Who worries about a bear market in stocks?

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CULater
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Who worries about a bear market in stocks?

Post by CULater » Fri Oct 12, 2018 10:29 am

There are three groups of stock investors:

1) Young investors with a long time horizon until retirement. They don't have to worry about a bear market because they should have a large allocation to stocks and a bear market gives them the opportunity to buy more shares at lower prices.

2) Older investors who are at or near retirement and will be or are living off their retirement portfolios. There are two subgroups:

(a) those who were smart enough and able to invest heavily in stocks when they were younger and who held on and kept buying more no matter what happened to stock prices along the way. These investors have "won the game" and should be mostly out of stocks now (except for discretionary funds), so it is immaterial to them what the stock market is doing.

(b) those who were dumb enough or unable to invest heavily in stocks when they were younger and stay invested. They don't have enough money, or fear they don't have enough money, to live comfortably off their retirement savings. As a result they are in the unfortunate position of having to either accept the risk of investing non-discretionary funds in the Wall Street casino, or plan for a less comfortable and financially insecure retirement.

So, it seems to me that only group 2b are the ones that should give a hoot about a bear market in stocks. There must be a lot of 2b's around here. Everybody else should have something better to do with their time, yes?
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

jebmke
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Re: Who worries about a bear market in stocks?

Post by jebmke » Fri Oct 12, 2018 10:38 am

CULater wrote:
Fri Oct 12, 2018 10:29 am
(a) those who were smart enough and able to invest heavily in stocks when they were younger and who held on and kept buying more no matter what happened to stock prices along the way. These investors have "won the game" and should be mostly out of stocks now (except for discretionary funds), so it is immaterial to them what the stock market is doing.
I'm not sure everyone agrees with this premise. I retired at 55. At the time, I was looking at potentially 30+ years of additional investment horizon. There are many who also invest with an eye toward some kind of legacy (heirs, charities).
When you discover that you are riding a dead horse, the best strategy is to dismount.

harvestbook
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Re: Who worries about a bear market in stocks?

Post by harvestbook » Fri Oct 12, 2018 10:41 am

Maybe you worry, if you think Wall Street is a "casino" rather than that you are buying shares in the future earnings of actual companies.
I'm not smart enough to know, and I can't afford to guess.

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goingup
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Re: Who worries about a bear market in stocks?

Post by goingup » Fri Oct 12, 2018 10:46 am

I don't agree with your characterization. We have enough in bonds/cash and the rest in stocks. We're close to retirement but probably have 30-40 years left on this mortal coil. Will stay 60/40 ish for the duration.

staythecourse
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Re: Who worries about a bear market in stocks?

Post by staythecourse » Fri Oct 12, 2018 10:56 am

Funny, my answer would be EVERYONE. Young investors as any prolonged bear marked in stocks will lead to layoffs. The most overconfident aspect I have seen from even folks on this site is their confidence of not getting fired when the next downturn occurs. Retirees if timing is poor the sequence of returns bite them the wrong way.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Who worries about a bear market in stocks?

Post by KlangFool » Fri Oct 12, 2018 11:01 am

OP,

It is very simple.

Those that are not prepared for a bear market worry about the bear market.

I have a very simple philosophy in life. If I am worried about something, I would take action to prepare for it. I would not let my worry linger around. It makes my life relatively stress free.

KlangFool

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Re: Who worries about a bear market in stocks?

Post by AnalogKid22 » Fri Oct 12, 2018 11:06 am

staythecourse wrote:
Fri Oct 12, 2018 10:56 am
Funny, my answer would be EVERYONE. Young investors as any prolonged bear marked in stocks will lead to layoffs. The most overconfident aspect I have seen from even folks on this site is their confidence of not getting fired when the next downturn occurs. Retirees if timing is poor the sequence of returns bite them the wrong way.

Good luck.
Such a great point. There certainly seems to be a one-sided perspective that an economic downturn implies an opportunity to capitalize, but that assumes you're in the same, or a better, position to do so.
A fool and his money are very easily parted - Anonymous

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Re: Who worries about a bear market in stocks?

Post by runner540 » Fri Oct 12, 2018 11:07 am

staythecourse wrote:
Fri Oct 12, 2018 10:56 am
Funny, my answer would be EVERYONE. Young investors as any prolonged bear marked in stocks will lead to layoffs. The most overconfident aspect I have seen from even folks on this site is their confidence of not getting fired when the next downturn occurs. Retirees if timing is poor the sequence of returns bite them the wrong way.

Good luck.
+1
And what about an extended bear market (Japan)? The quick rebound that started in 2009 was by no means a "given".

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Re: Who worries about a bear market in stocks?

Post by CULater » Fri Oct 12, 2018 11:08 am

In my view, those who have accumulated enough savings to retire comfortably should follow William Bernstein's advice to get out of stocks. Stocks can be counted on only as a long term investment asset. You should be prepared to hold for 15-20 years without liquidating before you should be willing to accept that risk, and most people in retirement aren't able to do that since that period of time consumes most of your retirement horizon.

The only other justification for allocating non-discretionary funds to stocks is that you believe that this offers a diversification benefit when combined with bonds or other safer assets; i.e, a better risk-adjusted return. Over the long run, an allocation to stocks of no more than 20% provided a better risk-adjusted return than 0% in stocks (courtesy of Portfolio Visualizer). So, it makes sense to me that you should only carry up to 20% in stocks in retirement (of non-discretionary capital). Any more than that is gambling: accepting non-optimal risk for a hoped-for return.

So, if you must, 20% in stocks seems like the best decision. But 0% should be the goal.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

Ron Scott
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Re: Who worries about a bear market in stocks?

Post by Ron Scott » Fri Oct 12, 2018 11:08 am

CULater wrote:
Fri Oct 12, 2018 10:29 am
There are three groups of stock investors:

1) Young investors with a long time horizon until retirement. They don't have to worry about a bear market because they should have a large allocation to stocks and a bear market gives them the opportunity to buy more shares at lower prices.

2) Older investors who are at or near retirement and will be or are living off their retirement portfolios. There are two subgroups:

(a) those who were smart enough and able to invest heavily in stocks when they were younger and who held on and kept buying more no matter what happened to stock prices along the way. These investors have "won the game" and should be mostly out of stocks now (except for discretionary funds), so it is immaterial to them what the stock market is doing.

(b) those who were dumb enough or unable to invest heavily in stocks when they were younger and stay invested. They don't have enough money, or fear they don't have enough money, to live comfortably off their retirement savings. As a result they are in the unfortunate position of having to either accept the risk of investing non-discretionary funds in the Wall Street casino, or plan for a less comfortable and financially insecure retirement.

So, it seems to me that only group 2b are the ones that should give a hoot about a bear market in stocks. There must be a lot of 2b's around here. Everybody else should have something better to do with their time, yes?
You're getting there, but it's still much more nuanced...

There are many many retirees who don't fall into the 2a category who are not phased by market cycles, and you do not need to have a history of buying stocks no matter what happened to stock prices along the way to be financially independent of future market volatility. Luck is likely a more telling variable than an intelligent/coordinated investment strategy, IMO. The circumstances we live through and the opportunities presented to us carry enormous weight in the big picture.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: Who worries about a bear market in stocks?

Post by wolf359 » Fri Oct 12, 2018 11:09 am

staythecourse wrote:
Fri Oct 12, 2018 10:56 am
Funny, my answer would be EVERYONE. Young investors as any prolonged bear marked in stocks will lead to layoffs. The most overconfident aspect I have seen from even folks on this site is their confidence of not getting fired when the next downturn occurs. Retirees if timing is poor the sequence of returns bite them the wrong way.

Good luck.
I agree with this.

I have co-workers who are worried about a bear market, and they don't even have a 401-k or any stock holdings. Lots of people equate the stock market with the economy, and when the stock market is down, they think the economy is doing poorly.

It's an unusual point of view to look at a crashing market and get excited because of all the opportunity. Other people are oblivious to market news. Everyone else gets worried.

It's very interesting to watch the interplay between greed and fear. Yesterday, people are panicked because of two big down days in a row. Today, people think they're missing the chance to buy the dip. Meanwhile, the market only dropped a total of 5-6% from the peak? Was it more or less? I'm not that tuned in.

Ron Scott
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Re: Who worries about a bear market in stocks?

Post by Ron Scott » Fri Oct 12, 2018 11:15 am

CULater wrote:
Fri Oct 12, 2018 11:08 am
In my view, those who have accumulated enough savings to retire comfortably should follow William Bernstein's advice to get out of stocks. Stocks can be counted on only as a long term investment asset. You should be prepared to hold for 15-20 years without liquidating before you should be willing to accept that risk, and most people in retirement aren't able to do that since that period of time consumes most of your retirement horizon.
This is such a powerful tenet it should standard to the BH way IMO. It makes you robust.

There are corollaries to this that should be considered:

1. Maintain a spending level that allows you to invest your-age-in-bonds (and the rest in stocks) while conforming to the 15-20 year period.
2. It is wise to save and working longer to maintain your-age-in-bonds (and the rest in stocks) while conforming to the 15-20 year period.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: Who worries about a bear market in stocks?

Post by FelixTheCat » Fri Oct 12, 2018 11:20 am

The only people that should worry are the ones who don’t plan and save.
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TN_Boy
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Re: Who worries about a bear market in stocks?

Post by TN_Boy » Fri Oct 12, 2018 11:30 am

CULater wrote:
Fri Oct 12, 2018 11:08 am
In my view, those who have accumulated enough savings to retire comfortably should follow William Bernstein's advice to get out of stocks. Stocks can be counted on only as a long term investment asset. You should be prepared to hold for 15-20 years without liquidating before you should be willing to accept that risk, and most people in retirement aren't able to do that since that period of time consumes most of your retirement horizon.

The only other justification for allocating non-discretionary funds to stocks is that you believe that this offers a diversification benefit when combined with bonds or other safer assets; i.e, a better risk-adjusted return. Over the long run, an allocation to stocks of no more than 20% provided a better risk-adjusted return than 0% in stocks (courtesy of Portfolio Visualizer). So, it makes sense to me that you should only carry up to 20% in stocks in retirement (of non-discretionary capital). Any more than that is gambling: accepting non-optimal risk for a hoped-for return.

So, if you must, 20% in stocks seems like the best decision. But 0% should be the goal.
I disagree completely! And without checking, I'd be really surprised if Bernstein said to get out of stocks *entirely.* I think a portfolio of 0% stocks is clearly riskier than one with 10 to 20 percent stocks.

And if you have a longer horizon, I think 30% is about as low as I'd go.

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goingup
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Re: Who worries about a bear market in stocks?

Post by goingup » Fri Oct 12, 2018 11:50 am

TN_Boy wrote:
Fri Oct 12, 2018 11:30 am
CULater wrote:
Fri Oct 12, 2018 11:08 am
In my view, those who have accumulated enough savings to retire comfortably should follow William Bernstein's advice to get out of stocks. Stocks can be counted on only as a long term investment asset. You should be prepared to hold for 15-20 years without liquidating before you should be willing to accept that risk, and most people in retirement aren't able to do that since that period of time consumes most of your retirement horizon.

The only other justification for allocating non-discretionary funds to stocks is that you believe that this offers a diversification benefit when combined with bonds or other safer assets; i.e, a better risk-adjusted return. Over the long run, an allocation to stocks of no more than 20% provided a better risk-adjusted return than 0% in stocks (courtesy of Portfolio Visualizer). So, it makes sense to me that you should only carry up to 20% in stocks in retirement (of non-discretionary capital). Any more than that is gambling: accepting non-optimal risk for a hoped-for return.

So, if you must, 20% in stocks seems like the best decision. But 0% should be the goal.
I disagree completely! And without checking, I'd be really surprised if Bernstein said to get out of stocks *entirely.* I think a portfolio of 0% stocks is clearly riskier than one with 10 to 20 percent stocks.

And if you have a longer horizon, I think 30% is about as low as I'd go.
He never said that. Bill Bernstein's Coward's Portfolio has 40% Short Term Bonds/60% equity. He is well know for his ideas about liability matching--enough safe assets for 25 years and the rest in stocks.

The OP's ideas about having 20%-0% in stocks for retirees are not mainstream thoughts. Fine for him, but not the norm.

staythecourse
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Re: Who worries about a bear market in stocks?

Post by staythecourse » Fri Oct 12, 2018 11:53 am

KlangFool wrote:
Fri Oct 12, 2018 11:01 am
OP,

It is very simple.

Those that are not prepared for a bear market worry about the bear market.

I have a very simple philosophy in life. If I am worried about something, I would take action to prepare for it. I would not let my worry linger around. It makes my life relatively stress free.

KlangFool
Very zen of you. :D

Can't disagree, but that really requires folks "knowing thyself" as Shakespeare would say. The older I get the more I realize most folks don't know thyself. Very few people are introspective to know what they don't know ahead of time to plan accordingly.

As Mike Tyson once said everyone has a perfect plan until you get punched in the face.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

bradshaw1965
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Re: Who worries about a bear market in stocks?

Post by bradshaw1965 » Fri Oct 12, 2018 11:54 am

CULater wrote:
Fri Oct 12, 2018 11:08 am
So, it makes sense to me that you should only carry up to 20% in stocks in retirement (of non-discretionary capital). Any more than that is gambling: accepting non-optimal risk for a hoped-for return.
Maybe I just get caught up in language, but more then 20% of non-discretionary capital in stocks is gambling is just being needlessly provocative. People have many different needs, willingness and ability to take risks and those risks can be reasonable, non-speculative and not gambling.

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Re: Who worries about a bear market in stocks?

Post by KlangFool » Fri Oct 12, 2018 11:58 am

staythecourse wrote:
Fri Oct 12, 2018 11:53 am
KlangFool wrote:
Fri Oct 12, 2018 11:01 am
OP,

It is very simple.

Those that are not prepared for a bear market worry about the bear market.

I have a very simple philosophy in life. If I am worried about something, I would take action to prepare for it. I would not let my worry linger around. It makes my life relatively stress free.

KlangFool
Very zen of you. :D

Can't disagree, but that really requires folks "knowing thyself" as Shakespeare would say. The older I get the more I realize most folks don't know thyself. Very few people are introspective to know what they don't know ahead of time to plan accordingly.

As Mike Tyson once said everyone has a perfect plan until you get punched in the face.

Good luck.
staythecourse,

I had plenty of practices dealing with recessions and economic crisis. If I was not prepared, I would not have survived. So, it is a necessity for me.

KlangFool

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Re: Who worries about a bear market in stocks?

Post by marcopolo » Fri Oct 12, 2018 12:13 pm

CULater wrote:
Fri Oct 12, 2018 11:08 am
In my view, those who have accumulated enough savings to retire comfortably should follow William Bernstein's advice to get out of stocks. Stocks can be counted on only as a long term investment asset. You should be prepared to hold for 15-20 years without liquidating before you should be willing to accept that risk, and most people in retirement aren't able to do that since that period of time consumes most of your retirement horizon.

The only other justification for allocating non-discretionary funds to stocks is that you believe that this offers a diversification benefit when combined with bonds or other safer assets; i.e, a better risk-adjusted return. Over the long run, an allocation to stocks of no more than 20% provided a better risk-adjusted return than 0% in stocks (courtesy of Portfolio Visualizer). So, it makes sense to me that you should only carry up to 20% in stocks in retirement (of non-discretionary capital). Any more than that is gambling: accepting non-optimal risk for a hoped-for return.

So, if you must, 20% in stocks seems like the best decision. But 0% should be the goal.

I think you are letting your fear/paranoia get the better of you.
You have been posting for awhile about your fear of the market dropping, so hopefully you were already at your 20% or less in equities, and are sleeping well.

For most people, i don't think it is reasonable to suggest 0% equities, or even 20% of non-discretionary, which would likely equate to less that 10% of portfolio for most people.

We are not even in correction territory yet in the broader market. I have no idea if there is more pain to come or not.
I am definitely not in the camp cheering for major losses, but realize that comes with the territory.

I maintain roughly a 60/40 AA, which results in about 16 years of living expenses in fixed income, if things get really bad, i could probably stretch that to 20 years with small adjustments to spending since the budget has a lot discretionary spending baked into it.

My equity holdings have dropped from about 24 years of expenses to about 22 years of expenses in the last 12 days.
I suspect they will recover before I NEED to sell them to survive. I see no reason to trim that holding down to 20%, 10%, or 0%.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Who worries about a bear market in stocks?

Post by GoldStar » Fri Oct 12, 2018 12:33 pm

CULater wrote:
Fri Oct 12, 2018 10:29 am
There are three groups of stock investors:
...
I can think of at least 2 more groups you aren't covering.
I'm in my late 40's or early 50's - not near retirement but not young enough to have decades of recovery left - so I don't think I fit into any of your three groups. I am in group 3 - somewhere between those "Young" and those "close to retirement"
I also think there is a group 2c and a group 2d. Those that have "won the game" as you say but still stay heavily invested in stocks as they have enough money saved they don't need to worry about smaller or even larger fluctuations. They stay in stocks because they don't buy the "Won the game so go to cash" theory - want to keep the yields coming in. Keep growing their assets for their heirs. Their are many others (maybe even the majority) that stay invested at a certain AA as they want their asset to last a long time - fluctuations might still hurt them if they aren't careful.

Personally I think a lot of folks around here talk about the market fluctuations not because they are in 2B but rather because it is a topic that can be fun to discuss.

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Re: Who worries about a bear market in stocks?

Post by galeno » Fri Oct 12, 2018 12:53 pm

Sooner or later it will happen. As retirees we hold a conservative "age in FI" portfolio. We've been thru 3 nasty bears so far. Looking forward to a fourth.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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Re: Who worries about a bear market in stocks?

Post by Snowjob » Fri Oct 12, 2018 1:02 pm

staythecourse wrote:
Fri Oct 12, 2018 10:56 am
Funny, my answer would be EVERYONE. Young investors as any prolonged bear marked in stocks will lead to layoffs. The most overconfident aspect I have seen from even folks on this site is their confidence of not getting fired when the next downturn occurs. Retirees if timing is poor the sequence of returns bite them the wrong way.

Good luck.
This is my stance -- Job loss changes everything. Be prepared and flexible, regardless of age. I think Ben Graham was right to keep allocation between 75/25 and 25/75. would soften the blow in the event of prolonged underemployment

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Re: Who worries about a bear market in stocks?

Post by TN_Boy » Fri Oct 12, 2018 1:21 pm

goingup wrote:
Fri Oct 12, 2018 11:50 am
TN_Boy wrote:
Fri Oct 12, 2018 11:30 am
CULater wrote:
Fri Oct 12, 2018 11:08 am
In my view, those who have accumulated enough savings to retire comfortably should follow William Bernstein's advice to get out of stocks. Stocks can be counted on only as a long term investment asset. You should be prepared to hold for 15-20 years without liquidating before you should be willing to accept that risk, and most people in retirement aren't able to do that since that period of time consumes most of your retirement horizon.

The only other justification for allocating non-discretionary funds to stocks is that you believe that this offers a diversification benefit when combined with bonds or other safer assets; i.e, a better risk-adjusted return. Over the long run, an allocation to stocks of no more than 20% provided a better risk-adjusted return than 0% in stocks (courtesy of Portfolio Visualizer). So, it makes sense to me that you should only carry up to 20% in stocks in retirement (of non-discretionary capital). Any more than that is gambling: accepting non-optimal risk for a hoped-for return.

So, if you must, 20% in stocks seems like the best decision. But 0% should be the goal.
I disagree completely! And without checking, I'd be really surprised if Bernstein said to get out of stocks *entirely.* I think a portfolio of 0% stocks is clearly riskier than one with 10 to 20 percent stocks.

And if you have a longer horizon, I think 30% is about as low as I'd go.
He never said that. Bill Bernstein's Coward's Portfolio has 40% Short Term Bonds/60% equity. He is well know for his ideas about liability matching--enough safe assets for 25 years and the rest in stocks.

The OP's ideas about having 20%-0% in stocks for retirees are not mainstream thoughts. Fine for him, but not the norm.
Thanks for doing my homework for me :happy Yes, 0% stocks strikes me as a bad retirement portfolio for almost anyone.

If nothing else, CULater should reference the Bill Bernstein article/book where he tells people to "get out of stocks," or whatever it was Bernstein said to motivate this post.

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Re: Who worries about a bear market in stocks?

Post by Fallible » Fri Oct 12, 2018 1:42 pm

One can worry about a bear market even if one has the need and ability to take risk. That is because they still may not be willing to take it, i.e., not have the risk tolerance for the market's ups and downs. This may explain why only about half of U.S. households are invested in the market; and why seniors who can afford to stay in the market and would like to for heirs, etc., don't stay in it - they are just tired of the uncertainty, of which there is already enough in life.
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Re: Who worries about a bear market in stocks?

Post by chevca » Fri Oct 12, 2018 1:52 pm

staythecourse wrote:
Fri Oct 12, 2018 10:56 am
Funny, my answer would be EVERYONE.
That would be my answer too.

A bear market isn't really good for anyone. But, they can happen. Everyone should worry about it. What can one do about it, is a better question, IMO.

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Re: Who worries about a bear market in stocks?

Post by J295 » Fri Oct 12, 2018 1:53 pm

And to think just a few weeks ago there were threads like…

100% equity is the way to go

Age in bonds is so old school and wrong because everyone should be more aggressive in equities

:D

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Re: Who worries about a bear market in stocks?

Post by Artsdoctor » Fri Oct 12, 2018 3:36 pm

KlangFool wrote:
Fri Oct 12, 2018 11:01 am
OP,

It is very simple.

Those that are not prepared for a bear market worry about the bear market.

I have a very simple philosophy in life. If I am worried about something, I would take action to prepare for it. I would not let my worry linger around. It makes my life relatively stress free.

KlangFool
Very, very well said.

For a seasoned and balanced investor, it would be pointless to "worry about a bear market in stocks" because there's an acknowledgement that bear markets are inevitable. If someone is truly worried about the concept of a bear market, then dialing back the equity exposure is essential.

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Re: Who worries about a bear market in stocks?

Post by CULater » Fri Oct 12, 2018 3:39 pm

Sorry for those who haven't heard Bill Bernstein's advice "If you've won the game, then stop playing." Translated: if you've saved enough to support a reasonable lifestyle, then get out of stocks and eliminate that risk. In my opinion, the goal of saving and investing is to get to the point where you don't need to invest in stocks anymore. Some people act like investing in stocks is something other than a means toward an end, or they seem to have no idea whatsoever what their end goal is. It makes no sense to keep a significant portion of your capital in an asset as risky as stocks just for the heck of it or because you are so naive as to expect there has to be a payoff for your bravado.

Swedroe discusses taking investment risk based on "need, willingness, and ability," and you should accept risk based on which of these is the smallest not which is the largest. If you've been any good at saving and investing, then by the time you retire and start living off your nestegg hopefully you have a very small need to accept the risk of stocks - at least for financial security. Now, if you have some extra dough to throw around beyond that, or to put away for bequests, you might feel putting that into stocks is acceptable.

For the life of me, I just don't get why somebody thinks it's a good idea to keep any more money in stocks than you are forced to based on need. Might be a good idea to figure out the difference between "need" and "want" and invest accordingly.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Who worries about a bear market in stocks?

Post by Artsdoctor » Fri Oct 12, 2018 3:43 pm

staythecourse wrote:
Fri Oct 12, 2018 10:56 am
Funny, my answer would be EVERYONE. Young investors as any prolonged bear marked in stocks will lead to layoffs. The most overconfident aspect I have seen from even folks on this site is their confidence of not getting fired when the next downturn occurs. Retirees if timing is poor the sequence of returns bite them the wrong way.

Good luck.
I don't think it's over-confidence. When a downturn occurs, it's going to hurt; no one likes to lose money. However, think about where we stand right now; a lot of investors have had many years to prepare for the next bear market since most our goals have been met beyond calculations. You know a major downturn is going to come since it's virtually guaranteed. You know it's going to hurt, too. If you think that you'll somehow escape a brutal bear market, then that is a major problem--but I would also say that if you think it's not going to hurt, then you either haven't invested through a bear market or you're in denial. But I do think that you can acknowledge that bear markets are just another part of investing and prepare accordingly.

Addendum: After this post, I logged on to make a deposit to Vanguard and this column should be helpful to those worrying about the volatility we've recently experienced:

https://investornews.vanguard/volatility-strikes-back/
Last edited by Artsdoctor on Fri Oct 12, 2018 5:45 pm, edited 1 time in total.

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Re: Who worries about a bear market in stocks?

Post by TN_Boy » Fri Oct 12, 2018 4:13 pm

CULater wrote:
Fri Oct 12, 2018 3:39 pm
Sorry for those who haven't heard Bill Bernstein's advice "If you've won the game, then stop playing." Translated: if you've saved enough to support a reasonable lifestyle, then get out of stocks and eliminate that risk. In my opinion, the goal of saving and investing is to get to the point where you don't need to invest in stocks anymore. Some people act like investing in stocks is something other than a means toward an end, or they seem to have no idea whatsoever what their end goal is. It makes no sense to keep a significant portion of your capital in an asset as risky as stocks just for the heck of it or because you are so naive as to expect there has to be a payoff for your bravado.

Swedroe discusses taking investment risk based on "need, willingness, and ability," and you should accept risk based on which of these is the smallest not which is the largest. If you've been any good at saving and investing, then by the time you retire and start living off your nestegg hopefully you have a very small need to accept the risk of stocks - at least for financial security. Now, if you have some extra dough to throw around beyond that, or to put away for bequests, you might feel putting that into stocks is acceptable.

For the life of me, I just don't get why somebody thinks it's a good idea to keep any more money in stocks than you are forced to based on need. Might be a good idea to figure out the difference between "need" and "want" and invest accordingly.
Many of the people on this board are familiar with Dr Bernstein's writings. I have a couple of his (older) books above my desk. And I've seen the quote before. Could you be more specific about exactly what these words mean to you:

1) "Winning the game"
2) "Stop playing"

For example, does "winning the game" mean enough assets in fixed income to support a "typical" retirement? This implies, given the relatively low expected return of fixed income, a much larger amount of assets are needed to actually retire. As an exercise, you should look of the failure rates of various stock/bond mixes in the (many) withdrawal studies that have been done, and you would see that a 0% stock portfolio is not such a pretty sight.

Does "stop playing" really mean 0% stocks, despite good evidence that 0% stocks is riskier than a portfolio with some stocks in it?

Alternatively, rather than repeat a single quote, you could point me to where Bernstein defines 1) and 2).

Like several other posters in this thread, I do not think you are viewing the "riskiness" of stocks correctly. Or perhaps you are not understanding the risks in other investments. There is no riskless investment.

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Re: Who worries about a bear market in stocks?

Post by Doom&Gloom » Fri Oct 12, 2018 5:25 pm

People who believe (consciously or otherwise) that worrying will help forestall such an event.

Others prepare for a bear market how they can--effectively or not.

Still others are oblivious to the market's effect upon them.

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Re: Who worries about a bear market in stocks?

Post by nick evets » Fri Oct 12, 2018 5:35 pm

CULater wrote:
Fri Oct 12, 2018 3:39 pm
For the life of me, I just don't get why somebody thinks it's a good idea to keep any more money in stocks than you are forced to based on need. Might be a good idea to figure out the difference between "need" and "want" and invest accordingly.
If the returns of the market are good enough for "need," they're even nicer if you just "want" them! :)

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Re: Who worries about a bear market in stocks?

Post by watchnerd » Fri Oct 12, 2018 6:33 pm

FelixTheCat wrote:
Fri Oct 12, 2018 11:20 am
The only people that should worry are the ones who don’t plan and save.
Well, that's over half of the USA households.

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Re: Who worries about a bear market in stocks?

Post by staythecourse » Fri Oct 12, 2018 6:45 pm

Artsdoctor wrote:
Fri Oct 12, 2018 3:43 pm
staythecourse wrote:
Fri Oct 12, 2018 10:56 am
Funny, my answer would be EVERYONE. Young investors as any prolonged bear marked in stocks will lead to layoffs. The most overconfident aspect I have seen from even folks on this site is their confidence of not getting fired when the next downturn occurs. Retirees if timing is poor the sequence of returns bite them the wrong way.

Good luck.
I don't think it's over-confidence. When a downturn occurs, it's going to hurt; no one likes to lose money. However, think about where we stand right now; a lot of investors have had many years to prepare for the next bear market since most our goals have been met beyond calculations. You know a major downturn is going to come since it's virtually guaranteed. You know it's going to hurt, too. If you think that you'll somehow escape a brutal bear market, then that is a major problem--but I would also say that if you think it's not going to hurt, then you either haven't invested through a bear market or you're in denial. But I do think that you can acknowledge that bear markets are just another part of investing and prepare accordingly.

Addendum: After this post, I logged on to make a deposit to Vanguard and this column should be helpful to those worrying about the volatility we've recently experienced:

https://investornews.vanguard/volatility-strikes-back/
The overconfidence is not what most folks think as in "staying the course". The overconfidence is most folks belief that they can just keep buying in a brutal downmarket and thinking they will not lose their job in that same brutal economy.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Who worries about a bear market in stocks?

Post by KlangFool » Fri Oct 12, 2018 7:00 pm

staythecourse wrote:
Fri Oct 12, 2018 6:45 pm
Artsdoctor wrote:
Fri Oct 12, 2018 3:43 pm
staythecourse wrote:
Fri Oct 12, 2018 10:56 am
Funny, my answer would be EVERYONE. Young investors as any prolonged bear marked in stocks will lead to layoffs. The most overconfident aspect I have seen from even folks on this site is their confidence of not getting fired when the next downturn occurs. Retirees if timing is poor the sequence of returns bite them the wrong way.

Good luck.
I don't think it's over-confidence. When a downturn occurs, it's going to hurt; no one likes to lose money. However, think about where we stand right now; a lot of investors have had many years to prepare for the next bear market since most our goals have been met beyond calculations. You know a major downturn is going to come since it's virtually guaranteed. You know it's going to hurt, too. If you think that you'll somehow escape a brutal bear market, then that is a major problem--but I would also say that if you think it's not going to hurt, then you either haven't invested through a bear market or you're in denial. But I do think that you can acknowledge that bear markets are just another part of investing and prepare accordingly.

Addendum: After this post, I logged on to make a deposit to Vanguard and this column should be helpful to those worrying about the volatility we've recently experienced:

https://investornews.vanguard/volatility-strikes-back/
The overconfidence is not what most folks think as in "staying the course". The overconfidence is most folks belief that they can just keep buying in a brutal downmarket and thinking they will not lose their job in that same brutal economy.

Good luck.
+1.

KlangFool

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Re: Who worries about a bear market in stocks?

Post by Artsdoctor » Fri Oct 12, 2018 7:47 pm

staythecourse wrote:
Fri Oct 12, 2018 6:45 pm
Artsdoctor wrote:
Fri Oct 12, 2018 3:43 pm
staythecourse wrote:
Fri Oct 12, 2018 10:56 am
Funny, my answer would be EVERYONE. Young investors as any prolonged bear marked in stocks will lead to layoffs. The most overconfident aspect I have seen from even folks on this site is their confidence of not getting fired when the next downturn occurs. Retirees if timing is poor the sequence of returns bite them the wrong way.

Good luck.
I don't think it's over-confidence. When a downturn occurs, it's going to hurt; no one likes to lose money. However, think about where we stand right now; a lot of investors have had many years to prepare for the next bear market since most our goals have been met beyond calculations. You know a major downturn is going to come since it's virtually guaranteed. You know it's going to hurt, too. If you think that you'll somehow escape a brutal bear market, then that is a major problem--but I would also say that if you think it's not going to hurt, then you either haven't invested through a bear market or you're in denial. But I do think that you can acknowledge that bear markets are just another part of investing and prepare accordingly.

Addendum: After this post, I logged on to make a deposit to Vanguard and this column should be helpful to those worrying about the volatility we've recently experienced:

https://investornews.vanguard/volatility-strikes-back/
The overconfidence is not what most folks think as in "staying the course". The overconfidence is most folks belief that they can just keep buying in a brutal downmarket and thinking they will not lose their job in that same brutal economy.

Good luck.
One would hope that young investors have the ability to put their hands on some sort of living expenses if they're laid off. I think it's probably unreasonable for most young people to accumulate 6 months of earnings prior to investing in equities, although the idea would be to have some sort of a cushion prior to going heavy on the stocks.

Now for those about to retire, they should really know better than to assume that their health will be perfect and that the market will be at their backs the whole way through. All of that said, my job is filled with people who have unrealistic expectations but all of that goes beyond the ABCs of investing.

I don't think investing is unique. If someone is worried about something, try to find something actionable. If someone is really worried to a significant level about a bear market, then they really should adjust their investment plan. Why would anyone invest to the point of anxiety?

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Re: Who worries about a bear market in stocks?

Post by fanmail » Fri Oct 12, 2018 8:02 pm

3. Those who are heavily leveraged either in their portfolios or real estate.
4. Those who are barely employable and would be impacted by layoffs.

Either of these groups can overlap with the first 2.

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Re: Who worries about a bear market in stocks?

Post by wootwoot » Fri Oct 12, 2018 9:58 pm

You had me at 3 types of investors. Why do you believe this and what makes you think the rest of the forum believes your theories about investors?

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Re: Who worries about a bear market in stocks?

Post by watchnerd » Fri Oct 12, 2018 10:04 pm

CULater wrote:
Fri Oct 12, 2018 10:29 am

So, it seems to me that only group 2b are the ones that should give a hoot about a bear market in stocks. There must be a lot of 2b's around here. Everybody else should have something better to do with their time, yes?
I think there is another category:

2a) scenario types who want to pile up as much money as possible for whatever reason:

Heirs, charities, upgrade their lifestyles, or just fulfill their dreams to be Scrooge McDuck.

I think a fair number of Bogleheads are closet Scrooge McDucks.
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Re: Who worries about a bear market in stocks?

Post by UpperNwGuy » Fri Oct 12, 2018 10:22 pm

I joined Bogleheads about a year ago, and within the first few weeks I started to see posts by CULater expressing great fear for what was about to happen to the stock market. I am guessing he has started 15-20 threads during the last year, each one approaching the same topic from a slightly different angle. His message, however, has always been the same: get out of stocks, especially if you are in retirement or nearing retirement. In every case, there was pushback from the members in their comments. Nevertheless, he persisted.

My recommendation is that CULater get out of stocks (because he is clearly stressing about the risk) but that he stop recommending that the rest of us get out stocks. Each of us has our own risk tolerance, and it is pretty clear that most of us have a higher risk tolerance then CULater. Nothing wrong with CULater having a low risk tolerance, but he shouldn't expect us all to share his low risk tolerance.

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Re: Who worries about a bear market in stocks?

Post by MnD » Fri Oct 12, 2018 10:26 pm

Don't feed the troll.

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Re: Who worries about a bear market in stocks?

Post by wootwoot » Fri Oct 12, 2018 10:45 pm

MnD wrote:
Fri Oct 12, 2018 10:26 pm
Don't feed the troll.
+1

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Re: Who worries about a bear market in stocks?

Post by visualguy » Fri Oct 12, 2018 11:43 pm

CULater wrote:
Fri Oct 12, 2018 3:39 pm
For the life of me, I just don't get why somebody thinks it's a good idea to keep any more money in stocks than you are forced to based on need. Might be a good idea to figure out the difference between "need" and "want" and invest accordingly.
You can't really know for sure how much you will "need". Much depends on factors which are unknown and hard to predict - particularly related to health care and long-term care. Being sure that you will have all you will "need" without investing in risky assets is possible, but requires a pretty huge amount of money.

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Re: Who worries about a bear market in stocks?

Post by William Million » Sat Oct 13, 2018 4:58 am

I've "won" the game, but I never go below 40% stocks. Any lower, you take on too much inflation risks and other risks, such as unexpected high-cost needs. (I'm currently 44% and would go as high as 60% after a bear market.)

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Re: Who worries about a bear market in stocks?

Post by lostdog » Sat Oct 13, 2018 8:15 am

MnD wrote:
Fri Oct 12, 2018 10:26 pm
Don't feed the troll.
+2


Only 49% of Americans invest. Most live paycheck to paycheck. I don't think many Americans think about it much if not at all. Most are just concerned about paying the next set of bills and saving up for Black Friday. If they do notice a crash it's either posted on their social media or the nightly news mentions it. Most ha e no skin in the game.

CULater is either anxiety ridden or trolling.

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Re: Who worries about a bear market in stocks?

Post by Call_Me_Op » Sat Oct 13, 2018 8:18 am

CULater wrote:
Fri Oct 12, 2018 10:29 am
There are three groups of stock investors:

1) Young investors with a long time horizon until retirement. They don't have to worry about a bear market because they should have a large allocation to stocks and a bear market gives them the opportunity to buy more shares at lower prices.

2) Older investors who are at or near retirement and will be or are living off their retirement portfolios. There are two subgroups:

(a) those who were smart enough and able to invest heavily in stocks when they were younger and who held on and kept buying more no matter what happened to stock prices along the way. These investors have "won the game" and should be mostly out of stocks now (except for discretionary funds), so it is immaterial to them what the stock market is doing.

(b) those who were dumb enough or unable to invest heavily in stocks when they were younger and stay invested. They don't have enough money, or fear they don't have enough money, to live comfortably off their retirement savings. As a result they are in the unfortunate position of having to either accept the risk of investing non-discretionary funds in the Wall Street casino, or plan for a less comfortable and financially insecure retirement.

So, it seems to me that only group 2b are the ones that should give a hoot about a bear market in stocks. There must be a lot of 2b's around here. Everybody else should have something better to do with their time, yes?
You have over-generalized. I did not invest heavily in stocks when younger but I lived well below my means and saved. I am nearing retirement and doing fine.
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Re: Who worries about a bear market in stocks?

Post by Peculiar_Investor » Sat Oct 13, 2018 8:32 am

CULater wrote:
Fri Oct 12, 2018 3:39 pm
Sorry for those who haven't heard Bill Bernstein's advice "If you've won the game, then stop playing." Translated: if you've saved enough to support a reasonable lifestyle, then get out of stocks and eliminate that risk. In my opinion, the goal of saving and investing is to get to the point where you don't need to invest in stocks anymore. Some people act like investing in stocks is something other than a means toward an end, or they seem to have no idea whatsoever what their end goal is. It makes no sense to keep a significant portion of your capital in an asset as risky as stocks just for the heck of it or because you are so naive as to expect there has to be a payoff for your bravado.
There have been many previous topics on this subject, for example the following are just a few I found with a quick search:
CULater wrote:
Fri Oct 12, 2018 3:39 pm
Swedroe discusses taking investment risk based on "need, willingness, and ability," and you should accept risk based on which of these is the smallest not which is the largest. If you've been any good at saving and investing, then by the time you retire and start living off your nestegg hopefully you have a very small need to accept the risk of stocks - at least for financial security. Now, if you have some extra dough to throw around beyond that, or to put away for bequests, you might feel putting that into stocks is acceptable.
This has also been the subject of a number of previous topics. I'll leave the searching to those interested in them.
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Re: Who worries about a bear market in stocks?

Post by Toons » Sat Oct 13, 2018 9:07 am

It is the markets' way of offering you buying opportunities.
Embrace Bear Markets.
They are an inherent part of investing.
Ignore the noise. :mrgreen:
"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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Re: Who worries about a bear market in stocks?

Post by vested1 » Sat Oct 13, 2018 10:07 am

2)

(c) Those who stumbled blindly through life, oblivious to the basics of investing and planning for retirement (me). Through sheer luck in timing and the fortunate circumstance of finding this site 6 years prior to retirement I managed to do well before it was too late to do anything about it. I suspect there are many who fit into this category, and who like me, resent being generalized by someone who hasn't walked a mile in their shoes.

Making assumptions about the abilities and mindset of others concerning investing, or anything else for that matter, fosters division. I imagine that for the over 3,000 readers who have viewed this thread, there are over 3,000 who don't appreciate being categorized by a stranger on the internet.

Retired for nearly 3 years, 60/40, and planning on increasing equity allocation incrementally after age 70. Where's my category?

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Re: Who worries about a bear market in stocks?

Post by 2015 » Sat Oct 13, 2018 11:03 am

vested1 wrote:
Sat Oct 13, 2018 10:07 am
2)

(c) Those who stumbled blindly through life, oblivious to the basics of investing and planning for retirement (me). Through sheer luck in timing and the fortunate circumstance of finding this site 6 years prior to retirement I managed to do well before it was too late to do anything about it. I suspect there are many who fit into this category, and who like me, resent being generalized by someone who hasn't walked a mile in their shoes.

Making assumptions about the abilities and mindset of others concerning investing, or anything else for that matter, fosters division. I imagine that for the over 3,000 readers who have viewed this thread, there are over 3,000 who don't appreciate being categorized by a stranger on the internet.

Retired for nearly 3 years, 60/40, and planning on increasing equity allocation incrementally after age 70. Where's my category?
That is one "Bad Mama Jama" post, vested1, and thank you for it. Your first two sentences characterize my circumstances entirely. I don't know how I was fortunate enough to succeed despite my many many blunders. I so much agree with many authors today who assert that so much of life is about no more than luck (even though our ego just loves to attribute it to skill or know-how).

I also affirm Klangfool's sentiment above, except in my case being conservative and paranoid since being in the womb has served me very very well. Looking far down the road and taking action in advance of when necessary (whether I felt like it or not) has been the key to overcoming what I lacked in knowledge.

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