Income stability --> stay the course?

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shriram
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Income stability --> stay the course?

Post by shriram »

Bogleheads investing philosophy recommends staying the course during the market downturn. We have been following the Bogleheads community for last few years and never had any trouble staying the course so far. We always bought more stock whenever the market went down (e.g. during 2018, 2020 and 2022). Note - we have not experienced the previous recessions in 2000/01 and 2007/08.

This month (Nov 2022) tech sector saw two large layoffs by the organizations which are very profitable (FB/Amazon). While we were not impacted due to this, many people (including us) did not see it coming! At this point, I am not sure if we will be willing to invest more in the stock market if it is to go down in near future. We would rather invest (new money) in the safer assets until we have clear indication that the downturn is over.

Note - I think our asset allocation is reasonable and I don't feel the need to sell existing equity at all since we have enough cash/bonds to cover at least 3-4 years of expenses (includes mortgage payments/property taxes etc.) in case of unemployment for both me and my spouse. If at least one of us have a job, we could last even longer. But the uncertainty with the job market makes it difficult to feel excited about buying stocks for cheap (and risk loosing money).

This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
Last edited by shriram on Tue Nov 22, 2022 3:35 pm, edited 1 time in total.
case_of_ennui
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Re: Income stability --> stay the course?

Post by case_of_ennui »

I don't think it matters. I think what matters is having a portfolio that matches your risk tolerance along with an "emergency fund" of sorts.

I imagine lots of people who thought they had a stable income during past recessions learned the hard way that they actually didn't. How does one really know that their job is safe from layoffs?
brad.clarkston
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Re: Income stability --> stay the course?

Post by brad.clarkston »

Yes stay the course, do not sell low.

The layoff's are happening everywhere it's not just a meta/amazon thing, it's happened across the enter fortune 100 field and will continue to happen. I saw this coming at the start of the year there's been to much growth and now not enough capital inflow.
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shriram
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Re: Income stability --> stay the course?

Post by shriram »

case_of_ennui wrote: Tue Nov 22, 2022 3:33 pm I don't think it matters. I think what matters is having a portfolio that matches your risk tolerance along with an "emergency fund" of sorts.

I imagine lots of people who thought they had a stable income during past recessions learned the hard way that they actually didn't. How does one really know that their job is safe from layoffs?
I think emergency fund is based on certain assumptions right? e.g. market will recover within X years OR I will get a job in Y months in case of unemployment etc. There is always a risk that these assumptions may not hold true going forward. Does that mean "staying the course" is essentially taking a leap of faith ?

Also not everyone needs a job to pay expenses. If a person is already financially independent and debt free - that person may not have a strong need for the job to pay regular expenses and may be able to take more risk.
exodusNH
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Re: Income stability --> stay the course?

Post by exodusNH »

shriram wrote: Tue Nov 22, 2022 3:29 pm Bogleheads investing philosophy recommends staying the course during the market downturn. We have been following the Bogleheads community for last few years and never had any trouble staying the course so far. We always bought more stock whenever the market went down (e.g. during 2018, 2020 and 2022). Note - we have not experienced the previous recessions in 2000/01 and 2007/08.

This month (Nov 2022) tech sector saw two large layoffs by the organizations which are very profitable (FB/Amazon). While we were not impacted due to this, many people (including us) did not see it coming! At this point, I am not sure if we will be willing to invest more in the stock market if it is to go down in near future. We would rather invest (new money) in the safer assets until we have clear indication that the downturn is over.

Note - I think our asset allocation is reasonable and I don't feel the need to sell existing equity at all since we have enough cash/bonds to cover at least 3-4 years of expenses (includes mortgage payments/property taxes etc.) in case of unemployment for both me and my spouse. If at least one of us have a job, we could last even longer. But the uncertainty with the job market makes it difficult to feel excited about buying stocks for cheap (and risk loosing money).

This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
The large layoffs are really not that big in the scheme of things. Both of those companies expanded greatly over COVID. Without cheap money, they can't keep borrowing to pay those people to develop unprofitable products.

Nearly all of those people will find jobs without much effort. They might not pay as well, but the demand is out there.

Consider the number of people who walked away from Twitter when given the chance. Clearly they had no serious concerns finding employment.
case_of_ennui
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Re: Income stability --> stay the course?

Post by case_of_ennui »

shriram wrote: Tue Nov 22, 2022 3:41 pm
case_of_ennui wrote: Tue Nov 22, 2022 3:33 pm I don't think it matters. I think what matters is having a portfolio that matches your risk tolerance along with an "emergency fund" of sorts.

I imagine lots of people who thought they had a stable income during past recessions learned the hard way that they actually didn't. How does one really know that their job is safe from layoffs?
I think emergency fund is based on certain assumptions right? e.g. market will recover within X years OR I will get a job in Y months in case of unemployment etc. There is always a risk that these assumptions may not hold true going forward. Does that mean "staying the course" is essentially taking a leap of faith ?

Also not everyone needs a job to pay expenses. If a person is already financially independent and debt free - that person may not have a strong need for the job to pay regular expenses and may be able to take more risk.

Maybe I'm confused. I thought the original question posed was regarding job stability. Someone who is financially independent and debt free should care even less about layoffs.
alex_686
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Re: Income stability --> stay the course?

Post by alex_686 »

shriram wrote: Tue Nov 22, 2022 3:29 pm This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
Job stability is a input to your risk tolerance, specifically the Ability to take Risk. The classic example is that union teachers and tenured professors should treat their income as "bond like" and commission salespeople should treat their income as "equity like".

So in theory the answer is no, it should not. Those with volatility incomes should have a more conservative AA so they have a larger pool of reserves to draw on during hard times.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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AnnetteLouisan
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Re: Income stability --> stay the course?

Post by AnnetteLouisan »

I always live as if 3 bad events are likely to happen at any moment simultaneously.

So, assume you are laid off. You’ve just been laid off. What would you do differently? Do that. Then, great! You weren’t laid off. But you are prepared if you are. Carry on.

Times like this are a great time, in my opinion, to make sure your ship is shipshape for a storm. And if the storm is less damaging than expected or passes quickly, all the better.

OP, I’m having the same hesitations you are about putting more money in VTI v. Treasuries but I am staying my already conservative course with my IPS, which calls for investments in both.
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Re: Income stability --> stay the course?

Post by MarkRoulo »

shriram wrote: Tue Nov 22, 2022 3:29 pm ...snip ...

Note - I think our asset allocation is reasonable and I don't feel the need to sell existing equity at all since we have enough cash/bonds to cover at least 3-4 years of expenses (includes mortgage payments/property taxes etc.) in case of unemployment for both me and my spouse. If at least one of us have a job, we could last even longer. But the uncertainty with the job market makes it difficult to feel excited about buying stocks for cheap (and risk loosing money).

This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
I manage my finances a bit differently than the typical Bogleheads that post here.

My rules are:
  • You don't have to invest in the stock/bond market, but
  • Once you do the money doesn't come out, and
  • I don't play with my stock/bond mix based on my opinion about the market
This does NOT maximize my long-term return!

But it lets me sleep at night.

I work in the tech industry and the first item meant that I didn't feel a pressing need to invest more in stocks in early 2000. In fact, I decided to park my money in iBonds (paying 3.6% real). Early the next year I dumped more money into iBonds (paying 3.4% real) instead of buying more stocks.

The second item keeps me from getting in/out of the market because I expect to do this poorly.

And the third item keeps me from messing around with my asset allocation because I expect to do this poorly.

I also tend not to re-balance (new money just goes to restore my ideal mix) because I don't think I'd be willing to re-balance into a 90% stock loss like we saw in 1929-32. Especially if I was seeing 25% unemployment.

So ... you might want to just hold back for a bit (but keep your current investments). If the pile of cash gets embarrassingly large then invest some of it.

You'll probably sleep better, but do realize that you'll probably have a lower return than someone who just goes all-in no matter what.
delamer
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Re: Income stability --> stay the course?

Post by delamer »

case_of_ennui wrote: Tue Nov 22, 2022 3:53 pm
shriram wrote: Tue Nov 22, 2022 3:41 pm
case_of_ennui wrote: Tue Nov 22, 2022 3:33 pm I don't think it matters. I think what matters is having a portfolio that matches your risk tolerance along with an "emergency fund" of sorts.

I imagine lots of people who thought they had a stable income during past recessions learned the hard way that they actually didn't. How does one really know that their job is safe from layoffs?
I think emergency fund is based on certain assumptions right? e.g. market will recover within X years OR I will get a job in Y months in case of unemployment etc. There is always a risk that these assumptions may not hold true going forward. Does that mean "staying the course" is essentially taking a leap of faith ?

Also not everyone needs a job to pay expenses. If a person is already financially independent and debt free - that person may not have a strong need for the job to pay regular expenses and may be able to take more risk.

Maybe I'm confused. I thought the original question posed was regarding job stability. Someone who is financially independent and debt free should care even less about layoffs.
Right, it is confusing.

Usually when posters are talking about their asset allocation, they are referring to either the money they are investing for their future retirement OR the money they are currently using to support themselves during retirement.

If you are currently working, not drawing on your investments to cover expenses, and are concerned about your job security plus your ability to find another comparable job in a fairly short time, then you should have a substantial emergency fund to get you through a period of extended unemployment.

Since you already have enough in cash/short-term bonds to cover any potential unemployment, then you shouldn’t alter your long-term investing plans.

Remember that anytime you put money in the stock market, you are at risk of short-term losses. That’s why money you need to spend within a few years shouldn’t be in stocks.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Income stability --> stay the course?

Post by Jack FFR1846 »

Staying the course sometimes means making changes. But well thought out, planned changes.

For example:

Your IPS says that your AA will be age minus 10 in bonds. Your age clicks over a new year. Sure, sell some equity to make your new AA a reality.

You have just retired and you are in good shape numbers wise but you are less risk tolerant. Well, adjust your IPS to reflect this. I would recommend to think about it and review it monthly, but don't make the change for a year. If at that point, you've agreed during all of your reviews that you want more bond and less equity or even more cash, then that's fine. During the review process, research what the effect of your change will be. For example, if you want to have available cash increased, you do know that even with that cash at Mega Wonderful Online Bank at 4%, you're still not keeping up with inflation. But of course if you need to get the house painted, that money's there.

I don't know that layoffs are a strong indicator. Companies that people call "Tech" to me are different. Meta/Facebook is an online advertiser and was trendy and is past it's prime. I would not be overly surprised to see it completely gone in 5 years. Amazon is an online retailer. Twitter is a different case because it was a loser of an online advertiser that was bought by an Idiot Savant who left the Savant part home when he bought it. He's been quite consistent in his management and been steadfast in making idiodic decisions at every turn. I doubt it will exist in a year unless it's sold at a gigantic loss for the idiot at the top.

Stay the course unless you're well considered things, made reasonable plans and waited a long time before making a move.
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Re: Income stability --> stay the course?

Post by Kenkat »

Do the layoffs in the tech sector make you worry about your specific job - i.e., I work for a company not that different than those companies and things seem like they are getting tight at my current company? If that is the case, building up some reserves to fall back on might make sense if you don’t already have something solid in place. Worried about personally getting laid off? Maybe extend your emergency fund out to 6 months or a year.

If it’s just “oh, look, there’s been some layoffs in the general economy but my job seems fine”? I would just keep investing as you have been. You’ve said yourself that you have sufficient reserves, so if that is truly the case, I am not sure where the concern around job stability is coming from. By the time there is a clear indication any downturn is over, the market will already have gone back up and you will have skipped buying exactly when prices were best to buy at.
Last edited by Kenkat on Tue Nov 22, 2022 5:18 pm, edited 3 times in total.
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Re: Income stability --> stay the course?

Post by brad.clarkston »

AnnetteLouisan wrote: Tue Nov 22, 2022 4:06 pm I always live as if 3 bad events are likely to happen at any moment simultaneously.

So, assume you are laid off. You’ve just been laid off. What would you do differently? Do that. Then, great! You weren’t laid off. But you are prepared if you are. Carry on.

Times like this are a great time, in my opinion, to make sure your ship is shipshape for a storm. And if the storm is less damaging than expected or passes quickly, all the better.

OP, I’m having the same hesitations you are about putting more money in VTI v. Treasuries but I am staying my already conservative course with my IPS, which calls for investments in both.
I took the precaution of turning my EF/CD's into a T-Bill ladder at the start of the year when the rate hike was first announced.
I've also been putting all new FE money into T-Bills but overall my IPS hasn't changed it's just the bond type inside the IPS.
-- Only a Sith deals in absolutes --
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Re: Income stability --> stay the course?

Post by nguy44 »

shriram wrote: Tue Nov 22, 2022 3:41 pm I think emergency fund is based on certain assumptions right? e.g. market will recover within X years OR I will get a job in Y months in case of unemployment etc. There is always a risk that these assumptions may not hold true going forward. Does that mean "staying the course" is essentially taking a leap of faith ?
I have a slightly different view. I keep the emergency fund and investing as 2 separate items. The emergency fund is purely to support onseself (and family) in case of unemployment. When I felt my job was more stable (I *never* assumed it was completely stable), my emergency fund, cash only, would be 6 months of expenses. When I felt my job less stable, the emergency fund was a year. Once the emergency fund was established, I put my ongoing savings (job income less living expenses) towards my desired AA, which changed based on my risk tolerance. In this way I separated job stability considerations from investment considerations.

It is not too different from what I do in retirement. I set aside enough cash that will cover my ongoing living expenses (beyond what my pension covers) for several years, so at times like these the market downturn does not concern me, beyond ensuring my AA stays as I desire it to be.
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Re: Income stability --> stay the course?

Post by Broken Man 1999 »

case_of_ennui wrote: Tue Nov 22, 2022 3:53 pm
shriram wrote: Tue Nov 22, 2022 3:41 pm
case_of_ennui wrote: Tue Nov 22, 2022 3:33 pm I don't think it matters. I think what matters is having a portfolio that matches your risk tolerance along with an "emergency fund" of sorts.

I imagine lots of people who thought they had a stable income during past recessions learned the hard way that they actually didn't. How does one really know that their job is safe from layoffs?
I think emergency fund is based on certain assumptions right? e.g. market will recover within X years OR I will get a job in Y months in case of unemployment etc. There is always a risk that these assumptions may not hold true going forward. Does that mean "staying the course" is essentially taking a leap of faith ?

Also not everyone needs a job to pay expenses. If a person is already financially independent and debt free - that person may not have a strong need for the job to pay regular expenses and may be able to take more risk.

Maybe I'm confused. I thought the original question posed was regarding job stability. Someone who is financially independent and debt free should care even less about layoffs.
Well, I think the original title might have been Job/income stability --> stay the course?

I suppose all retired folks might not have as much stable income as others, perhaps endangering their desired retirement lifestyle.

We certainly have heard from many retirees who are considering to NOT stay the course because of concern of current market conditions.

Perhaps job loss of those employed AND unstable income affecting a retiree cause the same thing, inability, or unwillingness to stay the course.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
Fallible
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Re: Income stability --> stay the course?

Post by Fallible »

alex_686 wrote: Tue Nov 22, 2022 3:58 pm
shriram wrote: Tue Nov 22, 2022 3:29 pm This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
Job stability is a input to your risk tolerance, specifically the Ability to take Risk. The classic example is that union teachers and tenured professors should treat their income as "bond like" and commission salespeople should treat their income as "equity like".

So in theory the answer is no, it should not. Those with volatility incomes should have a more conservative AA so they have a larger pool of reserves to draw on during hard times.
The OP's original post was a bit confusing to me, i.e., how job stability ties into his concern about staying the course. But I think you have stated it correctly so that he can see how job stability relates to his risk tolerance and his ability to to take risk, a proper reading of which can lead him to the right asset allocation and a course he can stay.

OP, this is from the wiki's "Asset allocation" page on "ability to take risk" (also willingness, which is risk tolerance, and need to take risk), a series by Larry Swedroe:
Ability to take risk involves the investment time horizon, need for liquidity, stability of earned income, and the flexibility to adapt if there is a need for a plan B.[note 2]
https://www.bogleheads.org/wiki/Risk_to ... _take_risk

https://www.bogleheads.org/wiki/Asset_allocation
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Dandy
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Re: Income stability --> stay the course?

Post by Dandy »

Your ability to take risk tends to be less as you near retirement and/or have potential job loss.
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CyclingDuo
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Re: Income stability --> stay the course?

Post by CyclingDuo »

shriram wrote: Tue Nov 22, 2022 3:29 pmBogleheads investing philosophy recommends staying the course during the market downturn. We have been following the Bogleheads community for last few years and never had any trouble staying the course so far. We always bought more stock whenever the market went down (e.g. during 2018, 2020 and 2022). Note - we have not experienced the previous recessions in 2000/01 and 2007/08.

This month (Nov 2022) tech sector saw two large layoffs by the organizations which are very profitable (FB/Amazon). While we were not impacted due to this, many people (including us) did not see it coming! At this point, I am not sure if we will be willing to invest more in the stock market if it is to go down in near future. We would rather invest (new money) in the safer assets until we have clear indication that the downturn is over.

Note - I think our asset allocation is reasonable and I don't feel the need to sell existing equity at all since we have enough cash/bonds to cover at least 3-4 years of expenses (includes mortgage payments/property taxes etc.) in case of unemployment for both me and my spouse. If at least one of us have a job, we could last even longer. But the uncertainty with the job market makes it difficult to feel excited about buying stocks for cheap (and risk loosing money).

This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
I would imagine everyone reacts in their own unique fashion to it, as well as their particular industry and prospects. Not all downturns happen at the same time within all industries.

You asked how some of us reacted in a downturn and job stability regarding our investing, so I will answer.

My industry was in academia when our rolling downturn began forming a bit before 2017/18 as the 2014-2018 time frame represented the final years of the millennial generation entering and graduating from college. The millennial demographic was nearly as large as the Baby Boomer generation which meant that college & university enrollments had swelled, and faculty and staff had been added to account for the swell over the prior 15-20 years. In spite of the previous post that mentioned a college professor heretofore could think of their employment as more bond like - many of us quickly realized our employment was very stock like as the enrollments tapered off, dropped and faculty/staff cuts hit academia pretty hard. About 1/3 were cut from my former employer. Finding a full-time replacement job in the same niche in the same industry was not in my favor due to the entire industry throughout the US being hit with the same thing - a drop in enrollment after the great millennial generation swell and subsequent enrollment taper.

My reaction?

When I got the news in early 2018 and was informed my position was being totally eliminated at the end of that academic year along with many others, I started doing some quick mental accounting. How much in earnings, at age 56, was I going to be losing from my human capital throughout what I thought were to be my remaining years teaching at that institution? I knew I had income until the end of August, so I actually had HR take more out of my remaining paychecks to max out the 403b (with over age 50 catch ups) as it was probably the last time I would be able to max out my 403b not knowing what future employment I would be able to get.

A few months later, I knew I would be going on unemployment in the summer, and outside of still being dazed by the blow and trying to figure out my next steps - my reaction was to max out everything I could. I even plowed the unemployment money into investments (probably an emotional revenge choice, but c'est la vie). We did a deep dive on expenses and cut back on some of the lifestyle creep at home so we could throw everything we had at the market (which dipped -19.8% at the end of 2018). In our case, we were a dual income household so felt fortunate that we could have survived on my wife's salary if I wasn't able to find replacement income. Her employment is government and state mandated, so it is very bond like which was nice after finding out what I thought as a college professor was bond like turned out to be stock like.

The 2007-09 GFC didn't phase my industry very much as the millennial swell grew even stronger as even more students decided to come to college since available jobs were fewer. I had that recency bias before I started to study and learn about the demographics and what fuels the boom and bust cycles in academia.

I did piece together replacement income for the latter half of 2018 via several part-time jobs, and worked 7 days a week for three full years. We stayed the course through it all by continuing to throw what we could into our investments on automatic pilot. Ditto through the Covid shutdown even though I knew some, if not all of my part-time income jobs as adjunct professor were probably going to be short lived as enrollments dropped even more due to Covid. Sure enough - they did get cut! I could have crawled under the bed, husbanded all of our income, and not stayed the course with our investing. Instead, I retooled, learned, and took a different path to utilize and tap the remainder of my human capital as we continued staying the course.

In retrospect, it was a three and half year rough patch for me from 2018 to the end of 2021 when I finally landed a new full time position in an entirely new industry to those I had worked in prior. In retrospect, I'm not upset with our choice to stay the course with our automatic investing through it all.

I think every household, every industry, and every downturn within one's particular industry is unique. There are always rolling downturns in various industries that are not related to the overall economy. You'll have to come up with your best course of action.

CyclingDuo
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Re: Income stability --> stay the course?

Post by an_asker »

shriram wrote: Tue Nov 22, 2022 3:41 pm
case_of_ennui wrote: Tue Nov 22, 2022 3:33 pm I don't think it matters. I think what matters is having a portfolio that matches your risk tolerance along with an "emergency fund" of sorts.

I imagine lots of people who thought they had a stable income during past recessions learned the hard way that they actually didn't. How does one really know that their job is safe from layoffs?
I think emergency fund is based on certain assumptions right? e.g. market will recover within X years OR I will get a job in Y months in case of unemployment etc. There is always a risk that these assumptions may not hold true going forward. Does that mean "staying the course" is essentially taking a leap of faith ?

Also not everyone needs a job to pay expenses. If a person is already financially independent and debt free - that person may not have a strong need for the job to pay regular expenses and may be able to take more risk.
My understanding of the emergency fund is to cover emergencies. Yes, a job loss is an emergency.

Now, the question is how long do you want that emergency fund to sustain you. If you don't think that you can get a new job before that emergency fund runs out, then you need to revisit how much you want to store in that emergency fund. That's about it. Now, if you think you cannot get a job for two years, go ahead - pile up enough in that emergency fund for two years worth of expenses.

Outside of that, I would suggest you stay the course.
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Re: Income stability --> stay the course?

Post by MnD »

shriram wrote: Tue Nov 22, 2022 3:29 pm But the uncertainty with the job market makes it difficult to feel excited about buying stocks for cheap (and risk loosing money).
Buying stocks _always_ involves the risk of losing money.
In general the hotter the stock market and the overall economy is at the time of purchase, the greater the probability for an unrealized loss in the near term after purchase.

We bought stocks regularly from 1986 through 2018 and that, plus rebalancing (effectively buying more during significant market declines and vice-versa) paid off nicely. DW's income was not stable with kids, layoffs etc. Mine was stable in retrospect, but that was not guaranteed.

If and when a job loss happens you might not be able to continue investing income at the same high level as before.
But is seems like a poor plan to cut back preemptively on the basis of what ifs.

Lots of things can affect income stability besides headline layoffs.
Illness, injury, issues with dependents, individual skill issues, single company issues, etc.

If you worried about everything that might affect income stability in an actionable form i suppose one might never take investment risk.
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Re: Income stability --> stay the course?

Post by Archie Bunker »

shriram wrote: Tue Nov 22, 2022 3:29 pm Bogleheads investing philosophy recommends staying the course during the market downturn. We have been following the Bogleheads community for last few years and never had any trouble staying the course so far. We always bought more stock whenever the market went down (e.g. during 2018, 2020 and 2022). Note - we have not experienced the previous recessions in 2000/01 and 2007/08.

This month (Nov 2022) tech sector saw two large layoffs by the organizations which are very profitable (FB/Amazon). While we were not impacted due to this, many people (including us) did not see it coming! At this point, I am not sure if we will be willing to invest more in the stock market if it is to go down in near future. We would rather invest (new money) in the safer assets until we have clear indication that the downturn is over.

Note - I think our asset allocation is reasonable and I don't feel the need to sell existing equity at all since we have enough cash/bonds to cover at least 3-4 years of expenses (includes mortgage payments/property taxes etc.) in case of unemployment for both me and my spouse. If at least one of us have a job, we could last even longer. But the uncertainty with the job market makes it difficult to feel excited about buying stocks for cheap (and risk loosing money).

This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
OP......I am a newbie here so my opinion is worth less than the effort to type on the keyboard, but I am in the same mindset as you. I have always been a buy and hold (I never knew what a Boglehead was although I knew the name Bogle since I use Vanguard), but as I have reach the mid century mark, I am more susceptible to a market downturn and a derailment of plans. It really is tricky at this age as one could, through no fault of their own, end up retiring 10 years later than planned. So, at some point is seems like we have to decide if we have enough now when assets are in a safe haven to follow through with our plans later in life, or do we truly need more growth to be happier later? I just dont know the answer personally........

But, to that end, I am thinking I will take a middle road (as you seem to be pondering) where I leave existing assets alone, but I am simply putting new money (which I am ramping up as hard as I can to be something close to 2/3 of gross) into a MM and being happy with 3% for the time being.

Over a "long time", this will cost $ for sure.....but if my timetable shortens up a bit, it may be what allows me to retire in the midst of what may be a less than ideal environment. Who knows.........the period of "long time" is harder to define when one is at a certain age.
ThreeFundie
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Re: Income stability --> stay the course?

Post by ThreeFundie »

Think about the worst case. Suppose both of you lose your jobs due to a recession. Ignore, for a moment, that unemployment rarely spikes above 15% in a recession, that you are a two-income household, and that either one of you could find temporarily employment to defray some of the bills even if you lost your high-paying tech jobs. Since WW2, the longest recession has lasted eighteen months. By your own admission, you have three to four years of runway in safe assets. You would sail through a recession twice as long as 2008’s. Factor in the low probability of two job losses and I think your plan is absurdly safe.

At the same time, this is the first time in a while that expected returns on a balanced portfolio are reasonable. TIPS yields are positive, VTI/VXUS are trading at normal valuations, and the risk-free rate might even keep up with inflation for a while. Not investing right now and waiting to be “out of the woods” means waiting to invest dollars into a portfolio until the long-term expected returns on those dollars are low again. The expected value on this deal is negative.

Ultimately your investment decisions have to allow you to sleep at night. But, I think you might be at the point where the best thing to do is to work on your own psychology towards money management. You’ll be fine either way, but I really doubt you’ll be glad in ten years that you held money to the side instead of following your plan. Either way, I wish you the best.
60% VTSAX, 30% VTIAX, 10% VBTLX/G fund
KlangFool
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Re: Income stability --> stay the course?

Post by KlangFool »

OP,

1) The risk is real.

https://investor.vanguard.com/investor- ... allocation

2) Given the average annual return in the AA range of 70/30 to 30/70 is too small to matter, you should pick an AA that let you "Sleep Well At Night" (SWAN) during time like this.

3) On 1/1/2009, my employer laid off 50% of its employee at my location. My AA let me SWAN and continue investing.

4) Your AA is too aggressive. Your AA had failed your own test if you cannot continue investing at time like this.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
secondopinion
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Re: Income stability --> stay the course?

Post by secondopinion »

alex_686 wrote: Tue Nov 22, 2022 3:58 pm
shriram wrote: Tue Nov 22, 2022 3:29 pm This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
Job stability is a input to your risk tolerance, specifically the Ability to take Risk. The classic example is that union teachers and tenured professors should treat their income as "bond like" and commission salespeople should treat their income as "equity like".

So in theory the answer is no, it should not. Those with volatility incomes should have a more conservative AA so they have a larger pool of reserves to draw on during hard times.
Right on the money. Volatile income should be invested more conservatively because some of the money earned during the good times is assumed to make up for the bad times. I stash while I get good money because I might not get as much later.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Topic Author
shriram
Posts: 47
Joined: Sat Oct 07, 2017 12:10 am

Re: Income stability --> stay the course?

Post by shriram »

KlangFool wrote: Wed Nov 23, 2022 3:04 pm
2) Given the average annual return in the AA range of 70/30 to 30/70 is too small to matter, you should pick an AA that let you "Sleep Well At Night" (SWAN) during time like this.

4) Your AA is too aggressive. Your AA had failed your own test if you cannot continue investing at time like this.

KlangFool
Just for some context - we bought a house earlier this year. I had asked for a home purchase preparedness review earlier this year and got some really good advise (ref: viewtopic.php?t=367934). We heeded most of the advise and are in a much better situation as a result. Thanks for all the help :)

Prior to house purchase, I was fairly aggressive in purchasing stock - as we did not have any debt. But since the purchasing the house, I am shoring up the cash reserves in case of a bad event (e.g. unemployment etc.). As I mentioned in the original post, we have sufficient cash reserve that can last of at least 3 years even if both of us are unemployed.

I want to maintain a separate bucket (just for mental accounting) for the funds that are allocated for "survival". I don't treat this as part of the normal asset allocation. This allows us to invest in the 3 fund portfolio for long term (at least 20+ years). We use 80:20 (stock:bond) allocation strategy. The plan is to use the funds from "survival" bucket in case of worst case scenario without touching the long term investments. This is the reason why I am not bothered with the drop in the stocks/bonds in 2022 and don't feel the need to take any action on market fluctuations.

The main challenge I am having is to decide how much $ to allocate to the "survival" bucket. With all the uncertainty in the market and bad news coming very regularly, I feel like just continue to add more to this "survival" bucket. That is why I am not sure if I am actually "staying the course".

Do you follow similar strategy? In your opinion - how many years of expenses should be covered by the fixed income part of the portfolio?
Topic Author
shriram
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Re: Income stability --> stay the course?

Post by shriram »

CyclingDuo wrote: Wed Nov 23, 2022 11:12 am
shriram wrote: Tue Nov 22, 2022 3:29 pmBogleheads investing philosophy recommends staying the course during the market downturn. We have been following the Bogleheads community for last few years and never had any trouble staying the course so far. We always bought more stock whenever the market went down (e.g. during 2018, 2020 and 2022). Note - we have not experienced the previous recessions in 2000/01 and 2007/08.

This month (Nov 2022) tech sector saw two large layoffs by the organizations which are very profitable (FB/Amazon). While we were not impacted due to this, many people (including us) did not see it coming! At this point, I am not sure if we will be willing to invest more in the stock market if it is to go down in near future. We would rather invest (new money) in the safer assets until we have clear indication that the downturn is over.

Note - I think our asset allocation is reasonable and I don't feel the need to sell existing equity at all since we have enough cash/bonds to cover at least 3-4 years of expenses (includes mortgage payments/property taxes etc.) in case of unemployment for both me and my spouse. If at least one of us have a job, we could last even longer. But the uncertainty with the job market makes it difficult to feel excited about buying stocks for cheap (and risk loosing money).

This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
I would imagine everyone reacts in their own unique fashion to it, as well as their particular industry and prospects. Not all downturns happen at the same time within all industries.

You asked how some of us reacted in a downturn and job stability regarding our investing, so I will answer.

My industry was in academia when our rolling downturn began forming a bit before 2017/18 as the 2014-2018 time frame represented the final years of the millennial generation entering and graduating from college. The millennial demographic was nearly as large as the Baby Boomer generation which meant that college & university enrollments had swelled, and faculty and staff had been added to account for the swell over the prior 15-20 years. In spite of the previous post that mentioned a college professor heretofore could think of their employment as more bond like - many of us quickly realized our employment was very stock like as the enrollments tapered off, dropped and faculty/staff cuts hit academia pretty hard. About 1/3 were cut from my former employer. Finding a full-time replacement job in the same niche in the same industry was not in my favor due to the entire industry throughout the US being hit with the same thing - a drop in enrollment after the great millennial generation swell and subsequent enrollment taper.

My reaction?

When I got the news in early 2018 and was informed my position was being totally eliminated at the end of that academic year along with many others, I started doing some quick mental accounting. How much in earnings, at age 56, was I going to be losing from my human capital throughout what I thought were to be my remaining years teaching at that institution? I knew I had income until the end of August, so I actually had HR take more out of my remaining paychecks to max out the 403b (with over age 50 catch ups) as it was probably the last time I would be able to max out my 403b not knowing what future employment I would be able to get.

A few months later, I knew I would be going on unemployment in the summer, and outside of still being dazed by the blow and trying to figure out my next steps - my reaction was to max out everything I could. I even plowed the unemployment money into investments (probably an emotional revenge choice, but c'est la vie). We did a deep dive on expenses and cut back on some of the lifestyle creep at home so we could throw everything we had at the market (which dipped -19.8% at the end of 2018). In our case, we were a dual income household so felt fortunate that we could have survived on my wife's salary if I wasn't able to find replacement income. Her employment is government and state mandated, so it is very bond like which was nice after finding out what I thought as a college professor was bond like turned out to be stock like.

The 2007-09 GFC didn't phase my industry very much as the millennial swell grew even stronger as even more students decided to come to college since available jobs were fewer. I had that recency bias before I started to study and learn about the demographics and what fuels the boom and bust cycles in academia.

I did piece together replacement income for the latter half of 2018 via several part-time jobs, and worked 7 days a week for three full years. We stayed the course through it all by continuing to throw what we could into our investments on automatic pilot. Ditto through the Covid shutdown even though I knew some, if not all of my part-time income jobs as adjunct professor were probably going to be short lived as enrollments dropped even more due to Covid. Sure enough - they did get cut! I could have crawled under the bed, husbanded all of our income, and not stayed the course with our investing. Instead, I retooled, learned, and took a different path to utilize and tap the remainder of my human capital as we continued staying the course.

In retrospect, it was a three and half year rough patch for me from 2018 to the end of 2021 when I finally landed a new full time position in an entirely new industry to those I had worked in prior. In retrospect, I'm not upset with our choice to stay the course with our automatic investing through it all.

I think every household, every industry, and every downturn within one's particular industry is unique. There are always rolling downturns in various industries that are not related to the overall economy. You'll have to come up with your best course of action.

CyclingDuo
Thanks a lot for the detailed response :)
Topic Author
shriram
Posts: 47
Joined: Sat Oct 07, 2017 12:10 am

Re: Income stability --> stay the course?

Post by shriram »

MarkRoulo wrote: Tue Nov 22, 2022 4:46 pm
shriram wrote: Tue Nov 22, 2022 3:29 pm ...snip ...

Note - I think our asset allocation is reasonable and I don't feel the need to sell existing equity at all since we have enough cash/bonds to cover at least 3-4 years of expenses (includes mortgage payments/property taxes etc.) in case of unemployment for both me and my spouse. If at least one of us have a job, we could last even longer. But the uncertainty with the job market makes it difficult to feel excited about buying stocks for cheap (and risk loosing money).

This makes me wonder if job/income stability is a pre-requisite for staying the course (?) Folks who have been through this before, how did you react when you did not feel confident about job/income stability during the downturn? Any tips/suggestions to navigate through this?
I manage my finances a bit differently than the typical Bogleheads that post here.

My rules are:
  • You don't have to invest in the stock/bond market, but
  • Once you do the money doesn't come out, and
  • I don't play with my stock/bond mix based on my opinion about the market
This does NOT maximize my long-term return!

But it lets me sleep at night.

I work in the tech industry and the first item meant that I didn't feel a pressing need to invest more in stocks in early 2000. In fact, I decided to park my money in iBonds (paying 3.6% real). Early the next year I dumped more money into iBonds (paying 3.4% real) instead of buying more stocks.

The second item keeps me from getting in/out of the market because I expect to do this poorly.

And the third item keeps me from messing around with my asset allocation because I expect to do this poorly.

I also tend not to re-balance (new money just goes to restore my ideal mix) because I don't think I'd be willing to re-balance into a 90% stock loss like we saw in 1929-32. Especially if I was seeing 25% unemployment.

So ... you might want to just hold back for a bit (but keep your current investments). If the pile of cash gets embarrassingly large then invest some of it.

You'll probably sleep better, but do realize that you'll probably have a lower return than someone who just goes all-in no matter what.
Thanks for the detailed response :) I am generally following a similar strategy as yours. But I am not sure if it counts as "staying the course". My understanding is that we need to pick some asset allocation and follow it regardless of the market situation. What do you think?
KlangFool
Posts: 26799
Joined: Sat Oct 11, 2008 12:35 pm

Re: Income stability --> stay the course?

Post by KlangFool »

shriram wrote: Sun Nov 27, 2022 2:40 am
KlangFool wrote: Wed Nov 23, 2022 3:04 pm
2) Given the average annual return in the AA range of 70/30 to 30/70 is too small to matter, you should pick an AA that let you "Sleep Well At Night" (SWAN) during time like this.

4) Your AA is too aggressive. Your AA had failed your own test if you cannot continue investing at time like this.

KlangFool
Just for some context - we bought a house earlier this year. I had asked for a home purchase preparedness review earlier this year and got some really good advise (ref: viewtopic.php?t=367934). We heeded most of the advise and are in a much better situation as a result. Thanks for all the help :)

Prior to house purchase, I was fairly aggressive in purchasing stock - as we did not have any debt. But since the purchasing the house, I am shoring up the cash reserves in case of a bad event (e.g. unemployment etc.). As I mentioned in the original post, we have sufficient cash reserve that can last of at least 3 years even if both of us are unemployed.

I want to maintain a separate bucket (just for mental accounting) for the funds that are allocated for "survival". I don't treat this as part of the normal asset allocation. This allows us to invest in the 3 fund portfolio for long term (at least 20+ years). We use 80:20 (stock:bond) allocation strategy. The plan is to use the funds from "survival" bucket in case of worst case scenario without touching the long term investments. This is the reason why I am not bothered with the drop in the stocks/bonds in 2022 and don't feel the need to take any action on market fluctuations.

The main challenge I am having is to decide how much $ to allocate to the "survival" bucket. With all the uncertainty in the market and bad news coming very regularly, I feel like just continue to add more to this "survival" bucket. That is why I am not sure if I am actually "staying the course".

Do you follow similar strategy? In your opinion - how many years of expenses should be covered by the fixed income part of the portfolio?
1) You are not staying the course. Your AA changes depending on how you feel.

2) You should pick an AA that let you invest as per your AA in a bear or bull market.

3) If you can't do that as per your AA, your AA is too aggressive.

4) The problem with your market timing is it let's you buy high sell low. That is a very bad thing.

KlangFool
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MarkRoulo
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Re: Income stability --> stay the course?

Post by MarkRoulo »

shriram wrote: Sun Nov 27, 2022 3:01 am
MarkRoulo wrote: Tue Nov 22, 2022 4:46 pm ... snip ...

I manage my finances a bit differently than the typical Bogleheads that post here.

My rules are:
  • You don't have to invest in the stock/bond market, but
  • Once you do the money doesn't come out, and
  • I don't play with my stock/bond mix based on my opinion about the market
This does NOT maximize my long-term return!

But it lets me sleep at night.

I work in the tech industry and the first item meant that I didn't feel a pressing need to invest more in stocks in early 2000. In fact, I decided to park my money in iBonds (paying 3.6% real). Early the next year I dumped more money into iBonds (paying 3.4% real) instead of buying more stocks.

The second item keeps me from getting in/out of the market because I expect to do this poorly.

And the third item keeps me from messing around with my asset allocation because I expect to do this poorly.

I also tend not to re-balance (new money just goes to restore my ideal mix) because I don't think I'd be willing to re-balance into a 90% stock loss like we saw in 1929-32. Especially if I was seeing 25% unemployment.

So ... you might want to just hold back for a bit (but keep your current investments). If the pile of cash gets embarrassingly large then invest some of it.

You'll probably sleep better, but do realize that you'll probably have a lower return than someone who just goes all-in no matter what.
Thanks for the detailed response :) I am generally following a similar strategy as yours. But I am not sure if it counts as "staying the course". My understanding is that we need to pick some asset allocation and follow it regardless of the market situation. What do you think?
I tend to not get worked up over how other people label things. If some folks here want to label what I'm doing as "not staying the course" then I'm fine with that. If others do, then that's fine also. My guess is that most posters here would say that what I am doing is not staying the course, but ... it doesn't matter too much how we label it. Changing the label won't change what is happening.

What I'm doing works for me in a way that continuing to invest (or re-balance) into the stock market as (a) I lose my job and (b) the S&P is down 50%+ and dropping more every day would not. A typical response (I think?) is that I should pick a stock:bond ratio that works for me with me unemployed and the stock market down 90% (as it was in 1932 from the 1929 high). If I'd bail (or stop re-balancing) under those circumstances then I'm invested too aggressively. I don't see things that way and I have a higher stock allocation that I would if I needed to invest as if I'd just lost 90% of my financial assets plus my job.

I (mostly) don't re-balance for the same reason. Yes, I'll give up the gains to be had from moving safe bond money into stocks during a 1929-32 stock market crash, but I'm quite certain that I wouldn't actually DO that if it occurred. I suspect many folks here wouldn't do that either if they actually came face-to-face with that situation.

So ... yes, there is a good chance that what I do isn't "staying the course." It still is better [for me at least!] than (a) trying to time the market or (b) bailing during a large/scary downturn.

There are two "classic" Bogleheads threads that I think are VERY worth reading in full:
  • October 9, 2008: I can't believe I am thinking this [Panic and Survival 2008-09]
    This one begins:
    I have been retired for 10 years. I am one who has said over and over again. Stay the course. Look for the long term. Yeah, sure. That's fine until today. Today did it. I am just starting to be scared so that I won't tell my wife what happened today...stocks down...bonds down...I'm down. Our retirement funds are sucking down the drain. I lost today alone a year's worth of normal distributions for expenses. I keep thinking tomorrow will be a turn around. I have said that for 30 days.
    I am 25% capitulating tomorrow, maybe 50% to money markets....maybe all.

    This is not me. I will see tomorrow.
  • December 29, 2008: "Maximum Tolerable Loss" -- Not just a fear factor
    The highest intensity comment in this thread contains this:
    With all due respect...and I have the utmost respect for you....last fall I posted a question about rebalancing and you clearly stated that you would rebalance thru thick and thin. There was NEVER any mention of a Plan B. Now I understand that you are merely one investor here and neither I nor anyone else should invest based on what you or any other individual investor does.

    That being said, you are, indeed, one of the leaders here and it's a huge surprise/shock to see you talking about, for the first time ever to my knowledge, potentially bailing out. When Mr. Bogle talked about having to sell stocks if you were down to "X" dollars, I thought he was referring to people who had not invested like a Boglehead IN THE FIRST PLACE. The implication was that BOGLEHEADS would have the right asset allocation from the get-go to "stay the course". "Stay the course" to me, and others please correct me if I am wrong, means not selling when times get tough. I don't recall "Plan B" being in the definition of 'stay the course" I thought "Plan B" was only for people who were not on the right course to begin with (over exposed to equities/not a Boglehead to begin with).
Things (can) get scary when living through an actual downturn. In hindsight we know (a) that it WILL end, and (b) what the drop actually was. When you are in the middle you don't and things can appear as if they can go on forever getting worse and worse (or at least not getting better). My plan is designed to give me a good chance to not panic and sell out during one of these crashes while also not keeping the vast majority of my financial assets in US government bonds. So far it has worked for me through the dot-com bust (and I was a techie in Silicon Valley at the time!), the 2008 financial crisis and the 2020 covid excitement.

But, again, I left money on the table compared to someone who ran with a 70:30 stock:bond allocation, re-balanced and kept investing even as the market was crashing. I might have done better than someone who planned to do this and then bailed when things had crashed enough.
Parkinglotracer
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Re: Income stability --> stay the course?

Post by Parkinglotracer »

If you perceive that your willingness to take risk has changed due to a different long term view of the World and you in it, I would think long and hard if your new view is a knee jerk reaction to the job layoffs or market decline or whatever else is going on in your life or the world. Once that has been re looked at and your willingness to take risk TODAY and for the future as long as you can see has been determined set an asset allocation, rebalance and be done with it / sleep well at night.


It is never too late to do the right thing for you. If you change your asset allocation as economic or job cycles change you are market timing and traditionally that does not turn out well for investors. Calling vanguard to discuss their personal advisor services maybe appropriate to keep you to picking 1 course and staying on it. Not easy to do all the time. Good luck.
newyorker
Posts: 1513
Joined: Sun May 17, 2020 7:59 am

Re: Income stability --> stay the course?

Post by newyorker »

If you change your course, you are market timing which is a big no no here. But im doing the same thing lol.
Fallible
Posts: 8328
Joined: Fri Nov 27, 2009 4:44 pm

Re: Income stability --> stay the course?

Post by Fallible »

A couple points about asset allocation, the BH principle of "Stay the Course," and market timing:

1) Inherent in the BH principle of "Stay the Course" is, as Jack Bogle has said, the "right"
course, meaning the right course for one's unique needs and abilities. The course is based on the asset allocation, so if the course can't be stayed, look to the allocation.

2) Changing course is not market timing if you need to change because the allocation was not set correctly, such as too much risk for one's personal risk tolerance. (Rick Ferri, in his book All About Asset Allocation, 2nd ed., also includes other legitimate reasons to change an allocation, such as overall life changes.) Market timing basically involves predicting what the market will do, then moving your money based on that prediction. It's for the pros, who often fail at it.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Topic Author
shriram
Posts: 47
Joined: Sat Oct 07, 2017 12:10 am

Re: Income stability --> stay the course?

Post by shriram »

MarkRoulo wrote: Sun Nov 27, 2022 12:01 pm
shriram wrote: Sun Nov 27, 2022 3:01 am
MarkRoulo wrote: Tue Nov 22, 2022 4:46 pm ... snip ...

I manage my finances a bit differently than the typical Bogleheads that post here.

My rules are:
  • You don't have to invest in the stock/bond market, but
  • Once you do the money doesn't come out, and
  • I don't play with my stock/bond mix based on my opinion about the market
This does NOT maximize my long-term return!

But it lets me sleep at night.

I work in the tech industry and the first item meant that I didn't feel a pressing need to invest more in stocks in early 2000. In fact, I decided to park my money in iBonds (paying 3.6% real). Early the next year I dumped more money into iBonds (paying 3.4% real) instead of buying more stocks.

The second item keeps me from getting in/out of the market because I expect to do this poorly.

And the third item keeps me from messing around with my asset allocation because I expect to do this poorly.

I also tend not to re-balance (new money just goes to restore my ideal mix) because I don't think I'd be willing to re-balance into a 90% stock loss like we saw in 1929-32. Especially if I was seeing 25% unemployment.

So ... you might want to just hold back for a bit (but keep your current investments). If the pile of cash gets embarrassingly large then invest some of it.

You'll probably sleep better, but do realize that you'll probably have a lower return than someone who just goes all-in no matter what.
Thanks for the detailed response :) I am generally following a similar strategy as yours. But I am not sure if it counts as "staying the course". My understanding is that we need to pick some asset allocation and follow it regardless of the market situation. What do you think?
I tend to not get worked up over how other people label things. If some folks here want to label what I'm doing as "not staying the course" then I'm fine with that. If others do, then that's fine also. My guess is that most posters here would say that what I am doing is not staying the course, but ... it doesn't matter too much how we label it. Changing the label won't change what is happening.

What I'm doing works for me in a way that continuing to invest (or re-balance) into the stock market as (a) I lose my job and (b) the S&P is down 50%+ and dropping more every day would not. A typical response (I think?) is that I should pick a stock:bond ratio that works for me with me unemployed and the stock market down 90% (as it was in 1932 from the 1929 high). If I'd bail (or stop re-balancing) under those circumstances then I'm invested too aggressively. I don't see things that way and I have a higher stock allocation that I would if I needed to invest as if I'd just lost 90% of my financial assets plus my job.

I (mostly) don't re-balance for the same reason. Yes, I'll give up the gains to be had from moving safe bond money into stocks during a 1929-32 stock market crash, but I'm quite certain that I wouldn't actually DO that if it occurred. I suspect many folks here wouldn't do that either if they actually came face-to-face with that situation.

So ... yes, there is a good chance that what I do isn't "staying the course." It still is better [for me at least!] than (a) trying to time the market or (b) bailing during a large/scary downturn.

There are two "classic" Bogleheads threads that I think are VERY worth reading in full:
  • October 9, 2008: I can't believe I am thinking this [Panic and Survival 2008-09]
    This one begins:
    I have been retired for 10 years. I am one who has said over and over again. Stay the course. Look for the long term. Yeah, sure. That's fine until today. Today did it. I am just starting to be scared so that I won't tell my wife what happened today...stocks down...bonds down...I'm down. Our retirement funds are sucking down the drain. I lost today alone a year's worth of normal distributions for expenses. I keep thinking tomorrow will be a turn around. I have said that for 30 days.
    I am 25% capitulating tomorrow, maybe 50% to money markets....maybe all.

    This is not me. I will see tomorrow.
  • December 29, 2008: "Maximum Tolerable Loss" -- Not just a fear factor
    The highest intensity comment in this thread contains this:
    With all due respect...and I have the utmost respect for you....last fall I posted a question about rebalancing and you clearly stated that you would rebalance thru thick and thin. There was NEVER any mention of a Plan B. Now I understand that you are merely one investor here and neither I nor anyone else should invest based on what you or any other individual investor does.

    That being said, you are, indeed, one of the leaders here and it's a huge surprise/shock to see you talking about, for the first time ever to my knowledge, potentially bailing out. When Mr. Bogle talked about having to sell stocks if you were down to "X" dollars, I thought he was referring to people who had not invested like a Boglehead IN THE FIRST PLACE. The implication was that BOGLEHEADS would have the right asset allocation from the get-go to "stay the course". "Stay the course" to me, and others please correct me if I am wrong, means not selling when times get tough. I don't recall "Plan B" being in the definition of 'stay the course" I thought "Plan B" was only for people who were not on the right course to begin with (over exposed to equities/not a Boglehead to begin with).
Things (can) get scary when living through an actual downturn. In hindsight we know (a) that it WILL end, and (b) what the drop actually was. When you are in the middle you don't and things can appear as if they can go on forever getting worse and worse (or at least not getting better). My plan is designed to give me a good chance to not panic and sell out during one of these crashes while also not keeping the vast majority of my financial assets in US government bonds. So far it has worked for me through the dot-com bust (and I was a techie in Silicon Valley at the time!), the 2008 financial crisis and the 2020 covid excitement.

But, again, I left money on the table compared to someone who ran with a 70:30 stock:bond allocation, re-balanced and kept investing even as the market was crashing. I might have done better than someone who planned to do this and then bailed when things had crashed enough.
Thanks a lot for the detailed response. The links to previous posts were super helpful.
KlangFool
Posts: 26799
Joined: Sat Oct 11, 2008 12:35 pm

Re: Income stability --> stay the course?

Post by KlangFool »

OP,

1) I keep one to 2 years of expenses in cash as my emergency fund.

2) My AA was 70/30 gliding to 60/40. It is 60/40 now.

3) I wa unemployed for more than 1 year a few times.

KlangFool
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