Strategy for a prolonged bear market

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basspond
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Re: Strategy for a prolonged bear market

Post by basspond » Mon Jun 11, 2018 11:31 pm

Four - five years of expenses in less volatile instruments.

tibbitts
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Re: Strategy for a prolonged bear market

Post by tibbitts » Mon Jun 11, 2018 11:41 pm

MrPotatoHead wrote:
Mon Jun 11, 2018 10:46 pm
tibbitts wrote:
Mon Jun 11, 2018 10:10 pm
MrPotatoHead wrote:
Mon Jun 11, 2018 7:48 pm
It is not in an IPS, but I have a lifestyle alteration/commitment contingency plan that kicks in in the event I cannot refill my expense bucket's via dividend's and interest. Essentially I alter my food consumption pattern which is a large portion of expenses, thus effectively lowering my expenses in order to compensate for portfolio deterioration. The idea is I do not want to sell my principle stake. I have looked at this closely and we figure we can easily cut our food bill by 75% fairly easily. And I can go up to 85% without too much difficulty. So that would lower my expense by about 21-23%. So that would drop me from a 1.44% withdraw rate to a 1.114% withdraw rate. Of course we are talking the likely hood of perhaps a 70% portfolio haircut so the % would change.

This also doubles as a catastrophic event plan. In part it stems from what my grandfather did in the depression, lessons that were not lost on me.
Things would have to go pretty far south to not be able to earn 1.44% from a portfolio. But I suspect that for all the talk of 3% vs. 4% around here, lots of Bogleheads are going to be in that 1-2% range, even in the best of times. I wish that would be true for me but - not going to happen.
Well the central point I was trying to make was not about my preferred withdraw percentage but what I intend to do if I think we are getting to the point where I might need to consider liquidation of assets in order to generate cashflow.

In our case the ability to produce and preserve the majority of our own food (we prep for it biannually) could save us over 20% of our annual budget, thus buying us more time before liquidation might be needed. Canceling Internet service, ceasing driving, reducing energy consumption all would also be on the table. But food is easy for us.

In other words I part of our plan is for a reduced level of consumption that we can adopt with little effort.
I guess at such low WR I'd already be in a relatively safe AA such that the balance would be unlikely to decline to the point of needing a Plan B.

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Toons
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Re: Strategy for a prolonged bear market

Post by Toons » Tue Jun 12, 2018 2:13 pm

Chrono Triggered wrote:
Mon Jun 11, 2018 5:05 pm
Toons wrote:
Mon Jun 11, 2018 11:24 am
If you have time on your side,,,
10 years minimum
Increase your allocation to equities.
Doom and Gloom scenarios,the death of equities,,,
Great news for wealth building

💪💪
+1.

I'm 31, 100% in stocks, work in the federal government, and max out my 401K, IRA, and HSA. A prolonged bear market would be extremely beneficial for me.
Excellent,,with that mindset you are going to reach all of your financial goals. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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CaliJim
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Re: Strategy for a prolonged bear market

Post by CaliJim » Tue Jun 12, 2018 2:32 pm

CaliJim wrote:
Mon Jun 11, 2018 10:44 am
In an extended bear, an 'age in bonds' type AA glide path will reduce the amount by which one sells bonds to 'catch a falling knife'.
To explain a bit more:

I take math and rebalancing (annually or per bands) as a given. AA and Risk Tolerance are open to more debate.

Rebalancing an 80/20 portfolio after a 50% decline in stock prices requires selling 66% of bonds.
Rebalancing a 20/80 portfolio after a 50% decline in stock prices requires selling 11% of bonds.

Having a 80/20 allocation vs a 20/80 allocation is quite different depending on the size of the portfolio and planned WR

Most folks are well advised to take some risk off the table as they approach retirement by having more in bonds. It will reduce losses in both short and prolonged bears.

Preparing before the bear (ie. now) is key. Low planned WR is key. Bonds and liability matching are key.

See also:
* Adrian's rule: Set stock allocation% = 2x maximum tolerable investment loss%.
Adrian Nenu wrote:
Mon Oct 12, 2009 2:08 pm
How much money can you stand to lose?
Can you make up the loss?
Can you sleep well with the loss?
Can you stay the course with the loss?
Can you rebalance with the loss?

These are questions investors must ask themselves because every investor is different. Boilerplate asset allocations based on age/time may or may not work because age is the only thing investors have in common. Think about that - nothing but age in common so asset allocations must be different to be suitable for each individual.

Adrian
anenu@tampabay.rr.com
-calijim- | | For more info, click this Wiki

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ray.james
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Re: Strategy for a prolonged bear market

Post by ray.james » Tue Jun 12, 2018 2:46 pm

CaliJim wrote:
Tue Jun 12, 2018 2:32 pm
CaliJim wrote:
Mon Jun 11, 2018 10:44 am
In an extended bear, an 'age in bonds' type AA glide path will reduce the amount by which one sells bonds to 'catch a falling knife'.
To explain a bit more:

I take math and rebalancing (annually or per bands) as a given. AA and Risk Tolerance are open to more debate.

Rebalancing an 80/20 portfolio after a 50% decline in stock prices requires selling 66% of bonds.
Rebalancing a 20/80 portfolio after a 50% decline in stock prices requires selling 11% of bonds.

Having a 80/20 allocation vs a 20/80 allocation is quite different depending on the size of the portfolio and planned WR

Most folks are well advised to take some risk off the table as they approach retirement by having more in bonds. It will reduce losses in both short and prolonged bears.

Preparing before the bear (ie. now) is key. Low planned WR is key. Bonds and liability matching are key.

See also:
* Adrian's rule: Set stock allocation% = 2x maximum tolerable investment loss%.
Adrian Nenu wrote:
Mon Oct 12, 2009 2:08 pm
How much money can you stand to lose?
Can you make up the loss?
Can you sleep well with the loss?
Can you stay the course with the loss?
Can you rebalance with the loss?

These are questions investors must ask themselves because every investor is different. Boilerplate asset allocations based on age/time may or may not work because age is the only thing investors have in common. Think about that - nothing but age in common so asset allocations must be different to be suitable for each individual.

Adrian
anenu@tampabay.rr.com
I miss Adrian. One of his most underrated post is setting stocks to 50% until, one faces his first recession. He goes in-depth to explain how it is both less impact(because of low accumulation in early career) and very meaningful for one's measure of risk.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

Green Street
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Re: Strategy for a prolonged bear market

Post by Green Street » Tue Jun 12, 2018 7:00 pm

Buy More.
Searching Through The FiRE

Blueskies123
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Re: Strategy for a prolonged bear market

Post by Blueskies123 » Tue Jun 12, 2018 7:45 pm

I have not read posts on a prolonged bear market in bonds. Having lived though the 70's I have seen a decade long bond bear market as interest rates went up to 17.5%. My first mortgage was at 12.5%. I did not think that was too bad since my Fidelity money market fund was yielding 15% around that time.
I am 50% stocks and 50% bonds and will stay that way but I have shortened my durations and sold some funds and bought 2 year treasuries and CDs. If rate expectations or inflation continue to go up I will move more money out of bond ETFs and fund and put more in 2 year treasuries.

2015
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Re: Strategy for a prolonged bear market

Post by 2015 » Tue Jun 12, 2018 7:59 pm

Teague wrote:
Mon Jun 11, 2018 6:45 pm
Chrono Triggered wrote:
Mon Jun 11, 2018 5:05 pm

I'm 31, 100% in stocks, work in the federal government, and max out my 401K, IRA, and HSA. A prolonged bear market would be extremely beneficial for me.
I worked for a government agency for 20 years, maxing out my accounts as you describe you do. During 2008-9, I was 50 years old, and I owed more than our house was worth because of the crash in property values. Our entire work group was de-funded as a result of panicked lawmakers passing austerity legislation with little understanding of, or regard for, the consequences. Up until then we thought that we were recession-proof because our work was critical to public health. We were given our 30-day pink slips and had to figure out who would archive the last cases and turn off the lights on the way out the door. I sincerely hope nothing like this ever happens to you, or anyone else. But please be aware that it is possible.
Key point! Research shows many a retirement plan has been derailed in one's 50's (aka "the 50's minefield") due to job loss or serious health condition from which one is unable to recover.

pkcrafter
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Re: Strategy for a prolonged bear market

Post by pkcrafter » Tue Jun 12, 2018 8:01 pm

Ron Scott wrote:
Mon Jun 11, 2018 7:38 pm
I didn't see it mentioned above so I'll throw out the obvious Plan B for a particular class of investor.

This is for those who are a) retired, b) not really employable, c) depend on a relatively high WR and d) who have maintained an overly aggressive equity position in their AA. These retirees are literally de-accumulating and need more than their income (SS and dividends) to fund their ongoing expenses. They have likely relied on historical market return analyses to develop their financial plans.

It seems likely that there are hundreds of thousands of American retired couples in this boat.

Plan B: You start to sell equities at their lows just to live and begin the death spiral while you pray for a rebound.
No one likes that one, but you're right. Out at the far ends of the scale, you either have need or ability, but you don't have both.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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MossySF
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Re: Strategy for a prolonged bear market

Post by MossySF » Tue Jun 12, 2018 8:15 pm

Bear steaks.

keepingitsimple
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Re: Strategy for a prolonged bear market

Post by keepingitsimple » Wed Jun 13, 2018 12:26 pm

OP here. Many thanks to all who responded with their strategy and opinions. Your insight is much appreciated!

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bottlecap
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Re: Strategy for a prolonged bear market

Post by bottlecap » Wed Jun 13, 2018 12:39 pm

keepingitsimple wrote:
Sun Jun 10, 2018 11:19 pm
In the event of a prolonged bear market (define the timeframe as you will), does your Investment Policy Statement (IPS) contain a strategy beyond "stay the course" and "rebalance by directing funds to the decreased asset"? I'm just curious if other Bogleheads have adopted lesser discussed strategies. To be clear, I'm not questioning the above two strategies. Rather, I'm simply enquiring so as to learn more. Thanks to all in advance.
No. I can’t predict the market in good or bad times.

The only things I can do is work harder, save more, and spend less.

JT

suewolf
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Re: Strategy for a prolonged bear market

Post by suewolf » Wed Jun 13, 2018 1:06 pm

OP asked if our Investment Policy Statement had a contingency for bear market......mine does not. My view is that my asset allocation is designed for the long term. The long term will include bull and bear markets. the key is not to change asset allocations in either.

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Rowan Oak
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Re: Strategy for a prolonged bear market

Post by Rowan Oak » Tue Jun 19, 2018 12:18 pm

Sandtrap wrote:
Mon Jun 11, 2018 8:47 am
Liability Matching Portfolio able to withstand most any market fluctuation no matter how deep or how long.
Built in Exit strategy.
j
Could you give details or refer me to a post where you have? Thank you!
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Sandtrap
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Re: Strategy for a prolonged bear market

Post by Sandtrap » Tue Jun 19, 2018 12:24 pm

Rowan Oak wrote:
Tue Jun 19, 2018 12:18 pm
Sandtrap wrote:
Mon Jun 11, 2018 8:47 am
Liability Matching Portfolio able to withstand most any market fluctuation no matter how deep or how long.
Built in Exit strategy.
j
Could you give details or refer me to a post where you have? Thank you!
Research past threads and archives and books.

Bernstein Liability Matching Portfolio
Kitces Bond Tent
Retirement Red Zone
Sequence of Returns Risk (how to negate)

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Rowan Oak
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Re: Strategy for a prolonged bear market

Post by Rowan Oak » Tue Jun 19, 2018 12:26 pm

Sandtrap wrote:
Tue Jun 19, 2018 12:24 pm
Rowan Oak wrote:
Tue Jun 19, 2018 12:18 pm
Sandtrap wrote:
Mon Jun 11, 2018 8:47 am
Liability Matching Portfolio able to withstand most any market fluctuation no matter how deep or how long.
Built in Exit strategy.
j
Could you give details or refer me to a post where you have? Thank you!
Research past threads and archives and books.

Bernstein Liability Matching Portfolio
Kitces Bond Tent
Retirement Red Zone
Sequence of Returns Risk (how to negate)
Okay thank you!
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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