Lessons from this crash

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
GAAP
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Re: Lessons from this crash

Post by GAAP »

rgs92 wrote: Fri May 13, 2022 11:59 am (1.) Q: Take pension as a lump sum or annuity? The replies often advise the lump sum option since you could invest your money and get a higher rate of return. Now risk and SORR (sequence of return risk) seems more important. Now the comfort and value of a lifelong series of payments seems a lot more desirable to sleep at night, even with inflation. It functions a ballast to pay your bills if you are living off your investments.
The reality of most pensions in the USA is that the amount of money you get is based upon the expected returns of the plan -- returns that are frequently quite a bit more than likely for any investment that most retirees would make. A bequest motive may change the calculation somewhat, but otherwise the NPV of the income stream from most USA pensions is much better than the lump sum amount. Pensions in other countries that don't allow the funky accounting we use here may be a different story.

My wife took a lump sum payment, but that was due to insecurity about the survival of the pension plan itself, not any assumption of better return. I took a lump sum for a small (~$10K) amount, but it had no COLA and paid LT Treasury rates.
rgs92 wrote: Fri May 13, 2022 11:59 am (7.) This one might be controversial: Q. Are there any investments that track inflation? I think the answer is no. Only Social Security and a cost-of-living-adjusted pension do. So deferring Social Security by spending down a portfolio may be considered such an investment.
Very few pensions actually track inflation completely. Most have a fixed limit of 2-3%. Even the ones that do better often have an upper limit that would be exceeded in today's inflationary environment. Social Security is about the only thing with a true COLA. Delaying is absolutely a good choice -- but keep an eye on future funding...
rgs92 wrote: Fri May 13, 2022 11:59 am So what's actionable here? With both stocks and bonds, over the long term you've just got to take the bitter with the sweet, but you will be decently rewarded eventually.
Yup. I'm retired at 75/25 with no plans to change. I haven't bothered to actually look at portfolio performance recently. I just estimate my portfolio value loss at the level of the equity drop. Whenever I update my accounting records, I'll be pleasantly surprised.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
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SmileyFace
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Re: Lessons from this crash

Post by SmileyFace »

You think this is a crash?
Nver2Late
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Re: Lessons from this crash

Post by Nver2Late »

Wednesday, my AA briefly hit my rebalance target and I stood there. Now the likely dead cat bounce has taken it away, at least in the moment. I have a strong preference to avoid hitting rebalance targets by adding new monies. I learned that at my current FI balance, I do not have the confidence to Sell FI ballast to add to Equity risk. (through the 12th, FI was -2.76% YTD, Equity -19.18%). As my current FI balance grows, I get used to it and it becomes my new FI balance Minimum.

I think the market is trying to teach me something, but I'm not sure I'm listening.

(BTW - I do not think this is a crash.....yet)
nalor511
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Re: Lessons from this crash

Post by nalor511 »

Nver2Late wrote: Fri May 13, 2022 1:45 pm Wednesday, my AA briefly hit my rebalance target and I stood there. Now the likely dead cat bounce has taken it away, at least in the moment. I have a strong preference to avoid hitting rebalance targets by adding new monies. I learned that at my current FI balance, I do not have the confidence to Sell FI ballast to add to Equity risk. (through the 12th, FI was -2.76% YTD, Equity -19.18%). As my current FI balance grows, I get used to it and it becomes my new FI balance Minimum.

I think the market is trying to teach me something, but I'm not sure I'm listening.

(BTW - I do not think this is a crash.....yet)
I keep my rebalancing band lower in these times of volatility - I can't say that's going to improve my performance, but it does have the benefit of making me feel like I'm "doing something". Since I keep hitting my band, in both directions, maybe it will give me a teeny bit better performance. *shrug* :happy
BigJohn
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Re: Lessons from this crash

Post by BigJohn »

dertere wrote: Fri May 13, 2022 10:34 am
dboeger1 wrote: Thu May 12, 2022 5:51 pm
BigJohn wrote: Thu May 12, 2022 5:44 pm Frankly, I think inflation, not the stock market, is the more atypical and worrisome thing happening right now.
Related to that, one thing that never occurred to me until reading a recent post on here was that since gains are taxed, even "inflation-protected" assets lose to inflation after taxes in taxable accounts. It should be obvious, but it's not something anyone really thought or talked about after decades of low inflation. I used to not be super concerned about inflation because retirement calculators always just assumed nominal return - inflation = real return, but in many cases, that's not actually true. It kind of changes the whole calculus for investing over long time horizons, especially for things like FIRE, because even if you assume historically good real returns, if the time horizon sees high inflation, a bigger chunk of those real returns could be taxable.
Aren't tax brackets and most other elements of the tax code annually adjusted for inflation, so if your nominal returns increase but your real returns stay the same, in terms of real dollars the taxes are static? Is the concern that the adjustments don't accurately track true inflation, or is there some element that I'm overlooking?
I think there are two things at work here.

Let's say inflation is 2%, your overall incremental tax rate is 30% and you have an investment that matches inflation. The tax hit means you're falling 0.6%/yr behind in purchasing power. This number is small enough that most/all people ignore it as lost in the noise. Now increase inflation to 10% with an investment that matches that inflation. At the same tax rate you're now falling behind 3%/yr which is a bigger impact than if you just held cash and inflation was 2%.

The second issue is that while most tax items are indexed for inflation there are a couple of notable exceptions. The most significant are the thresholds for taxing social security. Even at 2% inflation, more and more people get dragged into this as a totally new incremental tax each year. In 1984, only 8% of recipients paid taxes on their SS income. Now it's almost 50% and that number will grow far faster at the current inflation rates. The other issues is similar but effects fewer people. The thresholds for the Net Investment Income Tax (the 3.8% surcharge to help pay for Obamacare) are also not indexed for inflation so more people are also dragged into that faster with higher inflation.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
KneeReplacementTutor
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Re: Lessons from this crash

Post by KneeReplacementTutor »

H-Town wrote: Fri May 13, 2022 10:08 am
firebirdparts wrote: Fri May 13, 2022 9:25 am
H-Town wrote: Fri May 13, 2022 9:05 am
KneeReplacementTutor wrote: Fri May 13, 2022 8:55 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
I think the markets are demonstrating why an individual investor continues to need an asset allocation they can stick to regardless of current market conditions.
And how do you know what asset allocation you can stick with?

A) Use time machine to go to the future and know that 69/31 allocation is the “winning” ratio

B) Follow an arbitrary ratio 60/40 as it is often referred to in books and online discussion. But then your stomach still turns when you see you’re losing money every day. You hang on because others said 60/40 is good.

C) It doesn’t matter what asset allocation you have. You invest in stocks when your time horizon is greater than 10-15 years. You invest in bonds when bond duration meets your target time horizon. You invest in T-Bills and HYSA for any immediate needs less than a couple of years.

Which one make more sense?
Well, the standard answer is "your personal risk tolerance" and I guess we presume this is knowable. What "makes more sense" might be 100% equities all the time. The important thing is to just understand that it was never totally about just sense, and it's really not about results. Once in a while somebody will preface a really dumb decision by saying "of course, what really matters is the results (and so therefore 200% TQQQ is the correct answer, or whatever, blah blah blah, TSLA calls, ARKK, whatever it is)".

And as you can see by the millions of words in this forum, it doesn't really matter what any one person thinks about "all these people dumber than me". You may not see:
1: Here is this behavior Trap
2: Here maybe is a way you can avoid this behavior trap

If you don't pick up on that connection then it might all sound like jibber jabber. "Stay the Course" is a way of avoiding a certain potential event. If you imagine the event is unimportant, then you'd conclude Bogle didn't know what he was talking about.
I agree on all points. There are so much nuance behind the advice: "pick an asset allocation that you can tolerate". New investors may not know where to start. Experience investors who have gone through market ups and downs will have a sense of what works for them. That's why I picked on the advice.
To be clear, it wasn't "advice". OP asked what BH's had learned from this so-called "crash". For me it was the value of having an allocation I can stick to regardless of the current market conditions. What have you learned?
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arcticpineapplecorp.
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Re: Lessons from this crash

Post by arcticpineapplecorp. »

here's a morningstar article from a couple years ago called What Prior Market Crashes Taught Us in 2020. Relevant as always because:
The regularity of market crashes is a reminder that patience is key to investing in equity markets.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
bmelikia
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Re: Lessons from this crash

Post by bmelikia »

It genuinely hasn't even hit my radar yet as being a concern. . .made a decent chunk of money on the way up since opening my first Vanguard account in August 2008. . .
"I would rather die with money, than live without it...." - Bogleheads member Ron | | A time to EVALUATE your jitters https://www.bogleheads.org/forum/viewtopic.php?p=1139732#p1139732
Samuel Glover
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Re: Lessons from this crash

Post by Samuel Glover »

Marseille07 wrote: Thu May 12, 2022 2:07 pm I don't agree. While I'm not impacted, lots of people didn't expect equities crashing -19% and bonds crashing -10% at the same time.
Crashing?
audioengr
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Re: Lessons from this crash

Post by audioengr »

Normchad wrote: Thu May 12, 2022 12:18 pm Well. I don’t think we’ve had a crash yet. We may be in the starting stages of a deep slide, but we don’t know that.

I’ve been through crashes before. They were always very sudden. Think dropping 25% in one day.

The thing that is hard to explain to people, is .*how it feels*. For me, it was nauseating. I felt physically *queasy*.

I was already well educated on all this stuff. I had a plan. I stuck to my plan. I was very confident in myself. But I was surprised by how it felt.

I completely understand why people panic during these times. It’s hard not too. Even Ben Stein panicked, if I remember correctly.
Are 1 day 25% drops even possible any more due to circuit breakers?
It looks like any drop of 20% would halt all trading for the day.
I guess you could have a run on the market over the course of a few days.

https://www.investor.gov/introduction-i ... t-breakers
alwayshedge
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Re: Lessons from this crash

Post by alwayshedge »

While I disagree at calling this a crash, I hope this shows people that being a successful stock picker regardless of whether you think it's a great company, however much research you do or whatever other metric you are using to make your decision is extremely difficult.

Indexing is the way to go....
Fallible
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Re: Lessons from this crash

Post by Fallible »

alwayshedge wrote: Fri May 13, 2022 4:52 pm While I disagree at calling this a crash, I hope this shows people that being a successful stock picker regardless of whether you think it's a great company, however much research you do or whatever other metric you are using to make your decision is extremely difficult. ...
I think many pros would say much the same.
"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
ddbtoth
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Re: Lessons from this crash

Post by ddbtoth »

drk wrote: Thu May 12, 2022 12:26 pm My lesson: some people are really, really panicky about markets and the economy.
These are very weird times. I was speaking with one of my parents describing the fact that abnormal behavior is no longer abnormal. Being anxious and amped is the order of the day. Recognize it and keep it under control. Or drink more.
hudson
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Re: Lessons from this crash

Post by hudson »

jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
In 2008, I learned that I don't want to own stocks. Also in 2008, I held on to my TIPS fund because I knew the holdings were solid.
In 2020, I re-learned the same thing. High quality munis will come back.
In 2022, stocks still give my heartburn.
2022 Lesson:
I might like individual treasuries and CDs better than funds or ETFs. I realize that equivalent funds are very likely just fine.
The difference is a few basis points.
Ed 2
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Re: Lessons from this crash

Post by Ed 2 »

hudson wrote: Fri May 13, 2022 8:53 pm
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
In 2008, I learned that I don't want to own stocks. Also in 2008, I held on to my TIPS fund because I knew the holdings were solid.
In 2020, I re-learned the same thing. High quality munis will come back.
In 2022, stocks still give my heartburn.
2022 Lesson:
I might like individual treasuries and CDs better than funds or ETFs. I realize that equivalent funds are very likely just fine.
The difference is a few basis points.
Lessons were taken but sure not from bogleheads.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
ralph124cf
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Re: Lessons from this crash

Post by ralph124cf »

IPS: 60/40 with 10% rebalance bands. New money to the down segment. Haven't had to rebalance since 2008.

Ralph
BogleMelon
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Re: Lessons from this crash

Post by BogleMelon »

Bonds don't move in the opposite direction of stocks. Bonds come with risk as well. No free lunch, so we choose a poison and stick with it!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
WhiteMaxima
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Re: Lessons from this crash

Post by WhiteMaxima »

It is 8% inflation (could be more depend how it counts). SP500 down 16% NAZ down 25%, DOW 12%. So purchase power wise we already lost 30%. Dame it. It is painful.
vfinx
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Re: Lessons from this crash

Post by vfinx »

Unlike the GFC, there is much greater variance in terms of impact from this recent turbulence, within my circle. For folks like me that basically have everything in VTI/VOO it barely seems like a blip so far. And then for others that were heavily invested in high growth tech stocks or crypto, it’s apocalyptic. I am amazed to hear how much risk some of my friends and coworkers had taken on. Many of them are younger and simply could not fathom asset prices ever going down. They also got caught up in the “fun” of it, with gamification and social media. If there’s one lesson that has been reinforced for me, it’s that investing should be boring.
pyesquared
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Re: Lessons from this crash

Post by pyesquared »

We all knew a big dip was coming with all the crazy speculation. My allocation for stock index ETFs has become very low, down from 100% to just 12% after retiring at 47X annual spend. Safe fixed income pays the bills nicely, however when I do elect to receive SS/Pensions; I will increase my stock allocation probably to around 40%. The current and pending interest rate increases will actually improve my fixed income situation this year.
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HomerJ
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Re: Lessons from this crash

Post by HomerJ »

atdharris wrote: Fri May 13, 2022 11:02 am
Marseille07 wrote: Fri May 13, 2022 10:47 am
atdharris wrote: Fri May 13, 2022 10:38 am The lessons I've learned (so far) is I am comfortable being 100% equities. It sucks to watch my accounts drop 15-20%, but I am not losing sleep over it. I have everything I could need right now and the things I want can wait a little bit.
How do you deal with emergencies, like suddenly your car breaks down and you have to buy a new one? Imo having some cash helps immensely while not hurting the return much.
I keep ~7-8 months of living expenses in cash. My taxable account is also 3x my salary
So you are not actually 100% equities.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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FoundingFather
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Re: Lessons from this crash

Post by FoundingFather »

I really like I Bonds. :D

Just to be clear, it is not because of the current high composite rates. I have invested in I Bonds for ~15 years or so, and they just make me happy, especially when bond funds and stocks move down together. I Bonds allow me to sleep well at night and present buying opportunities in moments like these.

Founding Father
"The future belongs to those who believe in the beauty of their dreams." -Addie Philko (writing in “The Times Herald” of Port Huron, Michigan in 1981)
WhiteMaxima
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Re: Lessons from this crash

Post by WhiteMaxima »

QE and zero interest will cause super inflation and eat away purchase power.
finite_difference
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Re: Lessons from this crash

Post by finite_difference »

One lesson might be that many of us likely have it pretty good right now despite YTD returns.

https://www.nytimes.com/2022/05/10/busi ... times.html
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
BrklynMike
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Re: Lessons from this crash

Post by BrklynMike »

The most interesting thing for me is just how bad this crash has been for the crypto, hi tech investors. A friend of mine lost everything in some new type of Bitcoin. He's a very level headed engineering type guy, and I was shocked to learn thay he went all in on this one this. I think he just couldn't stand all his peers having made so much in the earlier phases of crypto. And for the last few years, the FAANG / do-everything-from-home stocks have crushed it and everyone thought they were a pandemic stock picking genius. But the tide has turned, and while I'm down 15% or so in my VT portfolio, I'm not ready to jump out the window. Glad I avoided envy investing and stuck to my plan.
"In a world of uncertainty, one should focus more on the consequences than the probabilities." - Benjamin Graham
Ed 2
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Re: Lessons from this crash

Post by Ed 2 »

HMSVictory wrote: Thu May 12, 2022 1:13 pm
GAAP wrote: Thu May 12, 2022 1:10 pm The primary lesson for me is that people are remarkably brilliant at finding ways to make the same old mistakes.

ARKK -61.36% YTD at the moment, for example.
Janus Funds were the predecessor to ARKK.

Up dramatically, huge inflows of new investor funds, bubble pops and fund performance craters. Same old story over and over again!
Back in late 90’s I was one of those fools who invested in Janus funds. For me it was a great lesson after which I moved all my remaining money into Vanguard and never looked back. It ain’t different this time, isn’t it Cathie Wood? ;)
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
lostdog
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Re: Lessons from this crash

Post by lostdog »

RJC wrote: Fri May 13, 2022 9:12 am That staying the course with broad market index funds is the right choice. When everyone else was talking about the next hot stock or crypto, I would feel a little bummed out watching the market move so slowly. Now I remember why I chose this path.
+1

Now those people are suffering while you sit back and chill. Glad you didn't give into fomo and stayed the course.
VT and chill...
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HMSVictory
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Re: Lessons from this crash

Post by HMSVictory »

Ed 2 wrote: Sun May 15, 2022 8:30 am
HMSVictory wrote: Thu May 12, 2022 1:13 pm
GAAP wrote: Thu May 12, 2022 1:10 pm The primary lesson for me is that people are remarkably brilliant at finding ways to make the same old mistakes.

ARKK -61.36% YTD at the moment, for example.
Janus Funds were the predecessor to ARKK.

Up dramatically, huge inflows of new investor funds, bubble pops and fund performance craters. Same old story over and over again!
Back in late 90’s I was one of those fools who invested in Janus funds. For me it was a great lesson after which I moved all my remaining money into Vanguard and never looked back. It ain’t different this time, isn’t it Cathie Wood? ;)
Same here my friend. Lost $40k (very foolish) and over the course of 2 decades it has made me 10-20x that amount.

Experience is hard teacher because it gives the test first and the lesson afterwards!
Stay the course!
lostdog
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Re: Lessons from this crash

Post by lostdog »

BrklynMike wrote: Sun May 15, 2022 8:06 am The most interesting thing for me is just how bad this crash has been for the crypto, hi tech investors. A friend of mine lost everything in some new type of Bitcoin. He's a very level headed engineering type guy, and I was shocked to learn thay he went all in on this one this. I think he just couldn't stand all his peers having made so much in the earlier phases of crypto. And for the last few years, the FAANG / do-everything-from-home stocks have crushed it and everyone thought they were a pandemic stock picking genius. But the tide has turned, and while I'm down 15% or so in my VT portfolio, I'm not ready to jump out the window. Glad I avoided envy investing and stuck to my plan.
+1

Awesome to hear. Glad you didn't give in and stayed the course. Now you're sitting pretty and your co workers will be screwed for awhile.
VT and chill...
Ron Ronnerson
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Re: Lessons from this crash

Post by Ron Ronnerson »

I find that every crash has a different flavor. I’ll take this one over The Great Recession any day. In 2008-2009, my wife and I each received pay cuts and were worried about losing our jobs at a time when no one seemed to be hiring. Our net worth came down as well. Many businesses closed, there were lots of foreclosures, and everything seemed to be on a fire sale.

During this crash, my job is more secure than ever as there is a shortage of workers, I’m expecting a 10% raise this year along with a bonus, and my net worth has gone up more since the start of the year than my annual income. Everyone seems to be hiring, people are waiving contingencies and bidding way over asking in order to have any chance at buying a house, and prices for everything seem to be high.
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