Lessons from 2007 -2009

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NabSh
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Lessons from 2007 -2009

Post by NabSh »

What lessons from past market crashes would you like to share with the group? Please include both "things gone right" and "things gone wrong"

My biggest lesson was I sold mutual funds and converted to cash. I was a bit late to do that after market was already down 15%. However I did not get back in time for the upward swing.
brad.clarkston
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Re: Lessons from 2007 -2009

Post by brad.clarkston »

1.) Things Gone Wrong:
  • Lack of diversification.
    Stayed the course all the way to the bottom.
    Lost 80% of capital.
2.) Things Gone Right:
  • Found this forum.
70% AVGE | 20% FXNAX | 10% T-Bill/Muni
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Metsfan91
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Re: Lessons from 2007 -2009

Post by Metsfan91 »

1. Have a plan!

2. Stay the course!
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JBTX
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Re: Lessons from 2007 -2009

Post by JBTX »

Things gone wrong - my style of diversification at the time didn’t help, at all (value stock tilts, REITS, commodities, TIPS, underweighted conventional bonds)

Things gone right - I rode it out, didn’t sell and recovered in reasonably short order.
takeabiteoflife
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Re: Lessons from 2007 -2009

Post by takeabiteoflife »

Keep investing and DCA. Stay the course, especially if you have a long horizon ahead.
halfnine
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Re: Lessons from 2007 -2009

Post by halfnine »

I learned don't fight the Fed or underestimate their ability to kick the can down the road.
placeholder
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Re: Lessons from 2007 -2009

Post by placeholder »

I had spent most of 2007 researching and developing my portfolio and plan then implemented late in the year in time to catch the crash but I kept putting in new money to plan and went through a couple rounds of tax loss harvesting rebalancing per my 5/25 rules keeping to my #1 rule that I have no ability to time the market so when it recovered so did my portfolio and I retired in 2018.
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Third Son
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Re: Lessons from 2007 -2009

Post by Third Son »

I didn't notice. I was too busy busy with life. Just kept adding to the base.
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Re: Lessons from 2007 -2009

Post by Call_Me_Op »

Design your portfolio with the expectation that a severe market crash can occur without warning at any time.
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Re: Lessons from 2007 -2009

Post by jebmke »

Have your tax loss harvest pairs defined in advance. Things can move faster than you think.
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Re: Lessons from 2007 -2009

Post by nisiprius »

The biggest lessons I learned were:

a) 2008-2009 took me by surprise. In July of 2008 we were on a camping vacation, dropped in on some old friends, hadn't been online in a while, and one of them said to me "Are you worried about the stock market?" I said "Naaah, the DJIA is just bobbing up and down in the 12,000s. Wake me up if it goes below 11,000." She gives me a funny look and says "Wake up. It's below 11,000."

The lesson I took from this is: it took me by surprise, indeed 2000 took me by surprise, and I expect stock market crashes to continue to take me by surprise. The dip in late 2018 took me by surprise, for example. So did the dip in 2020, although we all have an easy excuse for saying that one shouldn't "count."

I expect to be taken by surprise. That's what risk tolerance means. If you think you can anticipate bear markets, that means you don't truly believe the stock market is risky--not for you. That's not risk tolerance, that's risk denial.

b) In 2007, I thought maybe my asset allocation really was a bit timid in terms of risk tolerance. I was even thinking of goosing it up a bit. In 2008-2009 I was very very very glad I hadn't. I had it about right.

c) I lost my job around September of 2008. Very disturbing to me at the time. And I was already in my sixties. Learned how to draw unemployment. Did not land a single job interview for 5½ months. I'm not quite sure what "lesson" I learned from that, but it sure does make me reject facile comments about how splendidly a regular program of monthly stock purchases would have worked even through the Great Depression. Why no, I didn't add any money to our investments during the time I was out of work.
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AnnetteLouisan
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Re: Lessons from 2007 -2009

Post by AnnetteLouisan »

Things gone right:

-learned how to cut personal expenses (fortunately I’d done that in 2007 in anticipation of a recession)
-learned why not to lend money to friends (I did so in 09 and 11)
-learned lots of people one knows are overleveraged
-learned to be more discreet about my opinions when others were falling on hard times

Things gone wrong:

One stunning moment for me was having a coworker in a $3,000 Italian suit I’d just admired tell me if she didn’t find a new job within 3 weeks her family would have to move and rip their kids out of school.

Another stunning moment for me was having a friend on the verge of tears ask me for a loan so they could eat, wait a few weeks and get a better sale price for their luxury autos they needed to sell.
Last edited by AnnetteLouisan on Wed May 25, 2022 11:38 am, edited 4 times in total.
deltaneutral83
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Re: Lessons from 2007 -2009

Post by deltaneutral83 »

Your equities will face a 50% drawdown at some point over 50 years, and that's if you're properly diversified. Single stocks can lose 100%. I think even for the most financially illiterate, the notion that your equities can be halved is well known, but not accounted for at all. After Oct 2007-March 2009, which was very recently, people should mentally prepare for losing half of equities at some point. It's not pleasant in the moment. The entire winter of 2009 pundits were calling for S&P 350 as well getting another "half haircut" for a total of 75% as the banking system was failing.
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alpine_boglehead
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Re: Lessons from 2007 -2009

Post by alpine_boglehead »

nisiprius wrote: Wed May 25, 2022 7:35 am a) 2008-2009 took me by surprise. In July of 2008 we were on a camping vacation, dropped in on some old friends, hadn't been online in a while, and one of them said to me "Are you worried about the stock market?" I said "Naaah, the DJIA is just bobbing up and down in the 12,000s. Wake me up if it goes below 11,000." She gives me a funny look and says "Wake up. It's below 11,000."
Related to that, one of my lessons is that ignorance is bliss. I knew that things were going south, but looked at the market value only every few weeks. Probably I wouldn't be able to not peek more often today.

Classic threads from back then are:

The epic market timer's thread. Lesson: leverage can kill your portfolio.

And the less dramatic but still very insightful sheepdog's thread. Lesson: even if you say now "stay the course", a dramatic drop in the market (and the accompanying doomsday news) can really test your resolve.
nura
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Re: Lessons from 2007 -2009

Post by nura »

“Markets can stay irrational longer than you can stay solvent."
Plan to stay solvent for 18+ months at all times without touching your investments.
Last edited by nura on Wed May 25, 2022 9:10 am, edited 1 time in total.
7eight9
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Re: Lessons from 2007 -2009

Post by 7eight9 »

Market participants should have a Plan B.

"Maximum Tolerable Loss" -- Not just a fear factor (aka Plan B).
viewtopic.php?t=30085

One of my all-time favorite threads and in my opinion a must-read for new forum participants.
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HomerJ
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Re: Lessons from 2007 -2009

Post by HomerJ »

Having a solid chunk in safer assets kept me from selling the stocks.

It wasn't a percentage thing, it was an actual solid large number ($200,000).

Knowing that if we both lost our jobs, we could keep our family warm, safe, and fed for 3-4 years made all the difference.

So I wasn't worried about how far stocks were crashing... Never thought about selling. But I stopped rebalancing my "dry powder" into stocks to keep that $200,000 "safe".

Which, of course, cost me... I'd be richer today if I had kept rebalancing into stocks on the way down.

Or maybe poorer... Because if I had kept rebalancing on the way down, and the market keep crashing further, at some point, maybe I would have panicked and sold.

But instead, I never really thought about selling, and of course, all new money from our paychecks were going 100% into stocks during that time period.

(Thanks to Bogleheads too for keeping me calm - see my join date).
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HomerJ
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Re: Lessons from 2007 -2009

Post by HomerJ »

7eight9 wrote: Wed May 25, 2022 9:09 am Market participants should have a Plan B.

"Maximum Tolerable Loss" -- Not just a fear factor (aka Plan B).
viewtopic.php?t=30085

One of my all-time favorite threads and in my opinion a must-read for new forum participants.
Meh, I'd rather have a better Plan A that recognizes that larger than 50% drops are possible... :)
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meowcat
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Re: Lessons from 2007 -2009

Post by meowcat »

Things gone wrong: Lost 48% of my portfolio (100/0)
Things gone right: Didn't panic, didn't sell a thing, kept buying all the way down and have reaped the rewards of being a Boglehead.
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Re: Lessons from 2007 -2009

Post by Valuethinker »

NabSh wrote: Tue May 24, 2022 9:37 pm What lessons from past market crashes would you like to share with the group? Please include both "things gone right" and "things gone wrong"

My biggest lesson was I sold mutual funds and converted to cash. I was a bit late to do that after market was already down 15%. However I did not get back in time for the upward swing.
1. existential crises happen. I can't remember a time like that unless it was 1973-74. The political or geopolitical causative factors can occupy your mind a lot more than the financial ones (they certainly did for me).

Sept 13 2008 was a weird feeling, because it was epochal. And it was financial in nature. "What is solid, turns into air" - institutions like Royal Bank of Scotland, over 100 years old, solid as any bank can be, can just... disappear.

9-11 shattered a certain sense of solidity about the world. One could go to work in one of the big towers and just not come back... (London reprised this on a much smaller scale on 7/7/05 with the destruction of a Tube train I used to take in the mornings, and a bus I had also frequently used; I used to walk by the plaque to the dead from the bus bombing, every day on the way to work).

I remember the tv pictures of the citizens of Manhattan, lined up outside St Vincents Hospital, to give blood, while inside they waited for the ambulances full of casualties - that never came. You were dead, or you lived - there weren't many in the half way state (to this day I wonder about the woman who woke up after 6? months in a coma, and how it was explained to her).

In March 2020 I was in Asia, on holiday. We were tracking cities and countries as they shut down. Armed soldiers at the roadblock to the airport, trying to send us back to our jungle lodge (which had closed)-- young men carrying M16s older than they were. We did get on the plane, to fly to another airport, to get another plane. To get to Kuala Lumpur and one of the last 3 flights out - destinations Addis Abbaba, Tokyo-Narita, London-Heathrow. Packed flight. Arrived to a London in lockdown, the roads empty, stern warnings in the Tube not to travel unless you were an employee in essential services such as National Health Service, everything closed except food stores and pharmacies.

The eerie stillness on the Tube, like all of London had somehow died or been turned into night zombies.

I remember the hospitals, beds cleared, waiting for the influx of patients with this strange new virus. An influx that broadly never came - but would come a year later when 100 dead a day became over 1000 dead a day.

Things you don't think can happen, do happen. And suddenly you are watching cities full of people who walk and talk and live like you being blown to bits by artillery fire. People just like you don ill-fitting uniforms and troop out to fight, and die-- or crawl into bunkers to shelter from the storm. And you are not sure where it's going to end.

Outside the hospitals there are no doubt people queued up, waiting patiently to give blood. A nation holds its spare blood supply in the veins of its citizens...

2. Everything in finance & financial markets is linked. There really is no safe place, when it goes.

3. Just breath. Remember to breath. And the best way to do that is to have enough safe & boring assets that you know you will be able to live on, even if the stock market implodes & stays down for years.

4. There's a bottom, but unless you have very good mechanical-automatic rules about investing (see 3, to give you the confidence for same) you may well not be investing because you fear you are in 1.
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retiredjg
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Re: Lessons from 2007 -2009

Post by retiredjg »

I was just 4 months into retirement when it started and not really sure what to expect. Not yet a Boglehead. In fact, I didn't even know what my annual expenses were at that point.

What went right: I knew (from childhood) not to sell in the bad times. I didn't. But I did limit "luxury" spending like foreign travel.

What went wrong: Even though I didn't sell, I didn't understand rebalancing very well at that point so I just let my stock allocation drop. Didn't know any better.

When the turnaround finally happened, I didn't have the "slingshot" effect of a higher stock allocation to help the portfolio recover faster. Since I was also spending from the portfolio, recovery took for...freaking...ever!

I now understand the importance of rebalancing all the way down. It's not just about buying stocks "on sale". It's also about having enough in stocks to catapult off the bottom rather than crawl out of the bottom.
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Re: Lessons from 2007 -2009

Post by CraigTester »

I discovered that no matter how much we might tell ourselves otherwise, valuations really DO eventually matter.

And the time to figure this out is when the sun is still shining.

The people I’ve known to have the hardest time dealing with crashes are those who chose denial when things were going great.
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firebirdparts
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Re: Lessons from 2007 -2009

Post by firebirdparts »

To me, the big lesson is that somehow there is this mass delusion. Even in a world where we have ever growing fabulous technology and plenty of resources, there are people who really believe “everything” is going to zero at the same time and we will just all go into this Mad Max sort of retrograde world and we’re all just going to go along with that.

Even on this forum there are people who will occasionally ask “how do you know” that a stock paying a $1 a year dividend from earning can’t go to zero, as if no one on earth would pay one penny to buy a dollar. It’s just not sane. It only takes one person to buy a company, but it takes everybody on earth working together to not buy it. It’s not reasonable at all.

So this is maybe actionable first by saying “l am not that person” and then second having some mission rules in your investment plan, if you like, about fear and greed.

Beware any person who says “anything can happen.” It’s not true.
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winterfan
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Re: Lessons from 2007 -2009

Post by winterfan »

The best thing that happened for our finances was keeping our jobs and maxing out our 401ks during this time. The second best thing was not doing anything. We were 100% equities, but rode the wave up and down. I'm pretty sure I just didn't bother to look at our account balances. It was helpful that we had a newborn at the time, so were pretty busy.
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Re: Lessons from 2007 -2009

Post by protagonist »

AnnetteLouisan wrote: Wed May 25, 2022 7:54 am

Another stunning moment for me was having a friend on the verge of tears ask me for a loan so they could wait and get a better price for their luxury autos they needed to sell.
*laughing*
With friends like that, who needs enemies??

I was living and working in the Seychelles in the early 1980s when a natural disaster hit along the California coast.

A bit of background.... The Seychelles was not at all the jet-setter destination at that time that it is today....there was just a Socialist revolution and there was constant fear of another one, an international airport was first built a couple of years earlier (prior to that the only way to get there was a 6 week plus journey on an erratically scheduled mail boat through rough seas from Mombasa), and tourism was virtually non-existent. Radio broadcasted four hours per day and there was no TV. There were only a few flights per week, just from Kenya, and when one would land, a major source of amusement for locals was to crowd the runway to see people disembark.

The median annual family income in the Seychelles was perhaps a few hundred US dollars per year at the time. My recollection is $80, but that could be hyperbole that grew with time, so let's say a few hundred.

Anyway, the US Embassy would show two to three week old CBS newsreels one day a week, and the embassy "theater" (using the word loosely) was always packed with locals. It was even a bigger draw than the landing planes.

In covering the California disaster, CBS filmed a woman along the coast standing next to her Jaguar and her multimillion dollar mansion on the cliffs overlooking the Pacific, dressed to the nines for the cameras, in tears and hysterics since a portion of her mansion tumbled into the sea.

The audience burst out in hysterical laughter. It was so contagious that I too started laughing hysterically. I have never since been unaware of how incredibly fortunate I am. Or any middle class American is. Even when I lost half my life savings in the 2008 crash (and my job).

Your story about your "desperate" friend made me think about that incident.

OP, that is also a lesson to take from 2007-9 if it happens again. When the next crash hits, if you still have a home, and food on your table, and a car, and health care, and education for your kids, and maybe even enough left over for a little vacation or two, instead of crying yourself to sleep every night, remember how fortunate you are.

Thanks for the memory., Annette.
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Re: Lessons from 2007 -2009

Post by ekid »

GOOD story, Protagonist!
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Re: Lessons from 2007 -2009

Post by protagonist »

nisiprius wrote: Wed May 25, 2022 7:35 am

I expect to be taken by surprise. That's what risk tolerance means. If you think you can anticipate bear markets, that means you don't truly believe the stock market is risky--not for you. That's not risk tolerance, that's risk denial.
Well said!! Resilience (and equanimity) is the result of expecting the unexpected.


c) I lost my job around September of 2008.
Me too! And got divorced that January. I lost 50%+ in the divorce, almost 50% of what was left in the crash, and my job. I tried in vain to find another job for several months before I decided to toss fate to the wind and just retire and accept the risk. I was 55. Though I didn't realize so at the time, it was perhaps the best thing that could have happened to me. Were it not for the crash I might still be (ew) working!
Last edited by protagonist on Wed May 25, 2022 3:44 pm, edited 1 time in total.
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Re: Lessons from 2007 -2009

Post by firebirdparts »

My wife’s stepfather said he had some retired friends who took out mortgages to live on while the market recovered. I thought that was nuts, but I had to admit the market did recover faster than a mortgage would set you back. I would never do that, but it didn’t ruin them.
This time is the same
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Re: Lessons from 2007 -2009

Post by jebmke »

retiredjg wrote: Wed May 25, 2022 10:54 am I was just 4 months into retirement when it started and not really sure what to expect. Not yet a Boglehead. In fact, I didn't even know what my annual expenses were at that point.

What went right: I knew (from childhood) not to sell in the bad times. I didn't. But I did limit "luxury" spending like foreign travel.

What went wrong: Even though I didn't sell, I didn't understand rebalancing very well at that point so I just let my stock allocation drop. Didn't know any better.

When the turnaround finally happened, I didn't have the "slingshot" effect of a higher stock allocation to help the portfolio recover faster. Since I was also spending from the portfolio, recovery took for...freaking...ever!

I now understand the importance of rebalancing all the way down. It's not just about buying stocks "on sale". It's also about having enough in stocks to catapult off the bottom rather than crawl out of the bottom.
I retired December, 2007. We purposely set our allocation more conservative than it need to objectively be. I wanted to avoid the psychological pressure to cut spending -- or even just the high stress of plunging asset values -- and I wanted to make sure I didn't hesitate to re-balance. I knew we were likely leaving money "on the table." Looking back, I have learned that I can do something like this that is sub-optimal in terms of pure financial return for non-financial benefits without regret later.
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Re: Lessons from 2007 -2009

Post by Californiastate »

Try not to flinch when the world collapses around you. When a person looks into the abyss and see nothing but the abyss, that's where they find their true AA.
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Re: Lessons from 2007 -2009

Post by CyclingDuo »

CraigTester wrote: Wed May 25, 2022 11:16 am I discovered that no matter how much we might tell ourselves otherwise, valuations really DO eventually matter.

And the time to figure this out is when the sun is still shining.

The people I’ve known to have the hardest time dealing with crashes are those who chose denial when things were going great.
Regular folks saving like pessimists and investing like optimists…

“They’ve been investing for nearly three decades, taking every dollar offered by their employers in matching retirement plan contributions. They also don’t cash out their retirement savings when they change jobs.

And, most importantly, they didn’t let a pandemic or the related economic problems, or skittish investors, scare them away from the stock market.”

https://www.washingtonpost.com/business ... MEifQ37zFs

CD
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
notPatience
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Re: Lessons from 2007 -2009

Post by notPatience »

Preamble:
In spring 2007 I had a 5-year plan to work toward what I called financial retirement – quitting Career 1 to more fully pursue Career 2, which might never earn any/much, hence considering myself financially retired. IOW FI.

Put my house on the market in HCOL area as test (w/ full knowledge of agent) to see what it needed to sell for top dollar or if it might be a tear-down for McMansion in 5 years. In two days had an offer for 98% of the asking price (we’d priced high b/c it was just a test.) Agent said, “You were very clear with me about your plan and you have every right to refuse the offer.”

I went with my gut and accepted. It closed just as the bubble burst. It was the last 100% financing in the area for a number of years. (Buyers came out fine – it did not sink them.)

It meant I quit Career 1, packed up my house (with no place to go), and got the big chunk of money meant to carry me to when retirement income would kick in, all in 6 weeks. I plunked the money in Vanguard taxable, most in TSM, and set about finding a place to live in a LCOL area. Took 5 months to get new house. By the time my stuff came from storage and the dust cleared from the move and new life, the slide had started.

What went wrong:
--The market didn’t wait for me to adjust after life upheaval. It messed up while I was otherwise occupied. IOW, I should have settled financial arrangements instead of thinking I had time after dealing with other stuff. This was The Financial Lesson for me.
--I had to sell some to support myself. I had no other income.

What went right:
--I sold only what I needed to live.
--I got a series of temp contractor positions with some say over the schedule. Minimal $, but some.
--My living expenses were already tight b/c I’d been saving in HCOL area for FI, but I cut them more. Then drafted increasingly more draconian budgets. If nestegg shrank to $X, then budget X, if nestegg $Y, then budget Y, etc. (Interesting process. Learned I was willing to subsist on Ramen noodles, but still wanted someone to come in and clean once a month. That was last to go.) And if nestegg got to $Z, I would start looking for a job. If nestegg got to $Z-, I'd take any job.

What went right that was most important:
--Freed from Career 1, I spent much, much more time with my parents in the years before their deaths in 2011 and 2014. I had the privilege of being there for them.
--Freed from Career 1, I worked hard on Career 2 and its earnings jumped up in 2011, completely supporting me and adding to retirement savings since 2012.

This time, my AA was in place before the slide started, including 22X in cash & fixed income. Plus, still earning (for now, anyway) in Career 2.

Bottom line:
Don't think financial planning will wait for your convenience.
But remember what's most important (family and life.)
protagonist
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Re: Lessons from 2007 -2009

Post by protagonist »

ekid wrote: Wed May 25, 2022 12:24 pm GOOD story, Protagonist!
Thanks!
Elysium
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Re: Lessons from 2007 -2009

Post by Elysium »

I can't say losing value of my portfolio was wrong, it was par for the course since I had an aggressive allocation that was something like 83% equities. On hindsight I should've been reducing it during the runup by a bit to match the target I had at that time of around 80%, not a big difference. I did hold it all the way down and back, so made a ton of profits on the recovery and then some more.

The mistake really was buying the dips earlier, so that by the time the real dips came in later part of year there wasn't much cash left to buy other than the somewhat meager paycheck contributions then. Lesson learned is not to buy the dips early in a big bear and wait for real dips to come, which usually happens when most people are ready to capitulate.

This time I don't see capitulation yet, lots of folks are still waiting for Fed to save them, hoping a bounce back is around the corner anytime, when this gets severe and the help isn't coming, that's when capitulation occurs. There will be huge waves of selling with big drops daily, not these baby waves going on now. You'll hear doom and gloom from financial press, with average person not wanting to invest, that's when the time to buy. I did buy in Feb & March of 2009 when there was real capitulation, although the amounts were paltry back then.
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Re: Lessons from 2007 -2009

Post by sureshoe »

As someone who was only 10 years into their investing journey and relatively low net worth, I just kept buying.

So what went wrong? I did have a bit of a "not sure this will ever be the same", so I started selling leveraged naked puts and calls to ride the the volatility and what I expected to be "flatness" of the market. I made a lot of small, nice returns until my naked put on Netflix lost me $20k and effectively flattened my gains and got me right about to "normal" market returns.

What went right? Was continuing to pour money in, which enabled me to enjoy this fantastic bull market over the last 12+ years. And now, I've lost more in a few months than I had as my entire portfolio back then :)
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Re: Lessons from 2007 -2009

Post by placeholder »

I don't deny that it was a lot easier if you were like me and stayed employed at a well paying job.
jebmke
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Re: Lessons from 2007 -2009

Post by jebmke »

placeholder wrote: Wed May 25, 2022 5:35 pm I don't deny that it was a lot easier if you were like me and stayed employed at a well paying job.
It usually is. During working years, the best investment is developing skills and experience to become valuable to an organization even during a period when layoffs are occurring.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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grabiner
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Re: Lessons from 2007 -2009

Post by grabiner »

Know your risk tolerance. I don't recommend 100% stocks to any investor who hasn't already been through a bear market with a stock-heavy portfolio, because they won't know how they will really react. In 2008, and again in 2020, there were a lot of discussions on this forum about investors pulling out of the market; those who did missed the recovery.

Have a rebalancing strategy already written in your Investment Policy Statement, so that you will have already decided when to follow it. In October 2008, my bond allocation was up from its target 10% to 13%, which went over my trigger, so I sold bonds to buy more stock. This happened again in March 2020.

Learn in advance how to take a tax benefit. I harvested a lot of losses in 2008-2009 and have taken $3000 of carryover losses off my taxable income every year since then, plus offsetting some gains which I had to take to buy a home and a car. But I didn't learn about recharacterizing IRA conversions in time; I made a conversion in 2007 which I could have recharacterized, re-converted in 2008 at a much lower amount, and saved a significant amount in taxes. (I did recharacterize a January 2008 conversion in 2009 for a similar benefit.)
Wiki David Grabiner
Valuethinker
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Re: Lessons from 2007 -2009

Post by Valuethinker »

grabiner wrote: Wed May 25, 2022 7:32 pm Know your risk tolerance. I don't recommend 100% stocks to any investor who hasn't already been through a bear market with a stock-heavy portfolio, because they won't know how they will really react. In 2008, and again in 2020, there were a lot of discussions on this forum about investors pulling out of the market; those who did missed the recovery.

Have a rebalancing strategy already written in your Investment Policy Statement, so that you will have already decided when to follow it. In October 2008, my bond allocation was up from its target 10% to 13%, which went over my trigger, so I sold bonds to buy more stock. This happened again in March 2020.

Learn in advance how to take a tax benefit. I harvested a lot of losses in 2008-2009 and have taken $3000 of carryover losses off my taxable income every year since then, plus offsetting some gains which I had to take to buy a home and a car. But I didn't learn about recharacterizing IRA conversions in time; I made a conversion in 2007 which I could have recharacterized, re-converted in 2008 at a much lower amount, and saved a significant amount in taxes. (I did recharacterize a January 2008 conversion in 2009 for a similar benefit.)
Is $3000 the limit in carryforward losses for US taxpayers?

Are they offset against income, not capital gains?

Is this is new(ish) tax rule?
Valuethinker
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Re: Lessons from 2007 -2009

Post by Valuethinker »

protagonist wrote: Wed May 25, 2022 11:54 am

The audience burst out in hysterical laughter. It was so contagious that I too started laughing hysterically. I have never since been unaware of how incredibly fortunate I am. Or any middle class American is. Even when I lost half my life savings in the 2008 crash (and my job).

Your story about your "desperate" friend made me think about that incident.

OP, that is also a lesson to take from 2007-9 if it happens again. When the next crash hits, if you still have a home, and food on your table, and a car, and health care, and education for your kids, and maybe even enough left over for a little vacation or two, instead of crying yourself to sleep every night, remember how fortunate you are.

Thanks for the memory., Annette.
From the perspective of a non American, that health care thing seems to be the real wrinkle. Of course food & shelter come first. But as an American you have to be able to afford health insurance.
Dusn
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Re: Lessons from 2007 -2009

Post by Dusn »

2008 was truly scary from a financial institutions are collapsing/this time might be different perspective.

I don’t think what we’re seeing now compares to 2008 — maybe it’s closer to 2002.

2008 taught me that bear markets are a great opportunity to buy stocks. But it felt like a much scarier time to buy stocks than now.
jebmke
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Re: Lessons from 2007 -2009

Post by jebmke »

Dusn wrote: Thu May 26, 2022 8:11 am 2008 was truly scary from a financial institutions are collapsing/this time might be different perspective.

I don’t think what we’re seeing now compares to 2008 — maybe it’s closer to 2002.

2008 taught me that bear markets are a great opportunity to buy stocks. But it felt like a much scarier time to buy stocks than now.
2008 was a great time to buy Tips. Real yields were ~ 3%. I bought a bunch.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
protagonist
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Re: Lessons from 2007 -2009

Post by protagonist »

Dusn wrote: Thu May 26, 2022 8:11 am 2008 was truly scary from a financial institutions are collapsing/this time might be different perspective.

I don’t think what we’re seeing now compares to 2008 — maybe it’s closer to 2002.

2008 taught me that bear markets are a great opportunity to buy stocks. But it felt like a much scarier time to buy stocks than now.
The Retrospectoscope is a powerful tool.

Few people saw the depth of the impending calamity in 2008 before it happened. And the majority of the public, including experts, probably thought those who predicted it were nuts. If they didn't, they wouldn't have lost any money. In fact, those who predicted it may have just been lucky.

Chaos/complexity theory...Complex systems are robust. In any complex, non-linear system:
Small blips will happen very frequently.
Larger ones like 2008, less often.
Even bigger ones like 1929, even less often.
Empires falling, much less often.
Major extinction events, very infrequent. Only six on Earth in 4.5 billion years (the sixth one is happening now).

It's all about symmetry of scale. The vast majority of things like that are very difficult (mostly impossible) to predict in advance, regarding when they will happen or how they will happen (like stock bubbles bursting, or Hurricane Katrina, or the Soviet Union collapse, for example). There are far too many unknown variables. The only thing that can be predicted accurately is that things like that will happen eventually, and their frequency will likely be inversely proportional to their magnitude.

So the likelihood that any one random bear market (like now) is "no big deal" , and will recover within a reasonably short time period, is quite high. But there is always a small possibility that it will be a big deal, and a very small possibility that it will be a massive, total game-changing event. That is all we can say if we don't own a retrospectoscope.

Reiterating what Nisiprius said above: "I expect to be taken by surprise. That's what risk tolerance means. If you think you can anticipate bear markets, that means you don't truly believe the stock market is risky--not for you. That's not risk tolerance, that's risk denial."
Last edited by protagonist on Thu May 26, 2022 9:21 am, edited 8 times in total.
WestCoastPhan
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Re: Lessons from 2007 -2009

Post by WestCoastPhan »

winterfan wrote: Wed May 25, 2022 11:40 am The best thing that happened for our finances was keeping our jobs and maxing out our 401ks during this time. The second best thing was not doing anything. We were 100% equities, but rode the wave up and down. I'm pretty sure I just didn't bother to look at our account balances. It was helpful that we had a newborn at the time, so were pretty busy.
Exactly my situation. In 2007 we had four kids ages 1-6. I was able to keep my job and keep maxing out my 401(k). Didn't sell anything, and kept 100% equities. It was a "Don't just do something, stand there" approach.
Kendall
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Re: Lessons from 2007 -2009

Post by Kendall »

Valuethinker wrote: Wed May 25, 2022 10:23 am "What is solid, turns into air"
Thank you to Valuethinker, Nisiprius and everyone else who has shared their experiences. These stories convey the visceral punch of risk, which inevitably affects life in far more ways than market numbers on a screen. These posts reflect humility about what is knowable beforehand and an ability to learn, aspects of Boglehead discussions that I really appreciate.
Tamalak
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Re: Lessons from 2007 -2009

Post by Tamalak »

For a drop like 2008 the only lesson I got was "be young and broke, not old and rich when it happens". I was lucky enough to be the former. If I was more invested, that would have been an ugly, ugly time. A 50% crash I'm sure I could handle - the near collapse of the entire financial system not so much.
ekid
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Re: Lessons from 2007 -2009

Post by ekid »

Valuethinker wrote: Thu May 26, 2022 7:56 am
grabiner wrote: Wed May 25, 2022 7:32 pm Know your risk tolerance. I don't recommend 100% stocks to any investor who hasn't already been through a bear market with a stock-heavy portfolio, because they won't know how they will really react. In 2008, and again in 2020, there were a lot of discussions on this forum about investors pulling out of the market; those who did missed the recovery.

Have a rebalancing strategy already written in your Investment Policy Statement, so that you will have already decided when to follow it. In October 2008, my bond allocation was up from its target 10% to 13%, which went over my trigger, so I sold bonds to buy more stock. This happened again in March 2020.

Learn in advance how to take a tax benefit. I harvested a lot of losses in 2008-2009 and have taken $3000 of carryover losses off my taxable income every year since then, plus offsetting some gains which I had to take to buy a home and a car. But I didn't learn about recharacterizing IRA conversions in time; I made a conversion in 2007 which I could have recharacterized, re-converted in 2008 at a much lower amount, and saved a significant amount in taxes. (I did recharacterize a January 2008 conversion in 2009 for a similar benefit.)
Is $3000 the limit in carryforward losses for US taxpayers?

Are they offset against income, not capital gains?

Is this is new(ish) tax rule?
Not new at all. And the max amount has not been changed since my youth.
Fallible
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Re: Lessons from 2007 -2009

Post by Fallible »

grabiner wrote: Wed May 25, 2022 7:32 pm Know your risk tolerance. I don't recommend 100% stocks to any investor who hasn't already been through a bear market with a stock-heavy portfolio, because they won't know how they will really react. In 2008, and again in 2020, there were a lot of discussions on this forum about investors pulling out of the market; those who did missed the recovery.

Have a rebalancing strategy already written in your Investment Policy Statement, so that you will have already decided when to follow it. In October 2008, my bond allocation was up from its target 10% to 13%, which went over my trigger, so I sold bonds to buy more stock. This happened again in March 2020.

Learn in advance how to take a tax benefit. I harvested a lot of losses in 2008-2009 and have taken $3000 of carryover losses off my taxable income every year since then, plus offsetting some gains which I had to take to buy a home and a car. But I didn't learn about recharacterizing IRA conversions in time; I made a conversion in 2007 which I could have recharacterized, re-converted in 2008 at a much lower amount, and saved a significant amount in taxes. (I did recharacterize a January 2008 conversion in 2009 for a similar benefit.)
This is great advice to PLAN for a crash well ahead of it - plan by knowing our risk tolerance, at least as best we can; plan by getting a rebalancing strategy into a written IPS to make it more likely we'll do it during the stress of a crash; and plan how to take a tax benefit.

I was retired in '08 and had been through a few crashes since first investing in '87, so had a pretty good idea of my risk tolerance to hold a conservative asset allocation. But '08 led to a possible/probable meltdown of the financial system and that got my attention enough to keep me from rebalancing. I now think that if I'd had a written rebalancing strategy in my IPS to turn to, I would've rebalanced at year's end, as I had done before as warranted.

Another lesson learned is how crashes differ and how enduring one crash may not necessarily enable one to endure another. All the more need to PLAN.
"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
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Re: Lessons from 2007 -2009

Post by Valuethinker »

grainne wrote: Thu May 26, 2022 10:37 am
Valuethinker wrote: Wed May 25, 2022 10:23 am "What is solid, turns into air"
Thank you to Valuethinker, Nisiprius and everyone else who has shared their experiences. These stories convey the visceral punch of risk, which inevitably affects life in far more ways than market numbers on a screen. These posts reflect humility about what is knowable beforehand and an ability to learn, aspects of Boglehead discussions that I really appreciate.

Gráinne
My tolerance for risk also does not grow as I get older.

I have less time to make back the losses from a bear market.

So how I reacted to 2000-03 (which financially hit me much harder than 2008-09) vs 08/09 v 2020 was different each time. I no longer have long years of contributing ahead of me. In fact right now, I am in effect building up a TIPS portfolio (inflation indexed career average salary pension) -- so right down on the risk scale.

I usually just do a rabbit in the headlights and stop looking at my portfolios. But that means I miss the chance to rebalance. But it's one way to get through, without panicking out.
Fallible
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Re: Lessons from 2007 -2009

Post by Fallible »

meowcat wrote: Wed May 25, 2022 10:03 am Things gone wrong: Lost 48% of my portfolio (100/0)
Things gone right: Didn't panic, didn't sell a thing, kept buying all the way down and have reaped the rewards of being a Boglehead.
This reminds me of two things about the '08-'09 crash that allowed many of us to hold course:

_The market began to recover relatively quickly (and went on to become a historic bull market). Had the crash continued for months or years, would we have had the tolerance and discipline to hold course? How would our crash lessons have differed?

_A financial meltdown loomed, but how would we have reacted if it had happened? What even would a financial collapse have meant?
"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
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