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Time to Shrug

Dennis Friedman

WHAT I FIND surprising about the stock market isn’t its recent dramatic pullback, but how I’ve reacted. I simply haven’t paid much attention. It’s just been business as usual. I haven’t even looked at my portfolio or watched CNBC.

Such a calm demeanor is unusual for me. A few years ago, if I experienced this type of market decline, I would have made big changes to my portfolio. Yet this time around, I just shrugged my shoulders.

What’s changed in my financial life to cause this indifference to the stock market’s selloff? I credit three things:

1. Asset allocation. I now have a mix of stocks, bonds and cash investments that allows me to stay the course in difficult times. Asset allocation isn’t just about your portfolio’s long-run performance. It’s also about the short term—and how you react emotionally. It’s about balancing the need to meet your goals against how much risk you can stomach.

At age 68, my portfolio consists of 35% stocks and 65% bonds. I don’t need to take more risk to meet my goal of a comfortable retirement. In fact, I reduced my exposure to stocks when I realized my portfolio had reached my magic number.

2. Financial advisor. My investment portfolio is managed by a low-cost financial advisor. At times like this, it’s comforting to know that I’m not on my own and that I have somebody I can trust looking out for me. If I were on my own, I would have felt compelled to make changes to my portfolio.

But this time around, my advisor is in charge and it’s on him to make any necessary trades. The upshot: I don’t need to pay close attention to what’s going on with the stock market and I’m not tempted to tinker, because I’m not the one managing my portfolio.

3. Low fixed expenses. I live below my means. I don’t have a mortgage, car payments, credit card debt or an expensive cable bill. Result: I know that, even in a financial emergency, I can make ends meet. I can sleep at night knowing that, whatever happens with the stock market , I’ll have a roof over my head and food on the table.

When I recall the bear markets I’ve lived through, what I think about most are not the massive declines in the market indexes, but my futile attempts to protect my investment portfolio from losses. Those ill-advised portfolio changes are what haunt me today, not the bear markets themselves.

If this market decline is the start of a new bear market , I’ve learned my lesson: I’m determined to ride this one out. So far, I haven’t even flinched. It’s business as usual for me.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. This is his 50th article for HumbleDollar. His previous articles include Small Is BeautifulOn My Mind and Turning the Page. Follow Dennis on Twitter @DMFrie.

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R Quinn
R Quinn
1 year ago

I hear you a Dennis and I fully agree, but I got to thinking about the living below ones means part. I do the same, but why? After we retire shouldn’t we be able to live at our means, rather than below? After all, the below part was supposed to help us get to retirement. I wonder how much this has to do with an income replacement percentage we start retirement with.

Steven Reynard
Steven Reynard
1 year ago

Which just goes to show, once again, that correlation does not imply causation.

Maybe you are right. Maybe those are the reasons you are feeling calm. But I have doubts.

1. Asset Allocation – Some of us are, or are close to, 100/0 allocation and haven’t even twitched. Most seem to be trying to scrape up cash to buy more. I was listening in just this morning on a conversation of several retired folks with a 25/75 or lower allocation panicking about their stock losses that amounted to 2 or 3% of their entire portfolio! Does a 10% loss really feel so much better than a 20% loss? One causes panic and sleepless nights and the other is quiet bliss? Not something I’ve ever seen.

2. Financial Advisor – Never had one so can’t really speculate. Seems pretty 50/50 between those that keep their clients from doing something stupid and those that cause their clients to do something stupid. It’s pretty easy to pay attention to the market or not without an advisor. As Jack Bogle used to say, “Don’t peek,” and “Don’t just do something, stand there.”

3. Low fixed expenses – That certainly never hurts. If you don’t need to sell stocks, for whatever reason, then it doesn’t really matter what the current price is. I’m not looking to sell my house, so emails from Zillow saying my house just dropped $50K in value don’t cause stress either. I’m currently barely finding enough money to get by each month, but that’s only because I’m only living on one paycheck a month. The other is going to pay off the mortgage quicker. Just “scraping by” doesn’t seem to be causing any perceptible market worry though.

Maybe you are just a little older, a little more mature, a little more experienced, a little more knowledgeable than last time? Maybe you are calmer because you’ve been through all this before? I know I am.

Roboticus Aquarius
Roboticus Aquarius
1 year ago

Every decline is different. The dot.com decline was a real business cycle issue and lasted for a long time. Then 2008 had a legitimate shot at causing an extended depression because assets were suddenly worthless, companies were technically bankrupt, but with some ongoing cash flow. I’m still convinced only the Fed’s actions prevented the devastation of company and sovereign balance sheets across much of the developed world. Honestly, since 2008 I’ve been nothing but optimistic.

Now this novel corona virus is doing a lot of harm, sadly having already lead to almost 4000 deaths. If China’s experience counts, it appears the spread of the disease can be slowed, and I hope this proves true globally.

When I spare a concern for our financials, our portfolio is 80% equity. We’ve been saving for 25 years, so the decline in our accounts thus far is not small… but for whatever reason it’s not making us fret. I do think experience helps us trust the process, and our portfolio is one I put a lot of time into developing. That doesn’t mean it’s better than anyone else’s, but it’s better for me because I understand it and trust it. If it recovers, great, if it keeps going down, we’ll rebalance. For now though, we stay the course.

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