Some Hand-Holding

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cresive
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Some Hand-Holding

Post by cresive » Wed Oct 04, 2017 7:42 am

I know this is probably a popular post and it may have been answered before. However, I thought I would post this question to help with my personal anxiety about my plan.

I have read for the last couple of years that the current bull market is getting long in the tooth and we are due for a major market correction, a la 2001 or 2008. I was young and stupid in 2001, I did what I could in 2008 and still ate my shirt. However, I have survived both of the major corrections and actually came out nicely in 2013.

Where my anxiety is rising is how to ride out the next situation. I have an asset allocation of 70% equities and 30% bonds--all in mutual funds. This is down from an 80/20 allocation about a year ago. I did the reduction in anticipation of "the stock crisis of 2016." I am torn between wishing I had an 80% stock allocation to reap the benefits of the market the last couple years and worry that I am over extended in equities. That is, part of me wants to reduce my equities exposure even further. My rational mind realizes that I am getting into the market timing mindset so I am forcing myself to stick to my plan.

My game plan is this. When the market does hit a wall and the S&P drops 30% (or more), I will follow Mr. Bogle advice, "Don't just do something, stand there!" I am hoping that I can ride out the market without too much anxiety and do something dumb. In fact, part of me thinks I will rebalance at the nadir of the market--selling bonds and buying cheap stocks, in the hope I can rebound even better than 2013. At the very least, I may target all my new contributions to equity funds to capture as many bargain stocks before they recover.

What are other's thoughts on the eventual market correction? Do you plan to ride out the storm and hope to reap gains on the other end?

Personal info:
Age: 55
Age at Retirement: 62 with an encore job until at least FRA
This can be adjusted depending upon market effects on retirement funds.
SSA: at 67
Retirement fund: Small Roth (about $40K) remainder in 401/403 accounts which are projected to fund a suitable retirement
EF: Tiered approach. Small funds in savings, larger in ALLY account, next tier I will tap my I bonds and in a nuclear event, my Roth

Grt2bOutdoors
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Re: Some Hand-Holding

Post by Grt2bOutdoors » Wed Oct 04, 2017 7:52 am

If you are concerned about what others say - market will crash or you are nervous, then you have too much allocated to equities.
You can not successfully time the market, give up now! Instead, design an asset allocation that permits you to sleep at night and not go look at "what the market is doing every day or every week or every month". You should do what Mr. Bogle says now - just stand there, but only with the right asset allocation. Jumping in and out, is not the right way to go. What are you going to do when you reach retirement? Will you be playing the "same game"? What is the market doing, let me get out, wait for a crash and then get back in? Let's say you played this game in 2015, you were waiting for a 20%+ decline, there was only a 10% decline so you are still out of the market with stocks up 25% from there, what is your game plan now? No, don't do it, stop watching CNBC, stop reading Investor Business Daily, stop reading those blogs that have the words "hedge" in them, stop reading SeekingAlpha - for laughs I subscribe to it, I'll get an e-mail saying "buy XYZ stock, followed by a series of e-mails saying to sell it short". You have to laugh, because nobody knows nothing.

You say your 401 is projected to provide a suitable retirement - are those projections based on "market timing"? I'm serious, because the biggest torpedo to your retirement is the inability to set a course and stick with it. Three ways to make it happen, keep expenses low, save more money or spend less money. Nowhere in there is a compass tool that says "time the market".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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oldcomputerguy
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Re: Some Hand-Holding

Post by oldcomputerguy » Wed Oct 04, 2017 7:58 am

I'm sure others will chime in, but I'm thinking that you may still be too aggressive in your asset allocation, if you're this nervous over the coming downturn (and there will be one, the only question is "when"). You might even consider dialling back to 60/40. Yes, you possibly will miss out on some stock returns, but if it keeps you from selling equities during a bear market, you'll likely come out ahead.

If it helps, look at it this way; whatever you have in bonds is money that is for the most part insulated against a stock market downturn, and which gives you a safety net in which to wait out a bear market. Of course it's possible that bond funds might lose some during a severe market crash, but nowhere near as much as stock funds.
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retiredjg
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Re: Some Hand-Holding

Post by retiredjg » Wed Oct 04, 2017 8:17 am

cresive wrote:
Wed Oct 04, 2017 7:42 am
What are other's thoughts on the eventual market correction?
There will be one. :wink:

Do you plan to ride out the storm....
Not exactly. I think having the right asset allocation means the bad times seem more like some bad weather than riding out a hurricane.

It sounds like you are gearing up for a white knuckled ride through hades. It should not be like that. Your asset allocation should be something you are comfortable with during the good times and the bad times. I'm not sure you are there yet.

I think 70% stocks may still be a little too aggressive. Based only on age, it is a little outside my comfort zone of "age minus 20" in bonds. Of course, age is not everything - but your anxiety seems to support the suggestion that maybe you need to tone it down a bit.

We all wish we had more stocks when times are good. We all wish we had less stocks when times are bad.

Random Walker
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Re: Some Hand-Holding

Post by Random Walker » Wed Oct 04, 2017 8:39 am

Creative,
First of all, I'll note that you and I are the same age. There is a big difference I believe between market timing and customizing your glide path towards retirement. You are 7 years from retirement, valuations are quite generous, expected returns quite modest. Moreover, looking at the potential dispersion of future returns, the potential good outcomes are likely pretty modest and the potential bad outcomes really bad. This red zone prior to retirement is critical. My best guess, given the limited information you've provided, is that you should strongly consider taking risk off the table. You are at 70/30. Even with a 50/50 portfolio, something like 80-85% of the risk is on the equity side. How much happier would you be seeing your portfolio double and how upset would you be seeing it cut in half. Pain of loss a lot more than happiness of equal sized gain.

Dave

cresive
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Re: Some Hand-Holding

Post by cresive » Wed Oct 04, 2017 9:31 am

Grt2bOutdoors wrote:
Wed Oct 04, 2017 7:52 am
If you are concerned about what others say - market will crash or you are nervous, then you have too much allocated to equities.
You can not successfully time the market, give up now! Instead, design an asset allocation that permits you to sleep at night and not go look at "what the market is doing every day or every week or every month". You should do what Mr. Bogle says now - just stand there, but only with the right asset allocation. Jumping in and out, is not the right way to go. What are you going to do when you reach retirement? Will you be playing the "same game"? What is the market doing, let me get out, wait for a crash and then get back in? Let's say you played this game in 2015, you were waiting for a 20%+ decline, there was only a 10% decline so you are still out of the market with stocks up 25% from there, what is your game plan now? No, don't do it, stop watching CNBC, stop reading Investor Business Daily, stop reading those blogs that have the words "hedge" in them, stop reading SeekingAlpha - for laughs I subscribe to it, I'll get an e-mail saying "buy XYZ stock, followed by a series of e-mails saying to sell it short". You have to laugh, because nobody knows nothing.

You say your 401 is projected to provide a suitable retirement - are those projections based on "market timing"? I'm serious, because the biggest torpedo to your retirement is the inability to set a course and stick with it. Three ways to make it happen, keep expenses low, save more money or spend less money. Nowhere in there is a compass tool that says "time the market".
No, my 401 balance is actually projected in a conservative manner--that is, I lowball my expected returns and all projections are for staying in place, regardless of market or economic environment. I think my main question was am I being foolish to hold such a high equities exposure giving the long-in-the tooth bull market. My game plan is to sit tight, right out the market storm--I fully expect one--and go on from there. I think I was asking if others were paring back on their equity exposure or just working their plan with an eye toward the horizon.

Grt2bOutdoors
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Re: Some Hand-Holding

Post by Grt2bOutdoors » Wed Oct 04, 2017 9:37 am

cresive wrote:
Wed Oct 04, 2017 9:31 am
Grt2bOutdoors wrote:
Wed Oct 04, 2017 7:52 am
If you are concerned about what others say - market will crash or you are nervous, then you have too much allocated to equities.
You can not successfully time the market, give up now! Instead, design an asset allocation that permits you to sleep at night and not go look at "what the market is doing every day or every week or every month". You should do what Mr. Bogle says now - just stand there, but only with the right asset allocation. Jumping in and out, is not the right way to go. What are you going to do when you reach retirement? Will you be playing the "same game"? What is the market doing, let me get out, wait for a crash and then get back in? Let's say you played this game in 2015, you were waiting for a 20%+ decline, there was only a 10% decline so you are still out of the market with stocks up 25% from there, what is your game plan now? No, don't do it, stop watching CNBC, stop reading Investor Business Daily, stop reading those blogs that have the words "hedge" in them, stop reading SeekingAlpha - for laughs I subscribe to it, I'll get an e-mail saying "buy XYZ stock, followed by a series of e-mails saying to sell it short". You have to laugh, because nobody knows nothing.

You say your 401 is projected to provide a suitable retirement - are those projections based on "market timing"? I'm serious, because the biggest torpedo to your retirement is the inability to set a course and stick with it. Three ways to make it happen, keep expenses low, save more money or spend less money. Nowhere in there is a compass tool that says "time the market".
No, my 401 balance is actually projected in a conservative manner--that is, I lowball my expected returns and all projections are for staying in place, regardless of market or economic environment. I think my main question was am I being foolish to hold such a high equities exposure giving the long-in-the tooth bull market. My game plan is to sit tight, right out the market storm--I fully expect one--and go on from there. I think I was asking if others were paring back on their equity exposure or just working their plan with an eye toward the horizon.
I have an Investment Policy Statement - it says to hold an overall 70/30 allocation with a 30% international equity allocation. That is what I've been doing. The market is long in the tooth, I hear teeth can grow awfully long before the gnashing begins. My plan also says when you've won the game to take the chips off the table -I'm not there yet (maybe half way), maybe you are there so reducing equity allocation would be perfectly acceptable. Acceptable though only if you don't play the timing game - when you've won it, you've won it so why risk it again? That would be foolish.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Random Walker
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Re: Some Hand-Holding

Post by Random Walker » Wed Oct 04, 2017 9:41 am

At age 55, I've pared back and am considering cutting back even more. 3 years ago I was 80/20. I've transitioned to 47 equities/33 bonds/20 alternatives and am considering decreasing equities even more.

Dave

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BolderBoy
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Re: Some Hand-Holding

Post by BolderBoy » Wed Oct 04, 2017 11:52 am

cresive wrote:
Wed Oct 04, 2017 7:42 am
Personal info:
Age: 55
Age at Retirement: 62 with an encore job until at least FRA
This can be adjusted depending upon market effects on retirement funds.
SSA: at 67
So 7 years until quasi retirement and you are still 70/30 AA? You must have nerves of steel.

Waaaaaaaaay too aggressive, IMO. 50/50 would be better.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

sschullo
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Re: Some Hand-Holding

Post by sschullo » Wed Oct 04, 2017 12:57 pm

Now you have heard it!

As several others have already said about your AA. Your AA 80/20 is way too aggressive even with somebody with nerves of steel. If you regret cutting back last year because this year market gains are so great, you have entered into what I call (because I experienced it myself) the GREED zone. You have lost touch with your goals and how you can reasonably reach them with confidence and little to no anxiety.

My AA has been 30/70 for the last decade. At 70 years old, I have reasonable returns about 5-7% through those years (loss of 11% in 2008 with a 30/70 AA), and I was 30% invested in stocks since 2008, and I keep it at 30%! No matter how out of balance it gets. My stock AA reached 40% one year! Yikes! I rebalanced into bonds. I am comfortable about the future because I have been through it all, and I know my risk tolerance.
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garlandwhizzer
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Re: Some Hand-Holding

Post by garlandwhizzer » Wed Oct 04, 2017 1:15 pm

I'll chime in with the alternate point of view since everyone seems to think your portfolio is too aggressive. The real question about aggressive, equity heavy portfolios is not the portfolio itself but the person who owns it. Are you given to panic when the bottom drops out? Did you manage to sail through 2007-9 without selling equity and moving into bonds when it looked like the world financial system was going to collapse? Is your job a secure source of income such that even during a recession it doesn't disappear? Do you have a massive asset base that you can fall back on if the market drops by 60%?

If you have a stock market stomach and a secure well-paying job and/or huge asset base, 70/30 or even 80/20 is not inappropriate in my opinion. You're 55, 7 years from retirement at 62. I retired 20 years ago at age 50 and now at age 70 I'm still 2/3 equity, 1/3 bonds. When I was your age, 55, in retirement at the time, I was 90% equity and am living to tell the tale. That's right for me but not for everyone. The whole thing depends on the specifics of you and your financial situation. It should be tailored IMO not to some standard that others set but to the specifics of your emotional makeup, your current financial situation and your long term financial goals.

Having said that, if you're nervous and losing sleep over this, your subconscious brain is trying to tell you that you're taking on too much risk. Your subconscious knows who you are better than the rational part of your brain. The bottom line is, as Socrates said, know yourself, and set your portfolio accordingly. If your err by being to aggressive, you discover your error in the next severe bear market. If you err by being to conservative, you find out about it decades from now when you run out of money. It is up to you to pick a path avoids both errors.

Garland Whizzer

Random Walker
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Re: Some Hand-Holding

Post by Random Walker » Wed Oct 04, 2017 1:39 pm

Check out William Bernstein's e-book The Ages Of The Investor: A Critical Look At Life Cycle Investing. Especially look up "Murphy's Law Of Retirement". I also started a Boglehead thread that you can look up on Murphy's Law Of Retirement.

Dave

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Re: Some Hand-Holding

Post by flyingaway » Wed Oct 04, 2017 2:01 pm

I am exactly like you. On one hand, I am afraid of a market crash that may destroy my FI status and miss the opportunity to buy in crash by holding too much stocks now. On the other hand, I am concerned about losing money in the current bull market by holding too much bonds. I am currently at about 80/20. I started buying bonds since last November and have lost (comparing with holding stocks) probably $30K ~ $50K.

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Re: Some Hand-Holding

Post by Fallible » Wed Oct 04, 2017 2:32 pm

cresive wrote:
Wed Oct 04, 2017 7:42 am
...
Where my anxiety is rising is how to ride out the next situation. I have an asset allocation of 70% equities and 30% bonds--all in mutual funds. This is down from an 80/20 allocation about a year ago. I did the reduction in anticipation of "the stock crisis of 2016." I am torn between wishing I had an 80% stock allocation to reap the benefits of the market the last couple years and worry that I am over extended in equities. That is, part of me wants to reduce my equities exposure even further. My rational mind realizes that I am getting into the market timing mindset so I am forcing myself to stick to my plan.
...
First, you are not market timing just because you are worried or anxious about how you will handle the next market crash. You are wisely trying to determine the level of risk you can tolerate so you can stay the course in a crash. Second, knowing oneself so well that it’s possible to determine an exactly correct personal risk tolerance at any given time is probably impossible. So you come as close as possible, as we all do. From what you’ve said, my guess is that you should seriously consider 60/40.

Whatever allocation you choose, write that and your reasons for it in your IPS to help you stay that course.
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Abe
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Re: Some Hand-Holding

Post by Abe » Wed Oct 04, 2017 3:00 pm

cresive wrote:
Wed Oct 04, 2017 7:42 am

Where my anxiety is rising is how to ride out the next situation. I have an asset allocation of 70% equities and 30% bonds--all in mutual funds. This is down from an 80/20 allocation about a year ago. I did the reduction in anticipation of "the stock crisis of 2016." I am torn between wishing I had an 80% stock allocation to reap the benefits of the market the last couple years and worry that I am over extended in equities. That is, part of me wants to reduce my equities exposure even further. My rational mind realizes that I am getting into the market timing mindset so I am forcing myself to stick to my plan.
Yes, you are getting into a market timing mindset. The old greed/fear thing is playing with your mind. If your long term strategy is to take what the market gives you then you need to set an asset allocation you can live with regardless of what the market does. It's a balancing act. You know you can't second guess the market. Don't try.
Slow and steady wins the race.

cresive
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Re: Some Hand-Holding

Post by cresive » Wed Oct 04, 2017 7:21 pm

Fallible wrote:
Wed Oct 04, 2017 2:32 pm
cresive wrote:
Wed Oct 04, 2017 7:42 am
...
Where my anxiety is rising is how to ride out the next situation. I have an asset allocation of 70% equities and 30% bonds--all in mutual funds. This is down from an 80/20 allocation about a year ago. I did the reduction in anticipation of "the stock crisis of 2016." I am torn between wishing I had an 80% stock allocation to reap the benefits of the market the last couple years and worry that I am over extended in equities. That is, part of me wants to reduce my equities exposure even further. My rational mind realizes that I am getting into the market timing mindset so I am forcing myself to stick to my plan.
...
First, you are not market timing just because you are worried or anxious about how you will handle the next market crash. You are wisely trying to determine the level of risk you can tolerate so you can stay the course in a crash. Second, knowing oneself so well that it’s possible to determine an exactly correct personal risk tolerance at any given time is probably impossible. So you come as close as possible, as we all do. From what you’ve said, my guess is that you should seriously consider 60/40.

Whatever allocation you choose, write that and your reasons for it in your IPS to help you stay that course.

Thanks. I decided to pull the plug and rebalanced my funds to a 60/40 allocation. I reasoned that I can protect a lot of cash value in a down market and only lose a percentage should the market continue to rise. Thanks to you and everyone else for the good advice and lending your virtual earl

Random Walker
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Re: Some Hand-Holding

Post by Random Walker » Wed Oct 04, 2017 7:29 pm

Only thing worse than paying a tax is not having to pay one

Dave

heyyou
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Re: Some Hand-Holding

Post by heyyou » Thu Oct 05, 2017 7:52 pm

In retirement with a 50/50 allocation, you will have a dozen years of spending in bonds, so you would not have to sell any equity fund shares at reduced prices for many of the early years of retirement. Sequence risk is only a problem for those who spend according to their retirement day assets, without monitoring their portfolio depletion rate.

There will be market crashes in the future. If you and your portfolio cannot tolerate future market volatility, adjust your equity allocation. We don't get to choose higher expected growth and significant safety, it is some mixture of both.

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