Bloomberg article

[dude]

It will indeed be interesting to see what buy-and-hold investors actually do when the market tanks/corrects. I'd wager 99% of MMM'ers will swear they won't panic, but it's likely many will anyway.

https://www.bloomberg.com/view/articles/2017-07-06/private-equity-and-passive-investors-are-on-a-collision-course

[Laura33]

So how about a poll asking people about what they did in 2008?

FWIW, I've been in the market over 25 years now, and not once have I sold off because of market dips.  Honestly, I'm lazy and don't pay enough attention anyway, so by the time I figured out the market was crashing, it would be too late to sell while something still high enough to make it worthwhile.

What I do need to do is transition from funds to ETFs -- in the first tech crash, I discovered my fund values had tanked partly because the market for the stocks it held tanked, but also because OTHER owners in the fund sold off their shares, and the fund wasn't holding enough cash, so it was forced to sell assets at low value to meet the redemption requests.  I figure if I am in an ETF, I'm still exposed to market risk, but I am less exposed to the secondary risk that the folks who run the fund are forced to sell low.

[Milizard]

In 2007, for the first time in my life, I reduced my 401k contribution to below 15% (I believe it was at 12, but perhaps 10).  I was saving up to buy a house that year.

Spring of 2008, I got married, and suddenly worried that my DH was not saving enough for retirement, so I cranked it up to 18%.  Later that year or the next, 401k matches were suspended by my employer.  Bastards!  It was a little bit of dumb luck on my part, but I was a bit nervous about the market.  Lots of chicken littles running around back then.

This time, I've got a lot of money on the sidelines.  Some purposely, but mostly due to laziness.

[WhiteTrashCash]

I'm not going to panic when the market inevitably crashes. I'm going to buy even more and it's going to be glorious.

[ysette9]

It will be interesting to see what happens, when the inevitable downturn happens. I'm an optimistic person and would like to think that this community will serve as a support group and keep people from doing dumb things.

In the 2007-2008 time frame I was relatively early in my career and didn't have that much in my 401(k), but certainly noticed the dip in my balance. I believe it was the end of 2007 where I looked at my statement and did a "huh, my January and December balances are the same, despite adding xxx to this account.". I wasn't quite maxing things out at that point, but I probably added a good $12k-14k in that year. At the time it was a little bit of a bummer to me, but I just set the statement aside and decided to not look at that account very carefully since I knew it was for the long term anyway.

Now I am looking at things much more carefully and am also a much more educated investor. Would I be bummed to watch my balances go down? Yes, absolutely I would. I'd re-do my time-to-FIRE calculations and complain a bit about needing to work a few more years. But I would also know that this is what the market does and trust that it will also go back up again one day. Heck, better to have that downturn now while I am still working and stashing away than have it hit after I stop working.

[scantee]

I was in the market in 2008, but was just a few years into my career at that point and didn't have much invested. I kept my contributions at the same level, with the allocation I had at the time, which was 90/10 stocks/bonds. Based on that experience alone, I suspect I won't flinch during the next downturn. The run up in the market over the last few months has raised my eyebrows, leading me to review my allocation a couple times to confirm that I don't want to make any changes. I never have.

Personally, I'm more concerned about extended stagnation than I am about a big drop. That possibility isn't discussed as much here, although I think it might be worse for people aiming for early retirement than a major recession.  Stagnation has the potential to combine both poor gains with a lack of opportunity to purchase stocks and housing on the cheap. Combine that with slightly higher inflation and people aiming to retire in the near term -- less than five years, say, which is my goal -- could be hurting and needing to delay their plans.

[Cornel_Westside]

Scantee, I think your fears of stagnation are potentially overblown. Are you concerned about worldwide stagnation? I personally don't see how the entire world market can stagnate for longer than a few years. People simply still create and buy things. If you are internationally diversified, I don't see the concern.

I concur with others saying that I'd welcome a crash right now. In my retirement timetable, it would mean I could buy some more or maybe a house. My only concern would be another long bull after that may have me worrying about a crash as I start retirement and getting into some sequence of returns risk. Ideally I'd retire about 1-2 years after a crash, heading into a bull. But the 4% rule pretty much just means don't retire right before the great depression and you are fine.

[scantee]

Scantee, I think your fears of stagnation are potentially overblown. Are you concerned about worldwide stagnation? I personally don't see how the entire world market can stagnate for longer than a few years. People simply still create and buy things. If you are internationally diversified, I don't see the concern.

I concur with others saying that I'd welcome a crash right now. In my retirement timetable, it would mean I could buy some more or maybe a house. My only concern would be another long bull after that may have me worrying about a crash as I start retirement and getting into some sequence of returns risk. Ideally I'd retire about 1-2 years after a crash, heading into a bull. But the 4% rule pretty much just means don't retire right before the great depression and you are fine.

Over the long-term, no, I don't think worldwide stagnation is an issue. But even 3 years of stagnation like we had in the 70's would really mess with the plans of people, like me, who want to retire during that time.

I'm pretty wary of welcoming another crash. My biggest takeaway from 2008 is not that a crash is a great time to buy (I already knew that). It's that not only can you not call when an economic downturn will happen, you also can't anticipate why it will happen or what it will look like. If we could anticipate what it would look like, it probably wouldn't happen! Almost certainly the next downturn won't look like what happened in 2008, so if your ER plans involve looking forward to or counting on an event like that happening, you're probably planning on the wrong thing.

So I'm not holding out any hope for buying "on the cheap". I'll continue on my current path and do what I've always done, which is to follow the advice of MMM and other sage buy and holders:

1) Dollar cost average,
2) the maximum amount I can invest,
3) following the set allocation I'm comfortable with, and
4) stick to it regardless of external circumstances.

[ysette9]

1) Dollar cost average,
2) the maximum amount I can invest,
3) following the set allocation I'm comfortable with, and
4) stick to it regardless of external circumstances.

I agree that this is good advice. I also agree that we won't know what the next downturn/crisis will look like, except to be pretty sure it won't look like the last one.

I keep thinking back to what I read on LivingaFI's blog where Dr. Doom talked about how he literally had his personal investment policy statement printed out along with a copy of Bogle's little book on investing (I think it was) and how he would refer to it during the depths of the financial crisis to reassure himself that he was on the right path. I hope I can do the same if I feel jittery.

[scottish]

1) Dollar cost average,
2) the maximum amount I can invest,
3) following the set allocation I'm comfortable with, and
4) stick to it regardless of external circumstances.

I agree that this is good advice. I also agree that we won't know what the next downturn/crisis will look like, except to be pretty sure it won't look like the last one.

I keep thinking back to what I read on LivingaFI's blog where Dr. Doom talked about how he literally had his personal investment policy statement printed out along with a copy of Bogle's little book on investing (I think it was) and how he would refer to it during the depths of the financial crisis to reassure himself that he was on the right path. I hope I can do the same if I feel jittery.

This.  Just  ... don't ... panic.

[BTDretire]

My guru sent me an alert on Jan. 10, 2000 and said sell. I did and within a month the market peaked and then dropped 45%. On the way down he said buy a low % of QQQ. I bought more than a low %.That didn't work out so well. I'm still writing that off $3000 a year.
 My guru made no call in 2008. I was down around $250,000, but held everything and you know over the long term, I'm a happy investor.
 I don't feel so comfortable these days, I have my retirement stache, and a drop similar to 2008 would be much worse than $250,000. I'm about 67% in stocks. NW dropped about $10k today.

[thenextguy]

I confess that I sold in 2008. Well, I sold in February of 2008 and started buying back about a year later.

I'm never big on market timing, but it just seemed to obvious at the time. I haven't found another opportunity like it ever since. I may never again in my lifetime, to be honest.

[Joeko]

I held in 2008/2009.  Beer and wine got me through the last collapse.  I've quit drinking, so I will be meditating.

If the market crashes, my allocatiion will be out of whack and I'll sell bonds and buy stock.  Hopefully, the crash won't be too steep...but if it is, I'll push back retirement a bit.

[Jrr85]

It will indeed be interesting to see what buy-and-hold investors actually do when the market tanks/corrects. I'd wager 99% of MMM'ers will swear they won't panic, but it's likely many will anyway.

https://www.bloomberg.com/view/articles/2017-07-06/private-equity-and-passive-investors-are-on-a-collision-course

There will be some passive investors that panic, but we have two pretty dramatic stock drops and recoveries from the dot com bubble and the real estate bubble that are pretty fresh in people's memory (or at least are recent enough history that they remember it).  I don't think most will panic until they see something that convinces them this time is different.  Maybe a few sharp crashes and recoveries in a short period of time?  Maybe a sharp drop, a bounce back up to say 80% of teh high, and then the bottom dropping out again in a short period? 

[RedmondStash]

I held in 2008/2009.  Beer and wine got me through the last collapse.  I've quit drinking, so I will be meditating.

If the market crashes, my allocatiion will be out of whack and I'll sell bonds and buy stock.  Hopefully, the crash won't be too steep...but if it is, I'll push back retirement a bit.

We too held in 2008/2009, even though we lost about 1/3 of our portfolio value. We just ignored it, because our investments were irrelevant to our daily expenses at the time. Eventually, they recovered, no lasting harm done.

The only reason I'd sell during a recession is for money to live on during retirement. Even then, I'd try to rearrange things so I don't have to sell. I'd spend down cash and bonds first, and possibly even borrow against our HELOC. To me, selling during a downturn is pointless; if anything, I'm likely to keep my head down and hold tighter instead.

It's not that it wouldn't make me anxious. It's that my anxiety says, "Don't sell low! Don't sell low!"

Because our political and financial times seem fraught right now, and because we don't currently have any employment income, we're keeping at least a year's expenses in cash. If the market stays high, we'll sell a chunk every quarter or so to live on. If it drops, we'll live on our reserves and reassess when they start to run out.

[VoteCthulu]

The scariest part of the next recession to me is that if it doesn't come soon enough I might feel the need to wait OMY.

[brooklynmoney]

Whatever. I didn't sell in 2001 or in 2008. My ex invested my savings at the time in ETFs in  a Fidelity account for me in 2003. I still own pretty much the same holdings. My goal is to have Fidelity send me
a letter one day to see if I'm still alive. Fidelity did a study and found their best investors had either forgotten they had their accounts or were dead. Buy and never sell is my motto.

[Late_Bloomer]

Since I'm starting out so late, I only have 14 yrs to acquire the stache i need through investing. My projections show I can make it in that time if the market averages 4%. If it tanks and I lose most of what I've saved, it will all be a lost cause and I don't think I could make it back at a reasonable age. I can't retire like many here. I'll be 57 at the earliest. A down fall at that age and I'll just wash my hands of all this and survive on whatever is left.

[icbatbh]

A lot of you here are saying that you didn't sell in 2001 or 2008, and so you wouldn't sell when things next go south. However would you all continue buying investments next time? Or would you time the market a little bit by putting cash aside and buying in again when things looked as though they were starting to improve?

The reason I ask is that I have only been investing since April last year, and have seen some excellent returns up until now. Through reading the advice on here and other websites I wouldn't be tempted to sell if the markets started going down. However I think I would find it quite disheartening if my 'stache was decreasing despite contributing to it each month. I think I would be tempted to save up some cash and start investing again when things looked as though they were on the up.

Or should I just man up?

[Joeko]

A lot of you here are saying that you didn't sell in 2001 or 2008, and so you wouldn't sell when things next go south. However would you all continue buying investments next time? Or would you time the market a little bit by putting cash aside and buying in again when things looked as though they were starting to improve?

The reason I ask is that I have only been investing since April last year, and have seen some excellent returns up until now. Through reading the advice on here and other websites I wouldn't be tempted to sell if the markets started going down. However I think I would find it quite disheartening if my 'stache was decreasing despite contributing to it each month. I think I would be tempted to save up some cash and start investing again when things looked as though they were on the up.

Or should I just man up?

As Jack Boggle says Market Timing is impossible.  Have a set asset allocation and stick with it

[Laura33]

A lot of you here are saying that you didn't sell in 2001 or 2008, and so you wouldn't sell when things next go south. However would you all continue buying investments next time? Or would you time the market a little bit by putting cash aside and buying in again when things looked as though they were starting to improve?

That would require effort.  I have everything set up to transfer automatically.  And I'm lazy.  So, yeah, I'd keep buying.

You say "man up," I say "be a lazy SOB."

[caracarn]

A lot of you here are saying that you didn't sell in 2001 or 2008, and so you wouldn't sell when things next go south. However would you all continue buying investments next time? Or would you time the market a little bit by putting cash aside and buying in again when things looked as though they were starting to improve?

The reason I ask is that I have only been investing since April last year, and have seen some excellent returns up until now. Through reading the advice on here and other websites I wouldn't be tempted to sell if the markets started going down. However I think I would find it quite disheartening if my 'stache was decreasing despite contributing to it each month. I think I would be tempted to save up some cash and start investing again when things looked as though they were on the up.

Or should I just man up?

Just man up.

I've been investing since I was 16 with the first dollars I made.  Never sold to avoid a loss.  Always added more according to the plan.  And yes in 2001, 2008 and times before there were weeks, quarters and sometimes years, where my balance was lower than the time period before even though I had continued pouring money in.  I just shrugged my shoulders and waited for the next quarterly statement.  I suppose it was a lot easier before you could check your balances online (I believe in 2001 our 401k did not have a website) and you just waited until the statement arrived in the mailbox. 

[A Definite Beta Guy]

A lot of you here are saying that you didn't sell in 2001 or 2008, and so you wouldn't sell when things next go south. However would you all continue buying investments next time? Or would you time the market a little bit by putting cash aside and buying in again when things looked as though they were starting to improve?

That would require effort.  I have everything set up to transfer automatically.  And I'm lazy.  So, yeah, I'd keep buying.

You say "man up," I say "be a lazy SOB."

+10.

Everything is set up to automatically do whatever it's going to do.

I have limited brain-space and need to devote it to markets I might be able to ACTUALLY time effectively, like when chicken thighs are on sale.

[Livingthedream55]

I was at 80% equities in 2008 and I continued to buy and hold. I have a more conservative Asset Allocation now (as I am closer to FIRE) but whatever the market does I will not stray from my AA.

[Ocinfo]

I didn't have much in 2007/2008 but did watch my 401k drop from $20k to $10k without selling. That same money is worth around $36k now. I have gotten use to seeing $5k ups and downs as well as much larger swings when we've had some bad or good weeks over the last few years. I have adjusted my allocations a bit recently by reducing funds in REITS but I don't expect to make any other big changes. I have about 3-5 years of focused asset accumulation left before I have any plans to (voluntarily) reduce income so I'm not too concerned. If a crash happens soon, I'll likely end up with more money than expected but would be fine with a market that keeps going up too...I also find tracking number of shares (or divided payments) is a good way of removing some of the emotion of the share price.


Sent from my iPhone using Tapatalk

[Gondolin]

So how about a poll asking people about what they did in 2008?

I swear we had just such a poll pop up 2 or 3 weeks ago. If I recall the results were inconclusive as 60%+ of the forum were too young to have significant investments in 2008.

[Laserjet3051]

OP, your prediction that many will panic in the next big drop/recession is likely to be limited to the younger folks here who have not struggled through the last 3-4 US recessions. Those of us who have been through them, know our mettle well.

[wenchsenior]

So how about a poll asking people about what they did in 2008?

I swear we had just such a poll pop up 2 or 3 weeks ago. If I recall the results were inconclusive as 60%+ of the forum were too young to have significant investments in 2008.

Yeah...there was just a poll and thread about this.  I was amused how few people had significant investments in 2008.

I absolutely WOULD NOT panic and sell. We held in 2008 and watched our investments drop by 30%.  In fact, as I said in the other thread, we were forced by completely unrelated life circumstances in 2008 to pour a ton of money into a second house, second car, home equity loan, etc...so we HAD to  reduce our market contributions almost precisely during the downturn.  To this day it makes me crazy with rage, because my reaction to that market crash was to start pouring money in...and we just couldn't do it.  Argh.

[dude]

Oh, I'm with you all - I held fast in 2008 (too fast, in fact -- a rebalancing to my desired allocation would have netted me a few more pesos in the long run).  BUT, some folks here have only known investing during an unprecedented bull market and don't know what a real correction feels like.  Also, folks who were in the early-to-mid accumulation phase back in 2008 (I was mid-accumulation back then) might behave a little differently if they are close to or actually now in retirement for the next one.  Anyway, not to equate gamblers with investors (though some are the former but believe themselves to be the latter), but I've never met a gambler who wasn't a winner.  Every damn one of them will tell you how they're ahead of the house, and 99% of them are totally full of shit. I think many people simply won't admit it if they did/do panic in a downturn.

[Lis]

So I was in college during the last recession... old enough to be semi aware of what was happening, but not in the thick of it. I didn't start investing until 2013 when the market had already mostly normalized. I understand that we just don't know what/when anything may happen... but is there anything I can do to prepare? I currently contribute $500 per paycheck to my 401k (making up the $6k difference at the end of the year with my bonus). Due to some financial whoopsies I've paused my contributions to my Roth IRA, but if things go according to plan I was planning on starting back up in Aug/Sept (still scheduled to max out 2017). Should I just keep doing what I'm doing?

[GrumpyPenguin]

If I were to sell, I'd have to have a better idea of what to put it in... which I don't, so I can't see why I'd possibly sell.  I was early on in my investing in 2008 and I just thought, cool, cheaper prices to keep on buying.  Ha, as house prices were falling, I was cheering it on because house prices were (and now again) stupid expensive in too many places.

[ender]

It will indeed be interesting to see what buy-and-hold investors actually do when the market tanks/corrects. I'd wager 99% of MMM'ers will swear they won't panic, but it's likely many will anyway.

https://www.bloomberg.com/view/articles/2017-07-06/private-equity-and-passive-investors-are-on-a-collision-course

I will probably panic. And as a result, on or around my birthday like I do every year, I'll rebalance and if there was a correction of substantial amount I guess I'd probably sell a bunch of bonds to get back to our AA target.

[wenchsenior]

Oh, I'm with you all - I held fast in 2008 (too fast, in fact -- a rebalancing to my desired allocation would have netted me a few more pesos in the long run).  BUT, some folks here have only known investing during an unprecedented bull market and don't know what a real correction feels like.  Also, folks who were in the early-to-mid accumulation phase back in 2008 (I was mid-accumulation back then) might behave a little differently if they are close to or actually now in retirement for the next one. Anyway, not to equate gamblers with investors (though some are the former but believe themselves to be the latter), but I've never met a gambler who wasn't a winner.  Every damn one of them will tell you how they're ahead of the house, and 99% of them are totally full of shit. I think many people simply won't admit it if they did/do panic in a downturn.

This is a legit question.  I think it is possible if we had JUST retired I would reallocate to a safer mix.  On the other hand, we would already be in a slightly more conservative mix at that point, so...  We have about 6 years left before we really seriously consider retirement.  I'm hoping the next correction happens in the next few years, but there is a possibility it will directly coincide with our target date. If that happens, and we take a big  hit, I would expect to hang tough and try to keep working another couple years until the dip had passed.   ETA: Knowing my personality, I would be so enraged to be missing a fire sale with lack of income, that if we weren't working I'd likely try to pick up some work just so I could buy cheap stocks LOL.

[ysette9]

I have limited brain-space and need to devote it to markets I might be able to ACTUALLY time effectively, like when chicken thighs are on sale.

Thanks for the chuckle. :)

I think the question about how to react if recently FIREd is a good one as well. Personally I am not close enough to FIRE to have put a ton of thought into it, but I like the idea of having a more conservative allocation for the first 5 years or so, even up to holding 2 years or so in cash/bonds/money market to live off of initially. Then the plan would be to slowly change that allocation to a much more stock-heavy portfolio as the risk of sequence of returns in the beginning is reduced. If the market dumped in the beginning of my retirement I think I too would be bummed about missing out on the buying opportunity. Who knows how I would react for real though? It's probably like having a baby; I can think about how I'll react to things but until I was in the thick of it with emotions and sleep deprivation, I couldn't really predict what I'd do.

[aceyou]

The scariest part of the next recession to me is that if it doesn't come soon enough I might feel the need to wait OMY.

This:)

[Rural]

I know myself. As with the last three crashes, I'll keep doing what I do with the big money, but because of my experience with the recession of the 70s, I'll stock up on more food than I do now, flour in particular because of trauma over ever-increasing bread prices. Oh, and cocoa and coffee because chocolate and caffeine make life worth living.

[PDXTabs]

Since I'm starting out so late, I only have 14 yrs to acquire the stache i need through investing. My projections show I can make it in that time if the market averages 4%. If it tanks and I lose most of what I've saved, it will all be a lost cause and I don't think I could make it back at a reasonable age. I can't retire like many here. I'll be 57 at the earliest. A down fall at that age and I'll just wash my hands of all this and survive on whatever is left.

The Dow went from ~14k in 2007 to ~7k in 2009, but was back to 14k by 2013 and hit 21k by 2017. It the US stock market drops 50% again it will be a great buying opportunity.

[PizzaSteve]

Left community - deleted

[spokey doke]

I don't worry about panic selling as that is not in my nature...if the market has a big drop, the issue for me is deciding at what point do I take advantage of it (buying low, in this case).  Having rebalancing bands based on AA% helps with this, but even if those are automatic, one can still keep second-guessing "when..."

Not looking and being lazy seems like a good antidote...

[PDXTabs]

I don't worry about panic selling as that is not in my nature...if the market has a big drop, the issue for me is deciding at what point do I take advantage of it (buying low, in this case).  Having rebalancing bands based on AA% helps with this, but even if those are automatic, one can still keep second-guessing "when..."

I don't worry about panic selling either. Actually, what makes me nervous are the times like right now when everyone is happy and everything is expensive. I think I'm more comfortable when the market is going down. That's mostly a Pavlovian response from living through 2007-09 and buying all the way down and back up again. I have way money in my 401(k) than I would have without that market drop.