worst case scenario.

That stocks recover within, say, ten years is actually a pretty high probability outcome. To me, then, I can go with the low probability outcome and guarantee a $200k loss, or go with the high probability outcome and assume the stocks will recover to at least their current value of $200k before the $600k is exhausted (they only have to recover to >$200k, not the original $400k to make this the best choice).

A market crash at some point in a 30 year retirement is highly likely. One should arrange their financial life, between pensions/soc sec/portfolio/SPIA such that riding out a crash is not a financial TEOTWAWKI scenario.

goingup
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Re: It's worth remembering that bull markets don't last forever

Post by goingup » Sun Mar 19, 2017 5:08 pm

No bull markets don't last forever. Trees don't grow to the sky. What can an investor do but forge an appropriate asset allocation and hope for best?

MnD
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Re: It's worth remembering that bull markets don't last forever

Post by MnD » Sun Mar 19, 2017 5:11 pm

JFP_SF wrote:As always, there's a huge difference between an accumulation portfolio and a dis-accumulation portfolio. If you are accumulating, you can ride out crashes a lot easier. If you are a retiree who is drawing down their portfolio, it's can literally be impossible to ride out a crash.


Not really - with this crowd at least.
Consider working/accumulating households that lost one or both jobs during the great recession while experiencing a 50% drop in value in the equity portion of their portfolio, a large decline in home value/equity while carrying mortgages, consumer loans and with perhaps their own student loans unpaid yet and/or their kids college bills coming due.

The typical Boglehead retired household is not relying on equity returns to put food on the table and make the mortgage payment.
It's not uncommon to hear from actual retirees on this board who are years into retirement that are drawing little to nothing from their risk portion of investments. Not my cup of tea, but the point is that Bogleheads are not planning on living hand to mouth in retirement off equity returns. Many households will have one or two claims on Social Security, possibly some pension income, some post-employment or hobby income, a paid off house and no other debt AND their investment portfolio will have a healthy dose of safe or safer investments.

If you are 50:50 AA, derive 50% of your retirement income from your investment portfolio and the market drops 50%, your income would drop 12.5% if you reduced your income drawn from your portfolio by the percentage of the portfolio decline. Has anyone here experienced a 12.5% drop in household income? Did you go hungry, utilities shut off, forced onto public assistance, had to sell your house and move under a bridge? If you've played the retirement game properly and have your house paid off and in good condition, reliable vehicles and a large diversified portfolio you won't even notice a 12.5% drop, especially since many things get cheaper during bear markets.

Given the typical Boglehead "castle and moat" approach to retirement planning, its not uncommon for their available income to go up significantly when they quit their jobs due to the large tax savings, the cessation of very large allocations to retirement savings and the end of mortgage and dependent spending. That's yet another buffer against the effects of equity decline.

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Re: It's worth remembering that bull markets don't last forever

Post by NibbanaBanana » Sun Mar 19, 2017 5:30 pm

nedsaid wrote:Just as it is worth noting that bull markets don't last forever, it is also worth noting that the longer the bull runs the more optimistic that investors get. When everybody is an optimist, the market runs out of buyers. Don't get caught in the trap of excessive optimism.


Interesting to listen to the interview with Mr. Bogle. He said that Vanguard is now taking in $1 billion per day. $1 billion per day. And I'm sure at least some of that is going into stock funds.

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Re: It's worth remembering that bull markets don't last forever

Post by NibbanaBanana » Sun Mar 19, 2017 5:34 pm

whomever wrote:
Man, oh, man. Talk about a case of luck. Imagine if the recovery had not been V-shaped.


I don't get it. I remember 2008 et al. Let's suppose I have $400k in stocks and $600k in fixed income. The market plunges 50%; I now have $200k in stocks and $600k in fixed income.

The worst case scenario is that the stock market drops to 0, and never comes back. That would mean accepting a loss of $200k (and adjusting to whatever lifestyle the $600k will support). This, however, is a very low probability scenario. Just for the sake of discussion, let's say the odds are 10%.

If I try to dodge that by selling the rest of my stocks, that's a 100% probability of making the existing $200k loss permanent, and a 100% chance of learning to live on $800k, which is only 33% more than riding stocks down in the worst case scenario.

That stocks recover within, say, ten years is actually a pretty high probability outcome. To me, then, I can go with the low probability outcome and guarantee a $200k loss, or go with the high probability outcome and assume the stocks will recover to at least their current value of $200k before the $600k is exhausted (they only have to recover to >$200k, not the original $400k to make this the best choice).

A market crash at some point in a 30 year retirement is highly likely. One should arrange their financial life, between pensions/soc sec/portfolio/SPIA such that riding out a crash is not a financial TEOTWAWKI scenario.


"the stock market drops to 0, and never comes back." Well, seems to me that then all businesses in the US are worthless. In which case your bonds are also worthless and the US government collapses.

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Re: It's worth remembering that bull markets don't last forever

Post by ray333 » Sun Mar 19, 2017 5:36 pm

... so don't buy into equities at the moment?

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Re: It's worth remembering that bull markets don't last forever

Post by Tycoon » Sun Mar 19, 2017 5:42 pm

Meh...
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Re: It's worth remembering that bull markets don't last forever

Post by whomever » Sun Mar 19, 2017 5:50 pm

Well, seems to me that then all businesses in the US are worthless. In which case your bonds are also worthless and the US government collapses.


Sure. There are risks you just can't avoid by financial planning. Bad news from your doctor is a pretty common one, on the individual scale. On the societal scale, you could have a major war, where this time US cities look like Axis cities at the end of WWII. A once in 500 year plague could emerge that disrupts society like the Black Death did ("Bring out your dead" ... Monty Python). You could have a revolution, with Bogleheads as the kulaks.

But there just isn't really any financial planning normal people can do for those situations.

We can, though, plan for a big market dive - and we should, because there will likely be one. How many 30 year periods don't have a big crash?

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Re: It's worth remembering that bull markets don't last forever

Post by aqan » Sun Mar 19, 2017 6:04 pm

kathyauburn wrote:Aftermath

United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash

O'Boy... I don't even want to imagine what it would be like for someone retiring in 1974. How long can you wait to draw money out of your 401K. Hypothetical question for the experts - what would you do if this scenario plays out in your retirement year?

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Re: It's worth remembering that bull markets don't last forever

Post by F150HD » Sun Mar 19, 2017 6:46 pm

so what were bond yields in the 70s? anything like it is now?

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Re: It's worth remembering that bull markets don't last forever

Post by Grt2bOutdoors » Sun Mar 19, 2017 6:58 pm

JFP_SF wrote:
bligh wrote:
kathyauburn wrote:
NibbanaBanana wrote:
kathyauburn wrote:I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Are you kidding? I rode through the last two 50% market crashes with 100% stock. Just kept buying as much as I could. And it paid off hugely. What's unnerving is buying now at these high prices.



How does one buy more stock in a meaningful fashion if one is already 100% in stock?


With new money. He was obviously accumulating his portfolio. I too wish for a severe crash frankly. I am a buyer of stocks.. so I want them to be cheap. :)


As always, there's a huge difference between an accumulation portfolio and a dis-accumulation portfolio. If you are accumulating, you can ride out crashes a lot easier. If you are a retiree who is drawing down their portfolio, it's can literally be impossible to ride out a crash.


Agree - If you are a retiree or near retiree you should heed this: "you have to know when to hold them, know when to fold them, know when to walk away, you can't count your money when your sitting at the table, there'll be time enough for counting when the dealings done". Okay, it came out of a song, but it pretty much says it all - if you are a near/current retiree, take your chips the ones you need to survive off the table. If you are still holding chips you can survive just fine, if you are gambling with your chips, then you really have no one to blame but yourself.
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Re: It's worth remembering that bull markets don't last forever

Post by Lobster » Sun Mar 19, 2017 7:18 pm

An asset allocation should be set based on willingness and need to take risk.

A retiree who hasn't met their savings goal is in a difficult spot because they have low ability, but high need, to take risk. This situation should be handled with care. [edit: Grt2bOutdoors rightly points out that ability to take risk. Updated to avoid leading anyone astray]

A retiree who has met their goal does not need to take risk and should therefore establish a portfolio that will sustain a crash (reduced equity exposure).

A retiree who has exceeded their goal had little need to take risk but are free to do so as long as they account for a worst case scenario. They can take little risk and be safe, or take on more to build up their legacy.
Last edited by Lobster on Sun Mar 19, 2017 8:04 pm, edited 1 time in total.
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Re: It's worth remembering that bull markets don't last forever

Post by Grt2bOutdoors » Sun Mar 19, 2017 7:24 pm

Lobster wrote:An asset allocation should be set based on willingness and need to take risk.
^should be set based on ability, willingness and need. If you lack the ability to take risk because your human capital has been exhausted and your ability to replace lost financial capital is not possible, then you should not be playing with your retirement assets.
A retiree who hasn't met their savings goal needs to take risks, exposing themselves to catastrophe in the event of a crash.
A retiree who hasn't met their savings goals needs to evaluate the use of a life only single premium annuity to provide a secure stream of payments for life. If those payments are not enough, they can evaluate spending reductions if possible and perhaps working part-time if such work is available and retiree is able to do it, also consider finding a lower cost of living arrangement, if at all possible.
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Re: It's worth remembering that bull markets don't last forever

Post by McGilicutty » Sun Mar 19, 2017 7:34 pm

Using real returns is misleading because the alternative (presumably) is to hold cash which obviously also declined in real terms in the 1970's. So it's best to use nominal returns. If you use the CAGR calculator which can be found here: http://www.moneychimp.com/features/market_cagr.htm, you find that even investing at near the market top (Jan 1, 1973) resulted in it only taking four years to get your money back (including dividends, nominal returns).

That's not bad for investing at a local top.

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Re: It's worth remembering that bull markets don't last forever

Post by InvestorNewb » Sun Mar 19, 2017 7:47 pm

It seems to me that everyone regrets not holding more stocks when they were younger. I plan on using that thinking and staying in all stocks for awhile (mid thirties right now).
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

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Re: It's worth remembering that bull markets don't last forever

Post by GoldenFinch » Sun Mar 19, 2017 7:48 pm

knpstr wrote:When I look at the DJIA chart and hit "max", sure there are some small downward blips, but it looks like bull markets last forever

:beer


I do this with the S&P long term chart and it does seem to slope upward. :moneybag

My solution (from an accumulator standpoint) is if the market tanks, I'll keep investing, and if the tanking bothers me, I'll stop watching.

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Re: It's worth remembering that bull markets don't last forever

Post by JFP_SF » Sun Mar 19, 2017 7:51 pm

MnD wrote:
JFP_SF wrote:As always, there's a huge difference between an accumulation portfolio and a dis-accumulation portfolio. If you are accumulating, you can ride out crashes a lot easier. If you are a retiree who is drawing down their portfolio, it's can literally be impossible to ride out a crash.


Not really - with this crowd at least.
Consider working/accumulating households that lost one or both jobs during the great recession while experiencing a 50% drop in value in the equity portion of their portfolio, a large decline in home value/equity while carrying mortgages, consumer loans and with perhaps their own student loans unpaid yet and/or their kids college bills coming due.

The typical Boglehead retired household is not relying on equity returns to put food on the table and make the mortgage payment.
It's not uncommon to hear from actual retirees on this board who are years into retirement that are drawing little to nothing from their risk portion of investments. Not my cup of tea, but the point is that Bogleheads are not planning on living hand to mouth in retirement off equity returns. Many households will have one or two claims on Social Security, possibly some pension income, some post-employment or hobby income, a paid off house and no other debt AND their investment portfolio will have a healthy dose of safe or safer investments.

If you are 50:50 AA, derive 50% of your retirement income from your investment portfolio and the market drops 50%, your income would drop 12.5% if you reduced your income drawn from your portfolio by the percentage of the portfolio decline. Has anyone here experienced a 12.5% drop in household income? Did you go hungry, utilities shut off, forced onto public assistance, had to sell your house and move under a bridge? If you've played the retirement game properly and have your house paid off and in good condition, reliable vehicles and a large diversified portfolio you won't even notice a 12.5% drop, especially since many things get cheaper during bear markets.

Given the typical Boglehead "castle and moat" approach to retirement planning, its not uncommon for their available income to go up significantly when they quit their jobs due to the large tax savings, the cessation of very large allocations to retirement savings and the end of mortgage and dependent spending. That's yet another buffer against the effects of equity decline.


Basically, all you are saying here is that if your retirement portfolio is large enough, and you have alternative sources of income, you don't have to worry about crashes.

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Re: It's worth remembering that bull markets don't last forever

Post by Alto Astral » Sun Mar 19, 2017 8:49 pm

InvestorNewb wrote:It seems to me that everyone regrets not holding more stocks when they were younger. I plan on using that thinking and staying in all stocks for awhile (mid thirties right now).

How much AA did you settle on? I am in mid thirties too and thinking if 70/30 is too conservative.

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Re: It's worth remembering that bull markets don't last forever

Post by TheTimeLord » Sun Mar 19, 2017 9:07 pm

kathyauburn wrote:Aftermath

All the main stock indexes of the future G7 bottomed out between September and December 1974, having lost at least 34% of their value in nominal terms, and 43% in real terms.[1] In all cases, the recovery was a slow process. Although West Germany's market was the fastest to recover, returning to the original nominal level within eighteen months, it did not return to the same real level until June 1985.[1] The United Kingdom didn't return to the same market level until May 1987 (only a few months before the Black Monday crash), whilst the United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash


Bottom line your point for me beyond if you can see the future and know the market is about to crash you should get out.
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Re: It's worth remembering that bull markets don't last forever

Post by Grt2bOutdoors » Sun Mar 19, 2017 9:11 pm

Alto Astral wrote:
InvestorNewb wrote:It seems to me that everyone regrets not holding more stocks when they were younger. I plan on using that thinking and staying in all stocks for awhile (mid thirties right now).

How much AA did you settle on? I am in mid thirties too and thinking if 70/30 is too conservative.


If 70/30 lets you sleep at night and continue to invest through all market cycles, then that is the right number for you. The difference between 80/20 and 70/30 isn't all that great, there is a difference however if you hold 80/20 only to find out you aren't comfortable with the risk after portfolio declined by 40%, switching allocations and thereby lock in the loss, it will take you far longer to recoup and advance at your new allocation. No, set the level you are comfortable with and stay the course. Changing it up based on "feelings" is nothing more than market timing. Read the book - Why Smart People Make Big Money Mistakes - Belsky and Gilovich. After reading the book, re-evaluate your statement above about "thinking its too conservative".
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Re: It's worth remembering that bull markets don't last forever

Post by MnD » Sun Mar 19, 2017 9:42 pm

whomever wrote:We can, though, plan for a big market dive - and we should, because there will likely be one. How many 30 year periods don't have a big crash?


Since 1861, how many rolling 30-year periods have bonds (long term risky ones no less) outperformed stocks?
According to Larry Swedroe, 1 period.

http://www.cbsnews.com/news/bonds-beat- ... s-so-what/
"For the period October 1981-September 2011, the S&P 500 Index returned an annualized 10.8 percent, compared to the 11.5 percent annualized return on long-term (20-year) Treasury bonds."

Would one have possibly survived if they picked dead wrong for one loser stock 30-year period and earned 10.8%?
I'd guess so.
The risk of bonds (or even worse cash) is their severe underperformance over long periods.
If your investing strategy is all about avoiding short-term declines, then perhaps one should stick to the credit union.

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Re: It's worth remembering that bull markets don't last forever

Post by Alto Astral » Sun Mar 19, 2017 9:49 pm

Grt2bOutdoors wrote:
Alto Astral wrote:
InvestorNewb wrote:It seems to me that everyone regrets not holding more stocks when they were younger. I plan on using that thinking and staying in all stocks for awhile (mid thirties right now).

How much AA did you settle on? I am in mid thirties too and thinking if 70/30 is too conservative.


If 70/30 lets you sleep at night and continue to invest through all market cycles, then that is the right number for you. The difference between 80/20 and 70/30 isn't all that great, there is a difference however if you hold 80/20 only to find out you aren't comfortable with the risk after portfolio declined by 40%, switching allocations and thereby lock in the loss, it will take you far longer to recoup and advance at your new allocation. No, set the level you are comfortable with and stay the course. Changing it up based on "feelings" is nothing more than market timing. Read the book - Why Smart People Make Big Money Mistakes - Belsky and Gilovich. After reading the book, re-evaluate your statement above about "thinking its too conservative".

Like you said, the difference between 80/20 and 70/30 isn't all that great. I have a $400k 70/30 portfolio with $280K in stocks and $120K in bonds. A 50% drop in stocks will drop me to $260K with $140K in stocks and $120K in bonds. On the other hand a similar drop with an 80/20 portfolio starting with $320K in stocks and $80K in bonds will drop me to $240K with $160K in stocks and $80K in bonds. I don't believe that $20K difference will make me uncomfortable. So I guess I am small fish.

Besides, my 70/30 allocation was when I was not married. Now its been a few years with a working spouse and 2 kids. So its not market timing but likey the birth of my newborn that triggered the feeling. I don't know if its prudent but thinking along the same lines a 50% drop in a 100% stock portfolio would still drop me down to $200K which is not much different than $240K or $260K. Since I am not planning to access that money for at least for the next two decades, it should not cause me discomfort. At least in theory.

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