Poll: Imagine this Worst Case Scenario. What to do?

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Please read the scenario in the post below before responding to this poll. Thank you.

Buy stocks to rebalance back to my original target, trusting that the markets will eventually recover.
43
44%
Buy stocks to rebalance back to my original target, trusting that the markets will eventually recover.
43
44%
Increase my stock allocation even higher than it was before the war because stocks by any measure are relatively cheap compared to historical measures.
11
11%
 
Total votes: 97

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jidina80
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Poll: Imagine this Worst Case Scenario. What to do?

Post by jidina80 » Sat Jun 11, 2011 12:00 am

Imagine: We wake up tomorrow to learn that a nuclear war has broken out in the Mid-East. Stock markets worldwide are down 50%. Your total portfolio is now worth ___. A more conventional war is expected to continue with the world’s major powers taking opposing sides. Experts tell us that world oil supplies and commerce are severely disrupted and that it will take years, if ever, before the global economy recovers. Talking heads in the media tell us the markets could go down a lot further. A few more weeks go by and stocks remain depressed at 40%-60% below prior levels. Bonds are also down a little, with default concerns. What do you do with your portfolio?

Just.

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White Coat Investor
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Post by White Coat Investor » Sat Jun 11, 2011 1:05 am

Who cares about the darn portfolio? I'm worried about my job, my family, and being called up to go back to war. But if all that was okay, I'd keep buying stocks and bonds.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Post by Manbaerpig » Sat Jun 11, 2011 1:44 am

this is actually a cross between a zombie scenario and a return-to-self-sustaining-agriculture-in-a-remote-area

agreed portfolio likely irrelevant, sounds like I dont have a job now nor much chance of finding one in this scenario

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jidina80
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Post by jidina80 » Sat Jun 11, 2011 2:39 am

This posting is intended to be one of many worst case scenarios to test one's investments. There are many others:

1) A collapsing of the U.S. dollar, due perhaps to extreme public debt or global inflation;

2) A much faster-than-expected global climate change, causing extreme weather events that cause famine and global social unrest;

3) A terrorist attack that disrupts our confidence in secure food sources, or a highly-contagious infection that incapacitates or kills tens of millions of people.

Yes, I labeled this post 'Worst Case Scenario', but what would you do?

Just.

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Sheepdog
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Post by Sheepdog » Sat Jun 11, 2011 4:15 am

Worst case scenario? Worst case? At such a time, money and investing would be the least of my concerns. I could not answer the poll as written. Worst case to me would be surviving physically and helping others survive, not what is left of my stocks or bonds. Realize that most people of our world, even our country, already have none or, if they do, very little. I needed "none of the above" or "pray and assist.".
Jim
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Opponent Process
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Post by Opponent Process » Sat Jun 11, 2011 5:40 am

disaster porn.
30/30/20/20 | US/International/Bonds/TIPS | Average Age=37

bpp
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Post by bpp » Sat Jun 11, 2011 6:35 am

I'm with the ones who say "you won't care." You'll be occupied with other issues. Worrying about your portfolio may even seem like an obscene misallocation of priorities to you.

I realized recently that I hadn't checked my portfolio for two and a half months after the recent earthquake/tsunami/meltdown. Probably missed some rebalancing opportunities, but just didn't care.

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Post by Sidney » Sat Jun 11, 2011 6:42 am

Opponent Process wrote:disaster porn.
The sky fell today in early trading .....
I always wanted to be a procrastinator.

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Opponent Process
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Post by Opponent Process » Sat Jun 11, 2011 7:01 am

I think we should wake up today and take care of the actual problems we have today. endlessly fantasizing about bigger problems make us feel better about our current problems, but it's only a form of procrastination. and no rapture is going to save anybody.
30/30/20/20 | US/International/Bonds/TIPS | Average Age=37

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praxis
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Post by praxis » Sat Jun 11, 2011 7:11 am

Interesting question. I see how my first reaction would be more personal survival-oriented than financial security, but that doesn't answer your question.

Just like after a car accident. I imagine as the vehicles come to a stop, my mind's order of concern to be: 1. deaths 2. injuries 3. danger to survivors 4. provide assistance 5. call help 6. cost. But that doesn't mean that I don't consider the financial impact eventually, just because it pales compared to the extreme physical consequences.

After devoting my life to achieving financial security for my family, I would certainly try to formulate a survival strategy to preserve any resources that survive the first shock in your various scenarios.

This makes those that currently stockpile food, water, gold coins and guns in their bunker look smart. They'll be vindicated post-disaster. Would they trade me some of their water for some of my stocks then?

I would be in the same boat as others with my prize portfolio. It would be pretty late to try to re-balance or cash out and buy something more usable like gold or food. As I re-read your what-if scenarios, I do not believe they are impossible. They could happen in some version someday.

I would be in a jam. My diversification between stocks and bonds wouldn't bail me out. I am not prepared for this.

bpp
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Post by bpp » Sat Jun 11, 2011 7:44 am

praxis wrote:After devoting my life to achieving financial security for my family, I would certainly try to formulate a survival strategy to preserve any resources that survive the first shock in your various scenarios.
I think the point is that whatever you are going to do about a big shock to the system had better be done before it happens. Set things up in advance so that your portfolio will (hopefully) still be there when you are ready to tap it to rebuild, but don't expect to be doing anything with it soon after the event (at least, not anything smart).

Your comparison to a car accident is apt. Your judgment will be impaired for a while after, even if you don't realize it. Don't plan to depend on it.

slick_dealer_05
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Post by slick_dealer_05 » Sat Jun 11, 2011 7:47 am

In the long term, all of us are dead.
Yet, one of the biggest fears of Bogleheads is running out of money while we are still alive.

SP-diceman
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Post by SP-diceman » Sat Jun 11, 2011 8:34 am

I have:
33.47% equities
56.42% bonds
10.11% commodities
Monte Carlo simulation shows its the best portfolio for this scenario. :)

Lets remember, the market declined more in the great depression than it ever did in war.

While it may be horrible to be in it, disasters create demand.
Global famine will create a demand for food, farming, fertilizer.
Earthquakes/floods create a demand for construction, building.

The world doesn’t stop because something bad happens.



Thanks
SP-diceman

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Judsen
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Post by Judsen » Sat Jun 11, 2011 8:49 am

The tenacity and perseverance of my determination to procrastinate leads me to believe that I would continue to do nothing. I already have too much percent wise in equities (84%) and am unwilling to sell low or buy more low at the age of 75.
Be the change you want to see in the world

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Boglenaut
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Post by Boglenaut » Sat Jun 11, 2011 10:45 am

SP-diceman wrote: Monte Carlo simulation shows its the best portfolio for this scenario.
I don't think you understand the limitations of Monte Carlo simulation.

norm
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Post by norm » Sat Jun 11, 2011 11:55 am

The hell with my portfolio I would stockpile canned food, medical supplies, guns and ammo and then drive upstate to the mountains to be as far away from NYC as possible.

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jidina80
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Post by jidina80 » Sat Jun 11, 2011 1:47 pm

Imagining specific scenarios can help us realize whether we have too much of our portfolio in risky investments. Stocks DO go down 50% occassionally. I wasn't trying to imply that there aren't more important or bigger issues in one's life than money.

Those who responded with either of the first 2 options on the poll; that they would either sell stocks or not rebalance into stocks, probably are holding too much of a stock allocation in their portfolio right now.

My thinking is that the last 3 options on the poll are all acceptable 'boglehead' behavior. Warren Buffett would probably pick the last option.

Just.

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Post by Beagler » Sat Jun 11, 2011 1:57 pm

Anyone focusing on their portfolio during such a scenario needs to have their head examined.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

leonard
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Post by leonard » Sat Jun 11, 2011 4:07 pm

With limited nuclear war, my IPS says to stay the course.

However, with a zombie apocalypse that hits the continental US, my IPS does call for adjusting my bond allocation up 5%. Probably a boglehead grey area, but how could I be expected to stay the course in that instance?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Post by imagardener » Sat Jun 11, 2011 4:26 pm

Why don't we look at this through the eyes of someone going through this right now, say someone living in a war zone. They have some savings and are trying to decide what the prudent course of action would be.

They are not theorizing, they are in it.
What would I do? Spend as much money as it takes to secure the safety of my family first, that would require selling/liquidating some investments and maybe moving them out of harms way. After that I am sure I would put most of my money in the safest place possible to earn a return with lower risk and assume that would be bonds but it could also be large cap stocks with dividends.

The question would be how is my country's financial sector functioning and how I would have access to money when needed. It's always the nuts and bolts that concern me. Show me the money comes to mind. In times of trouble it's back to basics.

bond50
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Post by bond50 » Sat Jun 11, 2011 4:43 pm

In that scenario, I would enlist in the military. My portfolio would be the least of my concerns.

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Post by JW-Retired » Sat Jun 11, 2011 5:54 pm

I voted (2). At my age, I treat any sort of major drop in stocks as a potential worst case scenario. Worst case in my mind means stocks decline drastically even more then your 50%, and stay there for a decade or two. I want to withstand that so I would not rebalance, same as I did not in 08/09.

Actually, I don't think much of this slavish rebalancing at any age. IMO it's pretty naive to think that an AA someone writes down in their IPS during good times is really going to suit their needs in the depths of some long economic crisis.
JW

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Post by NoRoboGuy » Sat Jun 11, 2011 6:30 pm

If a real black swan event occurs (nuke, meteor hit, etc.) I am not sure just how it would be relevant to investing - like everything else, it would be chaos. Everyone can decide what level of preparedness is realistic and reasonable. To me, preparedness is not an investing discussion.

The probability of a nuke or meteor hit is very low, and there is not a whole lot I can do about it anyway, so I choose not to worry. It's not 'ignorance is bliss', just pragmatism.

Everything else is just noise. 2008-09 was not pleasant, but looking back on my life - becoming an adult during the 1970s, being an investor during the 1987 crash and 9/11 - things looked very bleak each of those times. Yet, staying the course was the right decision - even in the 70s. That does not mean it is easy or that you always come out ahead.

There is no free lunch when investing. There is (inflation) risk even when holding cash or T-Bills, or holding gold and ammo (commodities generate no real return, only speculative return).

Passive investing is no different than any other methodology when you consider there is never the guarantee of a positive outcome.
There is no free lunch.

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rcshouldis
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Re: Poll: Imagine this Worst Case Scenario. What to do?

Post by rcshouldis » Sat Jun 11, 2011 6:35 pm

jidina80 wrote:Imagine: We wake up tomorrow to learn that a nuclear war has broken out in the Mid-East. Stock markets worldwide are down 50%. Your total portfolio is now worth ___. A more conventional war is expected to continue with the world’s major powers taking opposing sides. Experts tell us that world oil supplies and commerce are severely disrupted and that it will take years, if ever, before the global economy recovers. Talking heads in the media tell us the markets could go down a lot further. A few more weeks go by and stocks remain depressed at 40%-60% below prior levels. Bonds are also down a little, with default concerns. What do you do with your portfolio?

Just.
Imagine: You don't wake up tomorrow because the Earth was attacked and destroyed by super aliens. What do you do with your portfolio?

1) buy alien stock in spirit
2) sell if you could just find where the light switch is
3) put it all in cgmfx hoping to hit it big again with your buddy Ken.
4) admit defeat and give it all to Harold Camping

no_name
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Post by no_name » Sat Jun 11, 2011 6:36 pm

Collapse of the U.S. of America.

What then?

grabe an AK-47 and walk to the grocery store?

leonard
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Post by leonard » Sat Jun 11, 2011 7:13 pm

JW Nearly Retired wrote:I voted (2). At my age, I treat any sort of major drop in stocks as a potential worst case scenario. Worst case in my mind means stocks decline drastically even more then your 50%, and stay there for a decade or two. I want to withstand that so I would not rebalance, same as I did not in 08/09.

Actually, I don't think much of this slavish rebalancing at any age. IMO it's pretty naive to think that an AA someone writes down in their IPS during good times is really going to suit their needs in the depths of some long economic crisis.
JW
If you don't write an IPS and establish an AA that will cover the worst case, what's the point in creating an IPS or AA at all? I thought that's what they were for.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Post by Johm221122 » Sat Jun 11, 2011 7:19 pm

Nucluer war and markets open,I don't thick so.It would be too late once it happened

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jidina80
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Post by jidina80 » Sat Jun 11, 2011 7:43 pm

Johm221122 wrote:Nucluer war and markets open,I don't thick so.It would be too late once it happened
Then make up your own scenario where stocks are suddenly down 50% and almost all the talking heads are pessimistic. The point is 'What would you do with your portfolio in such conditions?'

(edited to add 'suddenly')

Just.
Last edited by jidina80 on Sat Jun 11, 2011 9:54 pm, edited 1 time in total.

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Post by Johm221122 » Sat Jun 11, 2011 7:57 pm

Down 50% stay course,end of the world as we know it,I don't think it would matter.

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Post by SP-diceman » Sat Jun 11, 2011 8:32 pm

jidina80 wrote:
Johm221122 wrote:Nucluer war and markets open,I don't thick so.It would be too late once it happened
Then make up your own scenario where stocks are down 50% and almost all the talking heads are pessimistic. The point is 'What would you do with your portfolio in such conditions?'
Didn't we just do that in 2008?

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Post by Leesbro63 » Sat Jun 11, 2011 8:54 pm

Johm221122 wrote:Down 50% stay course,end of the world as we know it,I don't think it would matter.
Staying the course requires rebalancing. Would you have the fortitude to do so? I didn't in 2008. It turned out to have been the wrong thing, but probably was the correct decision. Because the consequences would have been deadly had the DOW gone from 6600 to 3300 instead of 12700. So again I ask: With markets down 50% quickly and painfully, would you have the guts to rebalance "safe" money into "risk" money?

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Post by Leesbro63 » Sat Jun 11, 2011 8:56 pm

SP-diceman wrote:
jidina80 wrote:
Johm221122 wrote:Nucluer war and markets open,I don't thick so.It would be too late once it happened
Then make up your own scenario where stocks are down 50% and almost all the talking heads are pessimistic. The point is 'What would you do with your portfolio in such conditions?'
Didn't we just do that in 2008?
Yes. And as I stated above, I committed what Larry Swedroe called a misdemeanor for not rebalancing, but avoided a felony by NOT selling equity after a big drop. But I am not sure failure to rebalance is really even a misdemeanor because it's Pascal's Wager. Truthfully I think it's a hole in BOGLEHEAD theory that, perhaps, cannot be fixed.

bpp
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Post by bpp » Sat Jun 11, 2011 9:10 pm

Leesbro63 wrote:
SP-diceman wrote:
jidina80 wrote:
Johm221122 wrote:Nucluer war and markets open,I don't thick so.It would be too late once it happened
Then make up your own scenario where stocks are down 50% and almost all the talking heads are pessimistic. The point is 'What would you do with your portfolio in such conditions?'
Didn't we just do that in 2008?
Yes. And as I stated above, I committed what Larry Swedroe called a misdemeanor for not rebalancing, but avoided a felony by NOT selling equity after a big drop. But I am not sure failure to rebalance is really even a misdemeanor because it's Pascal's Wager. Truthfully I think it's a hole in BOGLEHEAD theory that, perhaps, cannot be fixed.
In that particular case, I diligently rebalanced through the dip. But it was merely the collapse of the world financial system that was being contemplated then.

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Post by Noobvestor » Sat Jun 11, 2011 9:21 pm

bond50 wrote:In that scenario, I would enlist in the military. My portfolio would be the least of my concerns.
Doesn't work for everyone, though.
Beagler wrote:Anyone focusing on their portfolio during such a scenario needs to have their head examined.
I would have said the opposite - not worrying about your assets during a potentially prolonged and likely offshore war (i.e. where you are not inside an active war zone)? When is a *better* time to worry about them?! Maybe I just misunderstand your emphasis, but I would appreciate more details.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

Leesbro63
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Post by Leesbro63 » Sat Jun 11, 2011 9:30 pm

Noobvestor wrote: I would have said the opposite - not worrying about your assets during a potentially prolonged and likely offshore war (i.e. where you are not inside an active war zone)? When is a *better* time to worry about them?! Maybe I just misunderstand your emphasis, but I would appreciate more details.
+1

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Post by ofcmetz » Sat Jun 11, 2011 11:18 pm

norm wrote:The hell with my portfolio I would stockpile canned food, medical supplies, guns and ammo and then drive upstate to the mountains to be as far away from NYC as possible.
lol.

For me, this situation would mean tons of overtime at work, but only if the military wouldn't take me. I would volunteer for the military (preferably infantry) if they would take an in shape 31 year old. I'd put all life's savings in a target retirement fund before shipping off. If and when I returned from whatever action was to be had then I would look at my balances.
Never underestimate the power of the force of low cost index funds.

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spanky123
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Post by spanky123 » Sat Jun 11, 2011 11:42 pm

Convert most holdings to gold and the rest to buy non-perishable food supply.

Leesbro63
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Post by Leesbro63 » Sun Jun 12, 2011 12:00 am

spanky123 wrote:Convert most holdings to gold and the rest to buy non-perishable food supply.
By the time you know to do this, the "holdings" will have already crashed and the gold rocket will have long ago left the station without you.

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Post by tripleb » Sun Jun 12, 2011 12:39 am

I invest in the Permanent Portfolio which is 25% stocks, 25% bonds, 25% cash and 25% gold. If the stock market dropped 50% then I imagine gold may jump 300% or more so I am not worried. I would rebalance back into stocks by selling gold.

Yet another reason to love the PP because then I don't have to worry about events like this with respect for my finances.

citydweller00
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Post by citydweller00 » Sun Jun 12, 2011 1:00 pm

There's no way to know what you would do in this situation unless the event actually happened. THEN you would find out what you would do. If it's just a hypothetical situation like in the OP, your emotions aren't involved in the decision like they would be if the "event" actually transpired, so I'm not sure this poll is very useful.

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Post by Johm221122 » Sun Jun 12, 2011 1:22 pm

I would buy and rebalance until I had only my emergency fund,i would go all stocks if market fell70%

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Post by rwwoods » Sun Jun 12, 2011 2:28 pm

I'm with citydweller00
"I'm not so much concerned about the return on my money as the return of my money" - Will Rogers

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Post by AndroAsc » Sun Jun 12, 2011 8:20 pm

Actually, a nuclear war might be different. I know... we have heard that before. BUT

What happens if one of the major economic zones on Earth (North America, Eurozone or Asia) got nuked to the point that everyone dies and the entire continent rendered uninhabitable due to radiation or whatever? Wouldn't that mean that any stocks invested in those regions will be unrecoverable?

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