Author Topic: VTSAX and a looming recession  (Read 3092 times)

simplicity131

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VTSAX and a looming recession
« on: August 18, 2019, 10:50:05 AM »
Hello! I am relatively new to the world of financial independence and am loving driving my expenses way down and saving/investing for the first time ever.

After reading A Simple Path to Wealth by JL Collins, I invested 100% of my savings are in VTSAX: about $26,000 in a taxable brokerage account, $6,000 in a traditional IRA, and a Simple IRA account from my employer that I plan to max out each year. I'm about to sell my house, and anticipate having an additional $85,000 to invest. My annual expenses are around $28,000, and I make $56,000 a year. I plan to invest the difference.

My question is this: I'm concerned about the recent reports of there being a 1 in 3 chance of a recession by 2020. Is it foolish of me to have everything in VTSAX? Does anyone have recommendations about what I should do with the $85,000 from the sale of my house? I know JL Collins says to just keep it simple and ride it out, but are there other perspectives I should be aware of? I'm 36 and love my work, so even after reaching financial independence, I will probably keep working at least part time. Thanks so much!

bacchi

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Re: VTSAX and a looming recession
« Reply #1 on: August 18, 2019, 10:54:59 AM »
You were in your mid-20s during the GFC. Did you have any money in the market? How'd you feel about it?

If your investments were to be cut by 40%, and fear is in the air, could you sleep at night? You'd "lose" $40000 in a matter of months. That's a lot of money.


simplicity131

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Re: VTSAX and a looming recession
« Reply #2 on: August 18, 2019, 11:03:23 AM »
No, I didn't have money in the market in during the last recession. I knew almost nothing about personal finances and kept everything in a savings account. I do see your point about the possibility of losing a scary amount of money in the next recession, whenever that may be. But I don't need that money in the near future and do feel like I could ride it out without freaking out and pulling out of the market. I'm just wondering if that's the best approach. Thanks!

bacchi

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Re: VTSAX and a looming recession
« Reply #3 on: August 18, 2019, 11:33:26 AM »
If you have a sufficient e-fund, and truly don't need the money for a decade+, it's a great approach. I'd add some international but some would disagree with me on that.

Put it in writing. An Asset Allocation Plan will detail when and where you sell and when and where you buy.

BicycleB

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Re: VTSAX and a looming recession
« Reply #4 on: August 18, 2019, 12:25:21 PM »
Are you continuing to work, save and invest even though you sell the house? If so, a market downturn is beneficial, because your stock purchases during that time will be made at lower stock prices.

The only risk is losing a job. Then you would be forced to sell stock at low fire sale prices to pay the bills, right at a time when it's harder to get a new job.

For this reason, some people carry a significant amount of cash or bonds, such as a year's worth of expenses. Other people realize that statistically, it's more likely stock will rise while you wait for the recession, so stock is still better on average. It's up to you which tactic you use. As long as you save and invest a large portion of your income, either one will work well.

PS. There is one other risk. It's that if, during a stock downturn, you lose courage, you could sell more stock than you have to. If you're ever going to sell stock or invest in bonds, do it now when stock is fairly high, not later when stocks are low.

RWTL

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Re: VTSAX and a looming recession
« Reply #5 on: August 18, 2019, 12:54:17 PM »
JL Colins just posted yesterday with a guided meditation for you.

https://jlcollinsnh.com/2019/08/17/a-guided-meditation-for-when-the-stock-market-is-dropping/

Since you're young and like your work, I would stay the course if you can handle the dip.  You don't lose anything until it is time to sell.  When the market drops, it's time to buy.

Buffalo Chip

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Re: VTSAX and a looming recession
« Reply #6 on: August 18, 2019, 12:57:46 PM »
VTSAX? You could do worse. But why not do better?  I’m a fan of index funds as opposed to actively managed funds with their fees. VTSAX  isn’t the only choice in the universe. There are international indexes, sector indexes, and individual stocks.

One thing to keep in mind is that your risk tolerance will likely go down a great deal once you see your portfolio get whacked by 30%. Best to be prepared for that, and be a little conservative up front.

RWD

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Re: VTSAX and a looming recession
« Reply #7 on: August 19, 2019, 07:29:02 AM »
Add one to the list.


1/2013  [SP500 = 1462]
https://forum.mrmoneymustache.com/investor-alley/is-now-a-bad-time-to-invest-in-stock-index-funds/
5/2013  [1583]
https://forum.mrmoneymustache.com/investor-alley/starting-today!/
https://forum.mrmoneymustache.com/investor-alley/$80k-sitting-in-cash-bc-scared-of-high-flying-stock-mkt-punch-me/
10/2013  [1695]
https://forum.mrmoneymustache.com/investor-alley/stock-market-expensive-now-alternatives/
5/2014  [1884]
https://forum.mrmoneymustache.com/investor-alley/stock-market-is-high-am-i-too-late/
https://forum.mrmoneymustache.com/investor-alley/is-the-stock-market-too-expensive-to-get-back-in/
7/2014  [1973]
https://forum.mrmoneymustache.com/investor-alley/current-market-has-me-scared-to-invest/
9/2014  [2002]
https://forum.mrmoneymustache.com/investor-alley/is-it-a-good-time-to-invest-new-money/
10/2014  [1946]
https://forum.mrmoneymustache.com/ask-a-mustachian/stock-market-would-you-buy-now-or-wait/
1/2015  [2058]
https://forum.mrmoneymustache.com/investor-alley/stock-market-should-i-be-concerned/
3/2015  [2117]
https://forum.mrmoneymustache.com/investor-alley/talk-me-out-of-timing-the-australian-market/
12/2015  [2103]
https://forum.mrmoneymustache.com/ask-a-mustachian/where-to-put-a-large-windfall-with-stock-market-near-all-time-highs/
1/2016  [2013]
https://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-(or-push-me-off)-please!/
2/2017  [2280]
https://forum.mrmoneymustache.com/investor-alley/does-anyone-think-we-are-in-a-bubble/
4/2017  [2359]
https://forum.mrmoneymustache.com/investor-alley/top-is-in/
6/2017  [2430]
https://forum.mrmoneymustache.com/continue-the-blog-conversation/recession-coming/
8/2017  [2476]
https://forum.mrmoneymustache.com/investor-alley/getting-scared-of-stock-market/
1/2018  [2696]
https://forum.mrmoneymustache.com/investor-alley/nervous-about-the-market/
3/2018  [2678]
https://forum.mrmoneymustache.com/investor-alley/when-would-you-get-back-in/
5/2018  [2655]
https://forum.mrmoneymustache.com/investor-alley/investing-in-a-bull-market/
6/2018  [2735]
https://forum.mrmoneymustache.com/investor-alley/moving-to-cash-market-timing-can%27t-believe-it/
10/2018  [2925]
https://forum.mrmoneymustache.com/welcome-to-the-forum/sell-index-funds-now-for-down-payment-during-recession/
2/2019  [2707]
https://forum.mrmoneymustache.com/investor-alley/welp-i'm-going-to-take-a-stab-at-timing-the-market/
4/2019  [2867]
https://forum.mrmoneymustache.com/investor-alley/buy-vtsax-now-while-its-this-high-or-wait-till-a-drop/
https://forum.mrmoneymustache.com/investor-alley/how-concerned-are-you-about-the-everything-bubble/
5/2019  [2924]
https://forum.mrmoneymustache.com/ask-a-mustachian/scared-of-investing-in-the-stock-market-now/
6/2019  [2890]
https://forum.mrmoneymustache.com/uk-tax-discussion/global-index-tracker-is-so-high!-do-i-just-keep-putting-my-money-into-it-anyway/
7/2019 [3026]
https://forum.mrmoneymustache.com/investor-alley/would-you-106836/
8/2019 [2889]
https://forum.mrmoneymustache.com/investor-alley/vtsax-and-a-looming-recession/

Miscellaneous
https://forum.mrmoneymustache.com/investor-alley/%27but-right-now-the-market-is-at-an-all-time-high-%27/
https://forum.mrmoneymustache.com/investor-alley/the-great-market-crash-of-2016!/
https://forum.mrmoneymustache.com/investor-alley/how-to-deal-with-losing-$117k-in-stock-market/
https://forum.mrmoneymustache.com/investor-alley/anyone-else-feeling-depressed-about-global-equities-10-year-outlook/
https://forum.mrmoneymustache.com/investor-alley/stocks-will-only-return-4-annually-for-next-decade-john-bogle/

PDXTabs

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Re: VTSAX and a looming recession
« Reply #8 on: August 19, 2019, 08:00:32 AM »
After reading A Simple Path to Wealth by JL Collins, I invested 100% of my savings are in VTSAX: about $26,000 in a taxable brokerage account, $6,000 in a traditional IRA, and a Simple IRA account from my employer that I plan to max out each year. I'm about to sell my house, and anticipate having an additional $85,000 to invest. My annual expenses are around $28,000, and I make $56,000 a year. I plan to invest the difference.

My question is this: I'm concerned about the recent reports of there being a 1 in 3 chance of a recession by 2020. Is it foolish of me to have everything in VTSAX?

I love A Simple Path to Wealth but I wouldn't keep all my money in VTSAX. Specifically, I would buy some VEU/VFWAX for global diversification. Alternatively you can just put it all in VT and let Vanguard manage the US/RoW split.
« Last Edit: August 19, 2019, 08:28:54 AM by PDXTabs »

MustacheAndaHalf

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Re: VTSAX and a looming recession
« Reply #9 on: August 19, 2019, 08:13:44 AM »
I invested 100% of my savings are in VTSAX: about $26,000 in a taxable brokerage account, $6,000 in a traditional IRA
So you've saved $32,000 so far... what percentage is that of your retirement goal?  3%?  If you've got 3% invested, and you're going to invest 97% later, you want a recession!  Stock prices are lower during a recession, allowing you to buy more.  And a recession won't last 30 years, so you'll come out ahead when it's over.

I'd also second the earlier recommendation to diversify into international.  Some decades the U.S. does better, some decades international does better.  If you don't like the idea, maybe limit yourself to 20% international.  Vanguard has a white paper showing that the most certain benefit is at 20%, and the likely benefits continue through 40% international.

ecchastang

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Re: VTSAX and a looming recession
« Reply #10 on: August 19, 2019, 08:56:05 AM »
I invested 100% of my savings are in VTSAX: about $26,000 in a taxable brokerage account, $6,000 in a traditional IRA
So you've saved $32,000 so far... what percentage is that of your retirement goal?  3%?  If you've got 3% invested, and you're going to invest 97% later, you want a recession!  Stock prices are lower during a recession, allowing you to buy more.  And a recession won't last 30 years, so you'll come out ahead when it's over.

This is brilliant!

ChpBstrd

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Re: VTSAX and a looming recession
« Reply #11 on: August 19, 2019, 09:46:37 AM »
A stop loss order might help you sleep at night during a correction, but it’s an incredibly dangerous strategy that will probably cause you to lose money because to get back into the market you have to “catch the falling knife” before the market suddenly rebounds and becomes more expensive.

Play this game a dozen times to test whether you can do it!

https://www.personalfinanceclub.com/time-the-market-game/

With the amount of money we’re talking about, you might consider churning savings and brokerage accounts for the sign-up bonuses. This would earn a respectable return on relatively small amounts of cash until you exhaust the opportunities available to you. Of course, if you have debt, make that your first investment.

merlin7676

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Re: VTSAX and a looming recession
« Reply #12 on: August 20, 2019, 02:11:40 PM »
You don't lose the amount of shares, just how much the shares are worth.

When they go up and are worth more, you recoup the loss...plus if you don't plan on selling them, then you never really lose anything even when the market is down. Just their "perceived" value.  It only matters what they are worth when you sell them.

EngagedToFIRE

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Re: VTSAX and a looming recession
« Reply #13 on: August 20, 2019, 08:53:49 PM »
Just be careful with the international stuff.  Warren Buffet is pretty straight forward on the topic, he advocates against international funds and believes investing in large US companies provides enough international exposure already.  I'm on that side of the fence, as he calls it "There is no better bet than to bet on America."

As others said, invest and don't worry about it.  You aren't even close to retiring and have no reason to worry about a recession.  Many of us are HOPING for a huge recession soon so we can buy cheaper!  So if you invest now, and just keep investing as you are earning, you will come out ahead.  As JL Collins said as well, the market always goes up.  So if you invest now, and it drops, it'll be back up, don't stress it.
« Last Edit: August 21, 2019, 07:44:43 AM by EngagedToFIRE »

DeniseNJ

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Re: VTSAX and a looming recession
« Reply #14 on: August 20, 2019, 09:33:34 PM »
JL Colins just posted yesterday with a guided meditation for you.

https://jlcollinsnh.com/2019/08/17/a-guided-meditation-for-when-the-stock-market-is-dropping/

Since you're young and like your work, I would stay the course if you can handle the dip.  You don't lose anything until it is time to sell.  When the market drops, it's time to buy.
Excellent. Thanks

MVal

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Re: VTSAX and a looming recession
« Reply #15 on: August 22, 2019, 10:25:52 AM »
If you have a sufficient e-fund, and truly don't need the money for a decade+, it's a great approach. I'd add some international but some would disagree with me on that.

Put it in writing. An Asset Allocation Plan will detail when and where you sell and when and where you buy.

I'm with you there. Been thinking about adding more international exposure, but I'm trying to decide how to go about it. I could start my future investments buying more international funds in my 401K, but perhaps I should also sell off some of my US index funds and buy some international for protection against the upcoming downtown.

Too bad the only international index fund available to me in my 401K is FSPSX. It has good returns and a low expense ratio, but no exposure to emerging markets or small caps.
« Last Edit: August 22, 2019, 10:47:52 AM by MVal »

A Fella from Stella

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Re: VTSAX and a looming recession
« Reply #16 on: August 22, 2019, 12:27:26 PM »
You're doing a terrific job! You make $56k and spend half?

If you are afraid of the recession coming, how about you put $10k in every year? If the market goes up, then you get some of that gain. When it drops, you'll slowly pick it up on the way up and down, and have a healthy later gain during the next run-up.