The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: shanghaiMMM on January 22, 2015, 04:27:13 PM
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Morning all,
I was looking at my index funds this morning. I started them around 6 months ago I guess and they've been up and down and currently are up a whopping 1.5% or so. So far I obviously haven't been in long enough to have any big gains or painful losses.
This got me wondering. If a big crash were to happen next week and say, and my stocks went down 40%, my reaction would be unknown. Obviously I'd stick with them if I listened to my head.
Anyway, I was thinking many people on here have probably experienced the dot com bubble and the 2008 crash (and past crashes too!) - I was wondering if anyone had any tales they would like to share about dramatic losses and the subsequent gains... did anyone make a killing buying cheap stocks? Did anyone do anything daft and sell low? Did seeing your net worth plummet and the uncertainty cause much mental anguish?
Very curious about the emotional ride a crash might send people on!
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Wished I had free cash but it was pretty much all invested so I left things alone. Kept investing with salary cash flow but otherwise rode the dip down and then back up.
See also http://forum.mrmoneymustache.com/investor-alley/how-did-you-react-to-the-2008-09-stock-crash/
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Ok - so here was my experience.
I got my first real "job" and started avidly plugging money into my index fund in 2004. I had a few good years until BAM!... the bottom dropped out. Suddenly, despite 5 years of constant and un-interrupted automatic contributions, I now had less than I had put in. several thousand $ less, which was a lot for someone in a fairly low income job who was also in grad school at the time.
But I did the smartest thing I have ever done (financially) and I stayed the course. I got a raise and I kept my plan for continuously increasing my monthly contributions. In 2009 I invested more money than I ever had before, and in 2010 I invested even more than that.
Now I look back and I can scarcely believe that I got to buy shares of my index fund - an SP500 index - when it was sitting below 800. Unbelievable.
Today, by simply dollar-cost-averaging (DCA) and steadingly increasing my savings that crash was the best thing that could have happened to my portfolio. But it did take some will-power to stay the course.
good luck
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Thanks for the link MDM - I'll be sure to have a look.
Nereo - Good for you for sticking it out. Hopefully I'll be able to look back in 10 years and say 'Ah, I remember when I bought into S&P 500 at only 2000!'
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I was young engineer just plugging away and making weekly contributions to my 401(k) without reallyunderstanding what this investing thing was all about. I distinctly remember looking at my statement and seeing that after contributing close to the max, my balance was the same as it had been a year earlier. It sure was fun to watch the ride up in subsequent years though!
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Due to the way things worked I got out in 2007 and put my money back in in 2010. Wasn't like I tried to avoid the crash, it just happened that way.
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I was young engineer just plugging away and making weekly contributions to my 401(k) without reallyunderstanding what this investing thing was all about. I distinctly remember looking at my statement and seeing that after contributing close to the max, my balance was the same as it had been a year earlier. It sure was fun to watch the ride up in subsequent years though!
Me too. I was basically clueless about investing and just didnt care at the time. I was too busy spending all my money on needless crap.
My parents lost everything I'm afraid since they freaked and sold at the bottom. It taught me a huge lesson in life.
Its nice to know Ive figured it out after reading the Boglehead Wiki and a couple books on their reading list.
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Due to the way things worked I got out in 2007 and put my money back in in 2010. Wasn't like I tried to avoid the crash, it just happened that way.
Wow! Good for you! :)
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This was my balance each Jan since 2006
2006 115465
2007 157164
2008 151000 - left old job - options also underwater - lost them - downturn also
2009 103834 - at one point even lower like 70K
2010 161963
2011 200238
2012 227610
2013 301356
2014 413847
2015 510000
During the downturn I watched it tank but held and bought at sale prices. When it dipped below 80K I closed my eyes and didn't look for several months. Since I was working as an IT PM working for big bank at the time, I also had my hours cut due to budget cutbacks. Kept investing in S+P 500 index, maxing out 401K as much as job rules would let me. Really enjoyed watching the rise.
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"Somebody told us Wall Street fell / We were so poor that we couldn't tell."
In the 2000 crash, anyway.
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I didn't have any choice (and I'm glad), as my employer sets the amount we contribute to our 401a. So, month in, month out, 19.4% of my salary was invested. I didn't look at my accounts for many months after either crash.
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Be careful. Most people end up selling. This is a self-selected bunch. Discipline is extremely hard. It's very easy to feel like you have iron discipline in a bull market.
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Two morals to these stories:
1. If you want to buy more of something, you want the price to stay low. Who wants to see gas at $4 /gal? This concept goes for dollar cost averaging, dividend reinvestment, and even occasional stock buyers.
2. Crashes are very profitable for those with strong hands or those that don't pay attention (yet have investing on autopilot). The weak hands will sell, thinking the are cutting their losses, to the strong hands. Out of the game and missing the rebound, the weak hands complain about manipulation, greed, the Wall Street casino, etc.
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we've always taken the long view on what we have in stocks. didn't panic out of the market, just stayed the course.
through the 2000 fall (age 40), we pretty much held even for a couple years. we weren't much in tech - which took the bigger fall - more broad based funds, so what we were adding (ours + company match) was offsetting the fall
our net worth then peaked in May-08, and over the next 10 months (Mar-09) dropped by over 30%. again, stayed the course
we'd recovered what we'd lost by Dec-09.
we're now appr 3x that amount in net worth (lots of gains + lots of savings/company matching)
and while i watch this "closely" - it's more of a monthly update than a daily look at the mkt and trying to out guess where it's going next.
and fwiw, i'm in the "index fund" camp
b
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Thanks for the stories.
I quite like the 'stick my head in the sand and not look for months' approach. There was a mini-correction recently and my UK based index fund went down 8-10% in a week (I'm British). I was checking rather obsessively during that time. A New Year's Resolution is to cut back on the amount of checking I do!
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This got me wondering. If a big crash were to happen next week and say, and my stocks went down 40%, my reaction would be unknown. Obviously I'd stick with them if I listened to my head.
This is why Bogleheads advocate writing an IPS (investment policy statement). http://www.bogleheads.org/wiki/Investment_policy_statement (http://www.bogleheads.org/wiki/Investment_policy_statement)
You should write one with a cool head before a market crash, and follow it to the letter during and after a market crash.
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Be careful. Most people end up selling. This is a self-selected bunch. Discipline is extremely hard. It's very easy to feel like you have iron discipline in a bull market.
Classic bearish talk.
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In 2000, I has just moved funds out of my defined pension plan, because I didn't trust the employer. Left things alone, and kept buying when my income allowed monthly investments. Always had a percentage in a bond index fund, so that my losses weren't as big as many (and my gains not as big). It all came back and kept growing.
I moved some of the money out of the funds I got from the defined pension plan and bought a house. It has saved me twice as much rent as the defined benefit plan would ever have paid, as well as some investment earnings along the way.
Lots of friends sold in a panic in 2008, and realized their losses. The first round, it took nerves of steel to leave it where it was. Now I know that works. As does some basic diversification.
The only investment I hung onto far too long was a technology index fund that tanked when Nortel crashed, and crashed and crashed. I just couldn't believe a technology fund couldn't come back and make money.
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Be careful. Most people end up selling. This is a self-selected bunch. Discipline is extremely hard. It's very easy to feel like you have iron discipline in a bull market.
Classic bearish talk.
I'm about 100% net long in stocks and have been for some time. But I'm realistic about most people's ability to do this. Look at the Bogleheads forum in 2008-2009. These were people who had been talking the talk for many years. But when it came time to walk the walk, many couldn't do it. Some could. But a sizable portion could not, despite previously thinking they could.
In bull markets, everyone thinks they can. But history, which is the best evidence, not some ideal in your mind, shows that only some portion of the population can.
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In 1987 I had just started investing. I had $10k in the Vanguard Index 500 mutual fund! I had another 10K in a much riskier offshore fund. I liquidated both right after the crash, took my losses and stayed in Tbills for the next 10 years. I got back into the stock market.... yep, in the late 90s, and then things started to go down. I had among other investments, a chunk in Janus 20 mutual fund and the other in a Vanguard index value fund. Strangely, both were going down at the same rate. At some point - probably near the lows - I said to myself, "Self, what are you going to do, watch this stuff go to zero?" So I sold those 2 funds which were most of my stock holdings outside of retirement accounts. I had $3000 of carryover losses to deduct every year for the next 10 years. So after those two disasters I built a diversified portfolio a little bit tilted towards fixed income, maybe 30%, and too much cash, but I was determined to ride out the next storm, which I did in 2008/2009. I watched my portfolio value shrink dramatically but I didn't panic sell anything, even though I had recently stopped working. I slowly added some dividend paying stocks on the way up and now 8 years after my last job I am in pretty good shape!
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I was in an investment club with fellow engineers in the 90s. We all thought we were so smart picking stocks to invest in and doing well. Well, almost anyone could have done well during that time. We disbanded towards the end of the decade because people were moving away and our returns started to suck...but can't remember if it was pre or post crash. I invested my own money in some individual stocks and had some great winners and some great losers as well.
Then, I switched jobs in 2008 so I rolled over my 401k to an IRA right about that time. I wasn't keeping great records, so I don't know if I saved myself some losses by "selling" in the summer/fall of 2008, but I probably did (by accident). I then remember being really scared of what to do with the money after that.
I put a lot into international investments that did well for a few years and have stalled in the past few. I'm holding on to those now for a rebound. I've learned it's all cyclical so I don't want to sell on the downside. Man, a few years ago I thought I was really ready for FIRE and then that hit.
It teaches me to not be too cocky about my net worth as the downshifts always happen after a good bull run.
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I lucked out in that I didn't have much invested in 2008 and between upping my 401k contributions after the crash and stock picking (silly I know), I did very well in the aftermath and recent run up.
Speaking of which, it is genuinely wonderful that we can reminisce with smiles and healthy retirement accounts so soon after. Because the shock that hit the US economy in late 2008 was stronger than the shock that caused the Great Depression. If not for the decisions made in the aftermath, the result probably would have been similar or worse (this is a nonpartisan assertion, or perhaps bipartisan, because those fortuitous decisions cut across party lines).
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I lucked out in that I didn't have much invested in 2008 and between upping my 401k contributions after the crash and stock picking (silly I know), I did very well in the aftermath and recent run up.
Speaking of which, it is genuinely wonderful that we can reminisce with smiles and healthy retirement accounts so soon after. Because the shock that hit the US economy in late 2008 was stronger than the shock that caused the Great Depression. If not for the decisions made in the aftermath, the result probably would have been similar or worse (this is a nonpartisan assertion, or perhaps bipartisan, because those fortuitous decisions cut across party lines).
In hindsight, everyone is wishing they had been more aggressive in taking advantage of that "obvious" opportunity, but from the viewpoint of that time, the entire nature of the financial system was in question. You had people like Bill Gross telling their wives to take out $10,000 in cash from their bank accounts just in case.
Everyone these days is saying they wish there was another big drop like that so that they can take advantage, but they need to realize that if a drop were to be that big, it would also likely look system-threatening at that moment.
I'm not saying it's not the right course of action to be a disciplined, long-term investor that takes advantage of these temporary fluctuations. It's obviously the best course of action. But it's not as easy to do as it seems to be at this moment in time.
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I quite like the 'stick my head in the sand and not look for months' approach. There was a mini-correction recently and my UK based index fund went down 8-10% in a week (I'm British). I was checking rather obsessively during that time. A New Year's Resolution is to cut back on the amount of checking I do!
Food for thought: Most people will say their time-frame for retirement funds is measured in decades. Companies only report their earnings quarterly. So why the hell do people obsessively check their balances daily (if not hourly)?
I'd argue that >99% of people would be best served if they put contributions on auto-pilot and checked their portolios no more than 4 times a year. But human nature makes this almost impossible to do. Ironically, if everyone did this we'd have less severe crashes and less ridiculous run-ups.
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TreeTired's post is thought provoking and well worth pondering. His/her experience in 1987 (when Dow went down 22% in a single day) and 2000 is not unusual. Luckily s/he learned from the experience; many don't, and TreeTired should be applauded. Someone else mentioned the Boglehead Investment Policy Statement; that is probably worth considering for those who haven't lived TreeTired's experience.
Our story is different. We were 100% equities (save for cash-type account between owning two houses and a very small emergency fund) from 1984 through 2013. From the beginning, we've been shooting for a fancy-pants retirement, so we didn't even think about pulling money out. Blindered, I suppose--or maybe too dumb for our own good? Feels really strange to be putting money into non-equity funds now, but a drop of the type we are discussing would hurt much more now than they did at the time....
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I got to experience the 2008-2009 roller coaster. I remember watching for nearly a year every contribution was instantly of less value the day after putting it in. So I definitely watched it drop. I didn't have much to invest at the time but kept trying to add as much as I could because I figured I would benefit in the long run. I purposely watched as I "lost" money because I was testing how aggressive an investor I was. I believe 2/3 of my main account during that period ended up being market gains so I definitely benefited from buying low. Now I am just on autopilot because I am reaching the limits of my tax advantaged space and starting on taxable.
I would like to see how I react to the next drop though, I have a lot more at stake this time. Once the next drop is over, I may decide on a less aggressive AA.
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I remember being quite amused as everything plunged. I got my first engineering job in October 2006. I spent the first year to year and a half paying off my remaining student loans ($11k) and saving up to buy a car and house while living at home with my parents. My 401k was pretty paltry at the time of the crash, as I was only putting in 20% of my starting salary (I thought 20% was pretty bad ass considering all the advice I got was to do 10%). I felt a little disheartened watching my 401k balance essentially remain flat even as I was pumping in 20% of my salary. I stopped watching it, and just went on auto pilot with the 20% until I found MMM. I had no other retirement investments as I thought 20% in my 401k was more than sufficient. My coworkers were panicked though. Many of them lost hundreds of thousands in their portfolios during the crash, and were constantly watching the markets and talking about it. Everyday was a new record low. I don't know if they sold, or held the course like me.
Looking back on it I wish I would have ramped up my savings to max out my contributions. I would have made a killing and be much further along my path to FIRE. Even though I held the course and did alright, it was still a huge missed opportunity. I am hoping for another major crash in the next 7 years or so.
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DW and I started paying employment mid-2006, and set some automatic contributions to our 403(b)s and 457s, not much. We were in residency, and so just a tad distracted during the GFC of 2008-09, but we never considered withdrawing or altering our contributions, but neither did we think of increasing either. Basically, we were oblivious, which made holding the course easy. Fast forward to today, and our perspective is so much different. I am watching my accounts like a hawk (bad habit, I know), I understand what I'm investing in and not just picking what looks good on the summary prospectus of the account, we have a _lot_ more money exposed to the markets, and our monthly savings is far beyond what is was in those days.
So I do wonder how I will react to the next downturn. We are actually in the prime position right now for another large drop in the markets, as we are still several years away from FIRE and are essentially at our likely peak earnings, so I'm rooting for a drop every month even as I celebrate the gains. So I think we would handle a market pullback now. However, in about 3-5 years, I expect our perspective to again be very different, with twice as much exposure to the markets, on the eve of retirement, and dulled by what could be 10 years of no significant prior market losses. In that context, a drop would be much more painful, but hopefully we can all reassure each other that this too will pass.
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I took out 90% of my taxable portfolio, which is the only account I had, just after I lost my Lehman Bros holdings to get a down payment for a house. Recognized the housing market was about to pop, didn't buy the house, bought a 40k truck, it's paid off now, and will keep this forever.
Here's how my portfolio faired. What was left in the account, wasn't touched or looked at until April 2014 when I opened the 401k with my part time job, and started evaluating and researching wealth building for my new wife and future family. I logged in to find that what was there which was decently diversified had grown 66%. This fact alone is why I will never, ever, for the rest of my ever, take money out of any account unless it is the small portion required to fund our COL.
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Since I knew that a bust would be scary to me, I agreed to to let myself swing 10% (5% in either direction) my investments in common stocks from my goal amount, rather than pulling out money altogether. So when I was scared I dialed down, but never more than my lowest bound (55% stocks). And I tried to remind myself, I don't have control over which way stocks go, but I do have control in the amount of money I contribute to stocks. And yes it has rebounded and then some!
It wasn't too hard to do as I don't have a huge amount invested yet and my horizon in far away. My idea when I am at retirement to have at least 40-50% in stocks.
I got into this pretty late, but my great grandfather got interested in stocks and regularly bought blue chip stocks way before the average person did, and I believe he did quite well. I think each of his grandchildren when he died got around 40-50K in stocks.
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I have a question. What if the down happened right before you were ready to retire? From what I am reading, it seems that your diversification should be in safer options the closer you are to retirement. Is this right?
I am asking because while it seems great to have a down while you are starting to put more money in, I am worried about a down right before retirement. Or do you time your retirement for when the portfolio recovers from a down?
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I have a question. What if the down happened right before you were ready to retire? From what I am reading, it seems that your diversification should be in safer options the closer you are to retirement. Is this right?
I am asking because while it seems great to have a down while you are starting to put more money in, I am worried about a down right before retirement. Or do you time your retirement for when the portfolio recovers from a down?
Note, my opinion is based on soaking up early retirement advice and blogs, and not actual experience yet.
The trinity study, the fundamental study that helped spawn the 4% withdrawal rate and the increasing interest in retirement research, simply looked at the ratio of stash to needed expenses for the first year of retirement, and then adjusted expenses with inflation for every year after for 30 years. So that study didn't care whether your stash was up or down 10% or whatever in the prior year, it only mattered what is was when you started withdrawing. So if you retire during a dowturn, and your withdrawal rate is above 4%, then you had an increased rate of failure. However, even with withdrawal rate at 5, 6, or even 7%, many of the years in the past still suceeded in staying above $0 after 30 years.
So while we can't predict where the market will go or what point in the cycle we are actually in at the moment we retire, it would not be unreasonable to assume that after many years of positive gains, you are likely to see some negative years during your first 10 years of retirement, and those are the most important in determining whether your stash will last. So if you are able, maybe start off retirement with a little less spending, maybe stay at home or travel locally or cheaply, put off major renovations or expenses, etc. OTOH, you could just go ahead and spend your planned spend, even if it's 5%, and then reevaluate each year, and if subsequent years recover and show gains, you are probably good, and if not, maybe you should pull back a little.
Regarding safer options right before FIRE, that's the conventional wisdom, to increase the bond % as your approach and then achieve retirement, and it will certainly even out both the ups and downs. However, Wade Pfau and Michael Kitces, two of the more active researchers in this area, have an interesting study that shows the opposite, that retirement risk is decreased by what they call a Rising Equity Glide-path. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324930
And here is Pfau's blog post about the same topic http://wpfau.blogspot.com/2013/09/reducing-retirement-risk-with-rising.html
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Been investing since the very late 80's. So I've been through the two "crashes" since then. Markets go up, markets go down. Sometimes enough in one day when I'd lose $10K or more (on paper) in a single day. A good excuse to have more than a few beers.
But I ignored the noise, knowing that I had a few years ahead of me until I had to tap those dollars. Every paycheck, a few more bucks in the 201(k).
Made a few bad calls moving dollars from one sector to another over the years, but since I've started socking money away 25 years ago I've averaged an 8.3% annual return. I'm happy with that.
John Bogle once said, "Don't just do something, stand there". The old coot was right. Patience, and Intestinal Fortitude, will pay off in the long run.
Unless, of course, the Zombie Apocalypse actually happens. In which case, trade in your 101(k) for a Remington shotgun.
Best of luck to all in the long haul.
JPB
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I have a question. What if the down happened right before you were ready to retire? From what I am reading, it seems that your diversification should be in safer options the closer you are to retirement. Is this right?
I am asking because while it seems great to have a down while you are starting to put more money in, I am worried about a down right before retirement. Or do you time your retirement for when the portfolio recovers from a down?
This is "Sequence of Return risk" and is a huge topic in the planning/academic arena. PathtoFIRE, in a nice responsive post, points to Wade Pfau, who is probably doing among the most cutting edge work here (and is a MMM fan, to a certain extent). The common advice is precisely what you mention. Bear in mind, however, that the advice is based on a strict SWR spending pattern, and never going back to work, no matter what. Neither of those is applicable to early retirement people.
Speaking solely for myself, this is why I finally started putting $$ into nonequity accounts last year or two. I'm old for this forum, and being 100% in equities less than 5 years before planning to retire can be dangerous. Nonetheless, neither DW nor I is thrilled with going this investment route; sort of like taking medicine, I guess. :-)
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I had just began my first job out of college in 2007. Under the guidance of my parents (and the fact that I lived at home to save money), I maxed out my 401k.
2007 contribution - $15,500
ending balance = $15,627
2008 contribution - $15,500
ending balance = $20,973 (loss of 77% when factoring in employer contribution)
At that age, there was nothing really to do except continue to max out my 401k. My Roth IRA (had I known what I know now, it would be a Trad IRA) experienced roughly the same fate. I remember having a convo with my dad when the DJIA was at 6,000. I remember saying that it would be a smart move to push all in (I had a substantial down payment saved up) at that time because if you were to make a bet that the DJIA would be back above 10,000 within 10 years, would he take that bet. The answer was yes, but of course at that time, the news every day was grimmer and grimmer and who knew what was going to happen. Then came the fears of a double dip, continued high unemployment, continued foreclosures, etc etc.
The younger you are, the more you can shrug off the market dips because while the sum of money you have in the market may be relatively a large amount for you yourself, you know that you won't be touching that money for MANY MANY years to come, and plus the absolute amount you have invested really isn't that much in the grand scheme of things (sorry to burst your bubble if you think your $30k 401k is hot sh!t).
Remember that the biggest enemy to investing is yourself - the more you can remove yourself from the equation, the better you will do in the long run.
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I started investing in the stock market shortly after the 1987 crash because I knew theoretically it was a great time to invest. The market bounced back pretty quickly which reinforced the notion of "staying the course".
Fast forward to the late 1990's. Monthly swings in my portfolio were sometimes as much as I made in a yea. Usually, but not always up. Then 2000 and the swings were just as large, but mostly down. Every month when I open the statement there would be 5 minutes of elation or despair. And then I went on with my life and investing.
I retired in early 2009. I was busy in the months leading up to retirement and barely noticed the "dip" in my investment accounts. I did harvest some losses for income tax purposes. The fact that the previous 2 "crashes" worked out fine helped me.
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I was in the midst of a divorce so neither of us touched yhe 401k which was to be divided. I did sleep a little bit better knowing it was invested in a balance of stocks and bonds. It eventually rebounded nicely.
The next couple years I kept my new contributions to my IRA in cash, thinking I would buy stocks if the market crashed again. Missed out on a lot of gains there.
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I graduated in 2008 from grad school. I took the only job offered to me. I was so clueless I actually turned downed their 401k! Lehman Brothers collapsed a month later and I literally understood nothing. I didn't know why everyone was freaking out or why so many people were losing their jobs. For the next 18 months I just focused on student loans. I was laid off in 2010 and took my severance to New Zealand for three months.
I got a job in the fall of 2010 at which point I started a 401k. I remember looking at it regularly and thinking wow, does it usually go up that fast? I couldn't invest more than the match because I was paying off my student loans. Once I paid those off I found MMM in in early 2014. And after paying off 135k in loans, and buying a house, my 401k of 30k is hot shit OK!
For me what helped me the most is that I have a relatively lucrative skill set, so recruiters kept calling me even in the pit of the recession. Part of why it took me so long to get a job is that I used to be that terrible of an interviewer.
From what I've read whether or not a country "bounces back" has a lot to do with fundamentals like immigration, demographics, debt etc. I try to follow Japan and Europe as well. The USA has relatively strong immigration, and a whole generation of millennials who haven't reached peak spending yet. We make really dumb mistakes (like allowing banks to trade sub-prime mortgages as "no risk" equities) but we will do crazy things to get our economy growing again. But eventually we will become a post growth society like Japan.
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At the beginning of 2008 I had about $6k in a rollover IRA from previous employers, which stayed invested and rode the whole roller coaster of crash and rebound. I was on first year pay at a regional airline (gross pay was $22k in 2008), trying to stash away whatever I could manage. January 2009 I got a big pay raise at my one year anniversary, along with now getting the company match to my 401k. Talk about lucky timing. I doubled my contributions and started getting the match near the bottom of the worst market crash since 1929.
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2008, 2000 and 1987 didn't frighten me into massive shifts, in fact I upped my percentage to S & P 500 fund in 2008. Not very nice to see the Money Honey talk about 800 point drops in the Dow. You know the old saying that Wall Street pros know the market is at a top when taxi cab drivers are giving stock tips? In 2009 I knew the crash was over when "USA Today" quoted a 34 year old as money his money out of stocks and to a GIC. Hope that individual learned.
When I did get scared was in the early 1970s when I first got interested in stocks. At the time the market and economy were expected to expand with the "peace dividend" from the end of the Vietnam War. Didn't happen and was too stupid to properly see the 1970s as a buying opportunity, so I stop after $150 purchase.
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in 1987 I had been in my 401K for only 3 years, so the value was too small to understand what the fuss was- I let it ride.
Dec 2000- I'm in NY at a convention and see the new NASDAQ board for the first time. Over the course of a 3 day stay, my investments go up 8%. I said "wow, maybe I won't have to retire in a trailer with a vegatble garden"... That was my burning bush moment that said " pull back winnings now" . I didn't.
Aug 2007, at a Cubs game, on a rooftop shared with an ING customer appreciation party. An ING guy strikes up a conversation and I wave him off- No financial talk today OK? He says cool, mind if I just sit here and look like I am chatting you up? Fine! We go a few innings and I bring it up- Where do you have your Dads money right now? He laughs and says "He does his own stuff- he is an advisor too! He moved to all cash in June" Another burning bush I didn't respond to. By now our assets were more significant and the hit was deep...after the hit I stopped opening statements. 2 weeks after the crash, my "FA" who managed a portion of my assets calls to rub my shoulder and say looks bad now but we will be OK- just stay in the markets. I asked why didn't he call 3 weeks ago and tell me he was keeping my powder dry... He has no answer. I stopped tracking statements until Jan 2010. @009 too busy looking for a new position for my wife and customers for me. Relieved my FA of responsibility last January. Now we think that with most of the major life expenses behind us- educations, weddings, house paid off in another 18 month, we figure we are in for at least one more correction in between now and touching our retirement funds. Will breath deep, pray TEOTWAWKI has not arrived and hopefully recover at least up to todays levels.
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I had a portfolio of stocks and bonds at the time that I picked over the years without really knowing what I was doing. I remember watching the stocks plummet to the point where my portfolio dropped around 20% as a whole, most of the fall coming from stocks, of course. I saw this and thought, that's it, I'm never investing in stocks again! Only bonds from here on in. I didn't know what to do, so stopped all investment purchasing.
As I watched the stocks go back up, I started to regain trust and bought a few more. Thankfully I didn't sell anything at the low point. But when things stabilized I decided to research and take investing more seriously. I came across dividend investing, and that approach made the most sense to me. With dividend growth stocks, dips in the market become a sale on dividend producing funds. The div rates are more appealing. And hopefully the monthly dividends will stay relatively constant through those times. In fact a test for buying div growth stocks for me is looking at the div history for that period. What did the company do with their dividends between 2008-2009? If they kept constant without cutting them, then this might be a relatively stable company to invest in.
Eta: it was a really scary time for me. It honestly felt like the world as we know it was coming to and end and that we'd be eating squirrel meat on an outdoor fire pit soon. Totally impossible to imagine beforehand. as solid as I may have thought my stomach was for investing, I really was losing my shit at that point. Very thankful that I stuck it out.
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In 2008 we started to get spooked so we cut back on spending (no changes to investments though). That year was actually pretty good income-wise (our industry was not much impacted by the recession) and so, combined with lower spending, we were able to plow a lot more cash than usual into new investments. At the end of 2008, our net worth was only slightly down for the year. But all that buying was a great setup for the recovery that was to follow. Without the 2008/2009 stock crash we'd probably be much worse off.
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In 2000 I mostly ignored it and left my 401k alone. I lost some money in taxable investments, but I had a bond fund that did really well, so I didn't get too overwhelmed.
In 2008, I clenched my teeth, squeezed my eyes tightly shut, and bought a little. Couldn't bring myself to buy more.
I can tolerate a down market fairly well because I hate, hate, hate locking in losses.
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My uncle lost 250k picking IT stocks in 2000. Pets.com anybody?
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Well, at least it put him off stock picking and he only does index funds now.
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I was given 10 shares of Yahoo for free way back when, and sold them at about $105 for a nice $1,050 profit before it tanked. Should have bought Apple shares with the profits... :D
I started investing serious money about 11 years ago, in a nice broad mix of mutual funds. I slowly converted to index funds over the years, and when the big drop came in 2008 I didn't watch my portfolio at all. I knew it was dropping roughly in line with the overall market, but I never once looked at how much I had "lost" or how much the value dropped. I just kept contributing as much as possible knowing my outlook was long term. My dad encouraged me to switch to silver, but thankfully I avoided most of that hype. I did purchase some with "spending money", but not really as an investment, just something to have.
Anyway, since I never sold or switched anything, I performed similar to the overall market. And since I was contributing every month, I picked some up during the low points as well. Unfortunately I had purchased a big house right before the crash, so I didn't have a dime extra to put in during the bottom, even though I knew it was a huge buying opportunity. Oh well... :)
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I had been investing for about 5 years for my first crash in 1987. I got spooked and sold everything that weekend before the crash, unfortunately because of how mutual funds work got the lowest price in my Fidelity Magellan and other funds. I put the money back in that week, so no huge damage was done about 5%
I retired in 99 at 39 with 90% stock (heavily concentrated in Intel stock). By Jan 2000, I was sure that tech stocks were way overvalue so I sold all my tech stocks, and about 1/2 my Intel stock. I bought muni bonds and index funds. I moved 2/3 of my IRA money in TIPs bonds which were at the time had real yield of almost 4%, making my AA a more sane 70/30.
The 2008 bear market pretty much took me by complete surprise, eventhough I knew the housing market was over valued. I just hadn't seen the connection between housing market and the stock market. Although one smart guy in the Early Retirement forum explained exactly what was happening in early 2008. I was smart enough to listen to what he was saying but not smart enough to act on it.
The only time I got scared was when the Congress rejected the first TARP program and the market melted down another 300 or so points. I was never bearish but turned positively bullish, when Warren Buffet in Oct 2008 wrote and OP Ed in the NY Times telling people. to buy stocks. (Just FYI, if you had listened to Warren's relatively rare stock market calls over the last 40 years you'd have done very well or you could have just bought Berkshire Hathaway stock.) I was glued to CNBC and spent a lot time watching my Schwab account. I sold a lot of stocks to take advantage of tax harvesting and bought a lot of others. The market was falling so fast I ended up selling 3 batches of stocks and ETFs. On the Early Retirement forum in Dec 2008 with the Dow under 9,000 I predicted the Dow would hit 14,000 by Dec 31,2013. (turns out I was too bearish 16,500 by that date). i had run out of cash so I wrote long terms puts (LEAPs) on stocks like Apple, and GE, people were so spooked they were willing to pay huge premiums for insurance against further market falls, so I sold them insurance.
I did cut spending during this period, because I really didn't want to go back to work. Mostly cutting out things like travel, and delaying all home improvement type stuff.
By Feb 2009, I totally run out of cash and discovered that would have some liquidity issues if the market didn't recover by Jan 2010 so I stopped trading. I still reminding pretty bullish and urges others even if they were not interesting in buying to at least not sell at those levels.
I am particularly proud of this post www.early-retirement.org/forums/f44/berkshire-hathaway-now-35239-5.html#post790278 (http://www.early-retirement.org/forums/f44/berkshire-hathaway-now-35239-5.html#post790278) I made a week before the market bottom in March 2009, explain why investment in Berkshire Hathaway was a good idea.
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Thanks for all the responses - I've read them all with interest. I guess it should come as no surprise that most on these forums held their nerve and didn't do anything daft when the markets plummeted (Or perhaps those who sold are not as eager to share their tales!).
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There is no immutable law of physics that US equities must increase in value over time. That's just what we've seen for as long as anyone here cares to consider. I think 2008 was a 100-year flood scenario. The very good news is that we had the political will and technocratic ability in the US to fight it (Europe was maybe not so fortunate, except to benefit from a surprisingly quick US rebound). The bad news is that I'm not so sure we could muster it all again if it struck in the near future, which brings me back to the extremely good news that it was a 100-year flood scenario and we survived it. I personally don't think we'll see anything like the shocks that hit our financial system in 2008 again in my lifetime...but I'm an optimist and I've been wrong before. And if I am, then cutting your losses and moving into cash probably won't help anyway.
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There is no immutable law of physics that US equities must increase in value over time. That's just what we've seen for as long as anyone here cares to consider. I think 2008 was a 100-year flood scenario. The very good news is that we had the political will and technocratic ability in the US to fight it (Europe was maybe not so fortunate, except to benefit from a surprisingly quick US rebound). The bad news is that I'm not so sure we could muster it all again if it struck in the near future, which brings me back to the extremely good news that it was a 100-year flood scenario and we survived it. I personally don't think we'll see anything like the shocks that hit our financial system in 2008 again in my lifetime...but I'm an optimist and I've been wrong before. And if I am, then cutting your losses and moving into cash probably won't help anyway.
I agree I don't expect to see that bad event in my lifetime, but then I'm over 50 and not counting on living to 100. Although the stock market crash was not nearly as bad as the Great Depression or even the panic of 1871. The dividend cuts in the S&P were actually greater in 2009 than during the Great Depression. The housing prices were actually much worse than the Great Depression in both the breadth basically the whole country and the severity in places like Florida, part of California, Nevada, and Arizona
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It hurt! I started chunking money into my accounts in 2003 and at one point in 2009 I still had less money in the accounts than I had contributed.
I stayed the course and I started making "real" money in 2009, together with my wife getting a raise and we got up to a 50% savings rate. The market has been very good to us since.
My only regret was I bought some conservative investments and was aggressively prepaying a mortgage when I should have just bought the S&P 500 fund and gone all in.
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There is no immutable law of physics that US equities must increase in value over time. ..... And if I am, then cutting your losses and moving into cash probably won't help anyway.
The last part of your statement is part of the reason why people still invest. If the US stock market does crash hard, and never recover...we've all got worse problems to worry about than the fact that we just lost a significant portion of our net worth.
So I plan to keep investing in a crash. Of course, I say this without ever having money in the market before a crash, so you know, take it with a grain of salt (or maybe a bag of salt)
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There is no immutable law of physics that US equities must increase in value over time. ..... And if I am, then cutting your losses and moving into cash probably won't help anyway.
The last part of your statement is part of the reason why people still invest. If the US stock market does crash hard, and never recover...we've all got worse problems to worry about than the fact that we just lost a significant portion of our net worth.
So I plan to keep investing in a crash. Of course, I say this without ever having money in the market before a crash, so you know, take it with a grain of salt (or maybe a bag of salt)
I agree. I used to think I needed to be prepared if TSRHTF (R is for really), but I've come to realize that if it's that bad it then won't be too bad because everyone else around me will be in the same (or worse) situation. The 2008 situation is the one that got me to be scared of the future, with all of the talk of systemic failure and all of that. But then I came to my senses.
Kind of like when I saw a documentary on people preparing for the apocalypse and I realized they were so weird that, if it ever came to that, I'd rather die in the apocalypse than survive with those people around.
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Thanks for all the responses - I've read them all with interest. I guess it should come as no surprise that most on these forums held their nerve and didn't do anything daft when the markets plummeted (Or perhaps those who sold are not as eager to share their tales!).
They came to the conclusion that wall street is a giant casino and FIRE is just a pipe dream, so they are off enjoying 100% of their income rather than losing it all (when they panic and sell at a loss) in the next recession. Maybe 120% of it if they are like most consumers.
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Thanks for all the responses - I've read them all with interest. I guess it should come as no surprise that most on these forums held their nerve and didn't do anything daft when the markets plummeted (Or perhaps those who sold are not as eager to share their tales!).
I love that word "daft!"
In the 2008 meltdown we lost around 10 percent of our net worth. I was 54 years old and 55 had always been my number for FIRE. But that,s ok because we actually we're not nearly ready to retire.
I just kept Throwing money into investment accounts and didn't look at the value. DH and I occasionally, ruefully, moaned about the market, but we didn't,t change our behavior.
In the tech drop of 2000 we didn't have much in tech stocks because there wasn't much drop in our net worth..
In '87 I had no money in the market, but I remember that a boyfriend who was pretty sharp dude had pulled his out before the oct crash.
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In 2000 I had $500K in restricted stock. After the lockup period ended it was worth $2k. So a 99.6% loss of paper money.
In 2008 I lost 24% of my portfolio on paper. In 2009 I gained 85%. So an average of +41% per year.
That's life on the street:)
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I started investing in 2003, and 2008 was like "meh." It didn't faze me, really. We had our first baby that year so maybe had other things to be thinking about.
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I managed to not panic and held through both 2001 and 2009. I suppose it was a good thing that most of my investable assets were tucked away in tax-deferred retirement accounts as that greatly reduced any temptation to tinker with them.
I have a couple of "rules" for these situations --
(1) If it's money I think I'll be tapping to spend in five years or less, it probably doesn't need to be exposed to the volatility of the stock market in the first place.
(2) Losses in down markets only become real if I panic and sell. Buy low, sell high.
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My wife and I were only into our third year of investing (early 20's) when the crash of '08 happened. It seemed fairly obvious to me that it was coming so I had moved all my money to cash but I left my wife's account alone in case I was wrong. I experienced a 4% loss that year compared to her 26% loss.
Interestingly enough, we had so little funds invested at that point ($25,000 for me and $15,000 for her) that there is no difference in the current balance of our holdings as a percentage of what we have contributed over the years. For both of us, the value of our investments are worth ~50% more than the total amount we have invested.
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My wife and I were only into our third year of investing (early 20's) when the crash of '08 happened. It seemed fairly obvious to me that it was coming so I had moved all my money to cash but I left my wife's account alone in case I was wrong. I experienced a 4% loss that year compared to her 26% loss.
Interestingly enough, we had so little funds invested at that point ($25,000 for me and $15,000 for her) that there is no difference in the current balance of our holdings as a percentage of what we have contributed over the years. For both of us, the value of our investments are worth ~50% more than the total amount we have invested.
When did you get back in the market?
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In 2000 I had $500K in restricted stock. After the lockup period ended it was worth $2k. So a 99.6% loss of paper money.
In 2008 I lost 24% of my portfolio on paper. In 2009 I gained 85%. So an average of +41% per year.
That's life on the street:)
Wow, what! 99.6% loss... I'm not really familiar with restricted stock... Did this loss not devastate your FIRE plans?
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We started really investing, not just saving to buy stuff, in 2005. By 2007, we had a whole 30k in investments. It felt like a whole lot of money. But we had lots of debt from school. Lots of money came in and lots of money went out. It felt wrong.
We decided to sell our house, downsize, and focus on paying off our debt. We missed the last hurrah of the mid 2000s bull market and the big dip/housing crisis by shear luck.
In 2009, we put the last high rate debt to bed and started piling our money into the market. Our net worth has multipled over and over. It feels so good...
We know a dip will come. It is highly unlikely we will be lucky enough to sell off the assets that are going to tank right before it happens again. I hope we will have the fortitude to stay the course and find the discounted investments and programs.
Anyone else buy a fixer as the housing market crashed and then dance a jig of glee as program after program was announced to provide free home improvement money!?!
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It's rather a long story, and probably a cautionary tale. In the end, I learned some very expensive lessons. Here are some of my blog posts from late 2008.
https://livingmyrichlife.wordpress.com/2008/11/12/so-my-financial-advisor-called/
https://livingmyrichlife.wordpress.com/2008/11/16/my-stockholdings-look-sick/
I don't have the time right now, but if you are interested in more details I'm happy to share.
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I had rebalanced my portfolio to add more bonds about a year before the crash of 2008. I watched my holdings go down about 25%. I read that stock funds dipped about 30-40%, so I came out a little bit ahead. I remember a coworker panicking and he told me he was going to move everything over to some fixed account before he lost any more money. I told him, please, please don't do that for your sake. The stock market is not going to go to zero and you will recoup your losses if you hold on. Right now they are just paper losses, but if you cash out they are real losses. But he did it anyway.
Needless to say, I just kept investing at my usual 20% (Was not really planning for very early retirement, and didn't make enough to anyway), and my portfolio has more than doubled from what it was in 2007.
I learned a lot over the years having just started putting money in a 403B in September of 1987, just to watch it drop in October!
You have to be in it for the long haul. Miss Prim
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My wife and I were only into our third year of investing (early 20's) when the crash of '08 happened. It seemed fairly obvious to me that it was coming so I had moved all my money to cash but I left my wife's account alone in case I was wrong. I experienced a 4% loss that year compared to her 26% loss.
Interestingly enough, we had so little funds invested at that point ($25,000 for me and $15,000 for her) that there is no difference in the current balance of our holdings as a percentage of what we have contributed over the years. For both of us, the value of our investments are worth ~50% more than the total amount we have invested.
When did you get back in the market?
I got back in in '09. Not right at the bottom but I caught it fairly early. Saw 15-20% gains in '09 and '10.
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In 2000 I had $500K in restricted stock. After the lockup period ended it was worth $2k. So a 99.6% loss of paper money.
In 2008 I lost 24% of my portfolio on paper. In 2009 I gained 85%. So an average of +41% per year.
That's life on the street:)
Wow, what! 99.6% loss... I'm not really familiar with restricted stock... Did this loss not devastate your FIRE plans?
No, I was clueless about FIRE in 2000.
Restricted stock is similar to stock options but with certain restrictions. It's sometimes given to insiders or officers as a form of compensation. I received mine right before our IPO. The restriction was that we had to hold the shares for a year after the IPO so that we don't try to flip our shares in the middle of our run-up.
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I took my money out before the crash and put it back in when the market started going up. My gain is 180%. The buy and hold sometimes is dangerous. This time it work but this is after the fed pump so much QE into the market. 4 QE plus 0 interest rate, TARP and the vehicle program. 2008 was a global recession. Even warren buffet went on TV to appeal to the public (PSA)not to bet against america.
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I honestly hardly noticed it. I started investing in 2000 when I got my first job maxing out 401k, for a long time I could not even tell you how much was in there just that I knew it was accumulating on autopilot. It probably helped that due to some chance that time period ended up being very good for me salary wise and I was a new father, so it was easier to shrug off.
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Charlie Munger has said if you can't handle losing 50% of your money twice in your lifetime, then you shouldn't be invested in stocks.
I learned so much in 2008, I'm glad I didn't have too much money at the time, but I still remember what losing half of it feels like. I decided I would learn how to invest in such a way that I would lessen the drawdown to something more emotionally manageable to me. I can't control my returns, but I can control my risk.
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Yep...losing 50% of a large portfolio is extremely painful. I know know what it feels like and I know I won't do it again. I set stop losses of 25% on my 'growth' holdings now.
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My story's a little different, but hopefully instructive nonetheless:
After years of investing in safer investments like CDs and bond funds I decided to take the plunge into stock mutual funds. At the end of the first month I was up 10%. Cool, thought I.
At the end of the second month I was up another 10% and thinking, shoot- this is EASY!
At the end of month 3 I'm up another 5%- 25% total in 3 months- and thinking, I should have done this years ago!
That was in October 1987. One bad day later, I'd give up all my gains. Fortunately I was mentally prepared for the possibility, and maybe it was good to get that lesson out of the way early on in my investing career, so as not to throw in the towel in '00 (which I barely remember) or '08 (lost 29%- regained within 3 years).
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I started investing in about 1993 or 1994. After the Hubs and I got married, we continued investing a fixed amount each month. We have ridden out both of the down markets you mentioned without changing our strategy.
During 2007-2008 I issued to joke that our 401(k)s were more like 201(k)s.
The thing that has helped us stay the course is that we have a large Emergency Fund. It would give us a year or more of bare bones expenses, so I have never felt panicky when things go down.
Our EF is probably larger than some think is smart or necessary, but it works for us. I feel sorry for people who sell at the bottom...if they are that loss averse, the equities markets may not be right for them. Considering that I am somewhat impulsive and emotional about many things in my life, I am fairly hardheaded and analytical about investing.