Panic set in... now what?

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MotoTrojan
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Re: Panic set in... now what?

Post by MotoTrojan » Sun Nov 04, 2018 2:17 pm

BoggledHead2 wrote:
Sat Nov 03, 2018 8:28 am
Once I’ve reached my goal, I will not own stock/equity

Until I do, aggressive allocation with 50% of my take home pay invested monthly - should work out in 20 years

If it doesn’t, we have bigger problems in this work than asset allocation
Very interested to hear more. Are you planning to work/save/gain enough to withdraw an investment which has a 0% real return (TIPS)? Annuity perhaps?

BoggledHead2
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Re: Panic set in... now what?

Post by BoggledHead2 » Sun Nov 04, 2018 6:44 pm

MotoTrojan wrote:
Sun Nov 04, 2018 2:17 pm
BoggledHead2 wrote:
Sat Nov 03, 2018 8:28 am
Once I’ve reached my goal, I will not own stock/equity

Until I do, aggressive allocation with 50% of my take home pay invested monthly - should work out in 20 years

If it doesn’t, we have bigger problems in this work than asset allocation
Very interested to hear more. Are you planning to work/save/gain enough to withdraw an investment which has a 0% real return (TIPS)? Annuity perhaps?
All depends on my ending balance ... the most aggressive i’d ever be in retirement would be 40/60 - the plan is to keep my savings rate high enough for the next 15-20 years so I don’t have to take on any risk

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abuss368
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Re: Panic set in... now what?

Post by abuss368 » Sun Nov 04, 2018 8:20 pm

There are three tools an investor has at their disposal:

* Aseet Allocation
* Market Timing
* Security Selection


It has been proven time and again that Market Timing (one has to be correct twice - when to get out and when to get in!) and Security Section do not work over time. Thus an investors Asset Allocation is the most important decision that will be made and the one that will impact a portfolio the most.

I would suspect that your allocation may have not been appropriate based on your goals, timeframe, and tolerance for risk.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Toons
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Re: Panic set in... now what?

Post by Toons » Sun Nov 04, 2018 9:10 pm

Vanguard Balance Index Fund
: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

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: Panic set in... now what?

Post by MotoTrojan » Sun Nov 04, 2018 10:39 pm

BoggledHead2 wrote:
Sun Nov 04, 2018 6:44 pm
MotoTrojan wrote:
Sun Nov 04, 2018 2:17 pm
BoggledHead2 wrote:
Sat Nov 03, 2018 8:28 am
Once I’ve reached my goal, I will not own stock/equity

Until I do, aggressive allocation with 50% of my take home pay invested monthly - should work out in 20 years

If it doesn’t, we have bigger problems in this work than asset allocation
Very interested to hear more. Are you planning to work/save/gain enough to withdraw an investment which has a 0% real return (TIPS)? Annuity perhaps?
All depends on my ending balance ... the most aggressive i’d ever be in retirement would be 40/60 - the plan is to keep my savings rate high enough for the next 15-20 years so I don’t have to take on any risk
Huh? 40/60 but you said you wouldn’t hold stock/equity??? So you are aiming for 50x expenses or just working until you are 85...?

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tadamsmar
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Re: Panic set in... now what?

Post by tadamsmar » Sun Nov 04, 2018 11:09 pm

Given the size of your nest egg, if you can get by on 45k/yr inflation-adjusted withdraws long term, then to don’t need to take on more equity risk. That would have to cover all expenses including state and federal taxes.

That is one plan to consider.

BoggledHead2
Posts: 46
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Re: Panic set in... now what?

Post by BoggledHead2 » Thu Nov 08, 2018 10:26 am

MotoTrojan wrote:
Sun Nov 04, 2018 10:39 pm
BoggledHead2 wrote:
Sun Nov 04, 2018 6:44 pm
MotoTrojan wrote:
Sun Nov 04, 2018 2:17 pm
BoggledHead2 wrote:
Sat Nov 03, 2018 8:28 am
Once I’ve reached my goal, I will not own stock/equity

Until I do, aggressive allocation with 50% of my take home pay invested monthly - should work out in 20 years

If it doesn’t, we have bigger problems in this work than asset allocation
Very interested to hear more. Are you planning to work/save/gain enough to withdraw an investment which has a 0% real return (TIPS)? Annuity perhaps?
All depends on my ending balance ... the most aggressive i’d ever be in retirement would be 40/60 - the plan is to keep my savings rate high enough for the next 15-20 years so I don’t have to take on any risk
Huh? 40/60 but you said you wouldn’t hold stock/equity??? So you are aiming for 50x expenses or just working until you are 85...?
my goal is to not need the risk of equity in retirement, hence my aggressive allocation and investing/saving 53% of my income. If I need stocks for whatever reason, i will not exceed 40% of my assets ... the point: Unless it is absolutely necessary/"late to the game" - I will never be anywhere near my current allocation (100/0) in retirement.

this sounds like common sense, but i've spoken with several people older than me who freaked out about October's drop because they were a few years from retirement and lost 6-figure balances. I simply explained the allocation was way too aggressive - something i'm thinking about 20 years ahead of time.

MotoTrojan
Posts: 2486
Joined: Wed Feb 01, 2017 8:39 pm

Re: Panic set in... now what?

Post by MotoTrojan » Thu Nov 08, 2018 10:28 am

BoggledHead2 wrote:
Thu Nov 08, 2018 10:26 am
MotoTrojan wrote:
Sun Nov 04, 2018 10:39 pm
BoggledHead2 wrote:
Sun Nov 04, 2018 6:44 pm
MotoTrojan wrote:
Sun Nov 04, 2018 2:17 pm
BoggledHead2 wrote:
Sat Nov 03, 2018 8:28 am
Once I’ve reached my goal, I will not own stock/equity

Until I do, aggressive allocation with 50% of my take home pay invested monthly - should work out in 20 years

If it doesn’t, we have bigger problems in this work than asset allocation
Very interested to hear more. Are you planning to work/save/gain enough to withdraw an investment which has a 0% real return (TIPS)? Annuity perhaps?
All depends on my ending balance ... the most aggressive i’d ever be in retirement would be 40/60 - the plan is to keep my savings rate high enough for the next 15-20 years so I don’t have to take on any risk
Huh? 40/60 but you said you wouldn’t hold stock/equity??? So you are aiming for 50x expenses or just working until you are 85...?
my goal is to not need the risk of equity in retirement, hence my aggressive allocation and investing/saving 53% of my income. If I need stocks for whatever reason, i will not exceed 40% of my assets ... the point: Unless it is absolutely necessary/"late to the game" - I will never be anywhere near my current allocation (100/0) in retirement.

this sounds like common sense, but i've spoken with several people older than me who freaked out about October's drop because they were a few years from retirement and lost 6-figure balances. I simply explained the allocation was way too aggressive - something i'm thinking about 20 years ahead of time.
40/60 seems like a great strategy. 0/100 is reckless unless you have 50x expenses.

MisterMister
Posts: 37
Joined: Thu Nov 01, 2018 9:50 pm

Re: Panic set in... now what?

Post by MisterMister » Sun Nov 11, 2018 4:53 pm

In response to a suggestion, I have edited my original posting and added some additional information. Thanks.

TN_Boy
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Re: Panic set in... now what?

Post by TN_Boy » Mon Nov 12, 2018 10:22 am

MisterMister wrote:
Sun Nov 11, 2018 4:53 pm
In response to a suggestion, I have edited my original posting and added some additional information. Thanks.
I don't understand why are you complicating your life by moving assets to Vanguard. There are plenty of excellent low cost investment choices at Fidelity. I also find Fidelity's website and customer service much better than Vanguards (I've had accounts at both). There is certainly nothing wrong with moving assets to Vanguard, I just don't see how that makes anything better from an investment standpoint.

The only reason I would move assets would be if I wanted to use Vanguards low cost advisory services -- I think they are cheaper than anything comparable Fidelity has.

aristotelian
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Re: Panic set in... now what?

Post by aristotelian » Mon Nov 12, 2018 10:44 am

OP,
You are in excellent shape no matter what you do. If you want to invest conservatively, you are free to do so. You have over $1M in liquid assets with social security eligibility only a few years away, and a reasonable lifestyle well within your means.

I want to take issue with one thing you said. The approach espoused on this website is not suited for any particular kind of investor. Many folks here are retired and conservative in their allocation. You can do so yourself and stay well within the "Boglehead" approach, as long as you use a rational, low cost, diversified approach.

That said, you should keep in mind that market risk is not the only risk. Some other risks to consider are inflation and longevity. These are the biggest risks of a portfolio that is 100% bonds/fixed income. You are going to earn very little return so inflation can be a real killer. From this perspective, you are actually taking a big risk in not having stocks. The best thing you can do is protect yourself against all risks, and that argues for a diversified portfolio, which would include at least some amount of stocks. Doesn't have to be much.

Ben Mathew
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Re: Panic set in... now what?

Post by Ben Mathew » Mon Nov 12, 2018 11:45 am

You are in good shape financially. Don't worry too much. Given that you couldn't handle the relatively minor recent stock market volatility, a new approach is in order. You can go to a more conservative asset allocation: maybe 50/50? In addition to the allocation adjustment, here are some things you can do to increase your ability to withstand stock market volatility.

(1) Make sure you're fully diversified within the stock market. Include international.

(2) Think of your stock market holdings, not as numbers and tickers on your screen, but as a vast business empire spread out all across the globe, making a lot of money doing all sorts of things. You own coal mines and car manufacturers, restaurants and app developers, sports teams and garbage collectors. When you focus on the profits of your enterprise, you'll see that you own a stunningly resilient business. How many quarters of losses did the S&P 500 companies as a whole experience during the financial crisis? Answer: one. That’s it. Just one lousy quarter in the darkest depths of the most severe financial crisis that the United States has seen the Great Depression--the last quarter of 2008. The very next quarter--first quarter of 2009--this magnificent business congolmerate posted a modest profit. If you had a restaurant business that weathered the storm so well, wouldn't you relax a bit?

(3) Do a stress test. Imagine that the stock market lost half its value tomorrow. Play out the scenario in your head. Calculate how much money you'll have. Remember to focus on the earnings of your diversified global business, not just its constantly fluctuating market value. Resolve not to sell your stocks. Play it all out in your head.

(4) We're wired to run with the herd. In most aspects of life, it's a good thing. If you see everyone scream and yell and run down the street, you probably should run too. But financial markets don't work that way. Realize that your natural instincts are wrong in this domain. Be confident when you're doing nothing while others are panicking and selling.

(5) Don't check up on your portfolio too frequently.

I think you are in a good position financially. Assume:

1. Bond return (inflation adjusted): 1%
2. Stock return (inflation adjusted): 4%
3. Investments (besides house and car): $1,650,000
4. Age: 67
5. Retirement age: 65 (already retired)
6. Annual savings between now and retirement: $0
7. Retirement draw: $40,000/yr
8. Starting stock allocation (today): 50%
9. Ending stock allocation (at age 100): 20%

With these assumptions, at age 100, you will still have $1,408,434 remaining. Here's the spreadsheet I used to calculate this. I think you'll be fine if you don't do anything crazy.

Finally, I don't think you need an advisor. If you educate yourself to the point where you can evaluate advisors, you can manage your finances yourself. If you do get an advisor, get a "fee only" one (not a "fee-based" one, a highly misleadingly term).
Last edited by Ben Mathew on Mon Nov 12, 2018 1:48 pm, edited 1 time in total.

ponyboy
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Re: Panic set in... now what?

Post by ponyboy » Mon Nov 12, 2018 1:12 pm

It seems like you can play it really safe from here on out. Why not stick the $600k in a high yield savings account...they're earning 2% now. That would generate $12/year. Not a ton of money but its safe. You can even break it up and open a couple different account so its fdic insured.

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tadamsmar
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Re: Panic set in... now what?

Post by tadamsmar » Mon Nov 12, 2018 4:39 pm

ponyboy wrote:
Mon Nov 12, 2018 1:12 pm
It seems like you can play it really safe from here on out. Why not stick the $600k in a high yield savings account...they're earning 2% now. That would generate $12/year. Not a ton of money but its safe. You can even break it up and open a couple different account so its fdic insured.
I think you meant $12k/year. Or were you talking about the real return that would perhaps be closer to $12/year? :wink:

That is perhaps a ton of Venezuelan bolivars.

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