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I just looked at my investments for the last month. It’s not a pretty picture and I have a big chunk in bonds and cash.
Have we entered a period of concern? Are assumptions under stress? Do we do anything or nothing? Should short-term spending be adjusted?
For those who are relying on investments in retirement what are your thoughts – just an anticipated blip or something more?
Hindsight is 20/20 Graph.
Is it bad manners to comment on an older post?
Apparently it’s not bad manners.
Same theme.
Something I sent my brothers at the onset of the covid scare. Chicken Little may be right someday, but based on the past it’s reasonable to be an optimist. 🙂
Not the End of the World Graph
The point being?
My understanding of the post was the concern about the 6% or so drop from late Oct. to late Nov. One month later we see the market has recovered. Nothing amazing, just an example of don’t worry, be happy. Merry Christmas!
After 54 years in financial services, over 30 years as a CFP/ChFC/CLU (and quite a number of additional professional designations,) and 15 years as an academic, teaching and writing financial textbooks, I remain convinced of the futility of trying to figure out the market.
Personally, I adopted Jack Bogle’s philosophy over 18 years ago, and I haven’t looked back. The whipsawing within the market, as recently as this past week, demonstrates above all that fluctuation in the market is a combination of three factors: fear, greed, and stupidity.
500-1000 point decreases on one day, followed by similarly numbered rebounds the following day, is profit-taking by insiders and others, engaged in market manipulation, and nothing else.
If you are living on periodic or scheduled withdrawals from your portfolio, these fluctuations can be quite distressing. On the other hand, if your retirement expenses are more than covered by your social security benefits and your lifestyle is funded by other guaranteed income sources, like Roth-funded annuity proceeds, market fluctuations, although still irritating, are not of as great a concern. Add to that having a cash buffer of 12-24 months of retirement income needs in cash, and the fluctuations become a non-issue.
Most HD readers are in the upper 50% of income earners in the US. Some appear to be in the upper 25%, and higher. Regardless of where you find yourself, most investors have an Asset Allocation based on some theory regarding the proper amount of stocks and bonds.
100-0, 90-10, 80-20, 70-30, 60-40 (Very popular, historically, for new retirees) 50-50, 40-60, 30-70, 20-80, 10-90, 0-100…pick one and move forward.
With guaranteed income, I am currently invested 100% in equities…VTI and VXUS, 80-20. My “bond holdings” or “fixed income-safe money” is in the form of annuity income.
As a friend told me years ago, “Time will either promote you or expose you.” Is my theory on the market and my choice of investments right?
Time will tell…for all of us.
I think the market is overvalued, but the question is whether there is anything we can, or even ought to do about it. If my retirement was far off in the future, I’d continue investing mostly in stocks. However, I am now retired and have enough so my priority is to keep it that way.
Jonathan wrote that he prefers to do his risk taking in the stock market, while favoring safety with bonds, so he invested in short term treasurys. I followed this approach. As stock valuations have risen in recent years, I have gradually downshifted from 75/25 to about 50/50.
If stocks continue rising, I will earn a piece of that. If they plummet, it will be unpleasant for me to watch, but knowing I have a secure pile of cash to fund annual distributions, I can resist the emotionally driven urge to “do something”. I’ve already done something. Nothing else to do, except maybe rebalance when warranted.
I live off of my pension and SS. My investments are for my children, both in their 50s. I have to adjust my AA every year as equities continue to go up. But I am comfortable with my investment strategy and AA, and doubt even a bad bear market will change that.
If I were a younger retiree living off of my portfolio, I would be much more nervous about things.
One thing that could help your mindsight is to look at your market gains over 5 and 10 year periods. That will help you realize that even after a bear market, you are still ahead over those periods.
I remember what J.P. Morgan once said when he was asked this question. A simple, clear and polite answer: “The market will fluctuate.”
The same thing Peter Sellers said in the movie Being There, as an advisor to the President.
A market correction is coming. I’ve posted about my concerns with the level of AI investments, the prospects of real returns on these investments and so on. There are other concerns. The amount of power these data centers will require will impact all of us. Only a short time ago we were being told to use paper straws to save the planet. Now even Bill Gates says “climate change” is nothing to worry about. Why this dramatic change in position? (A rhetorical question).
I don’t pay any attention to the entertainers, either.
If one is truly concerned about the current stock market then it would be appropriate to review allocation. Of course, no one is thrilled by the thought of a 20% or greater decline. Perhaps we should have similar concerns about the meteoric stock market increase. But we don’t, preferring to participate in the gains. I find that one-sidedness to be interesting.
Worry is sometimes an elective. It not one thing, then find another.
My spouse is probably a typical investor with indexes, etc. As a consequence, she has a somewhat more aggressive portfolio than I do. She is also more concerned than I am, and her portfolio because of indexing is more concentrated. The nature of greed is such that she hopes that correction never arrives.
Until this occurs her portfolio continues to do well. Yes, a 50% downturn would be a stunning reversal, and would turn much of the recent gains into a mirage. In fact, her “unrealized gains” would evaporate. I don’t tell her that. She’s currently happy and my advice remains “When the downturn arrives, don’t open those brokerage statements.”
We are both retired but she is 10 years younger and won’t take RMDs for a few years. Our combined portfolios have done well. My portfolio avoids the S&P index and the Magnificent 7 is less represented; none are my top 10 stocks, although in our combined stock portfolios Microsoft, Nvidia and Broadcom total about 3.5%. Yet, my portfolio is currently above the previous all-time high and is throwing off cash. At this rate she won’t have to sell stocks for 10-12 years. When the time comes, she can take her RMDs and reinvest, “in kind” in a taxable account. Or she can be more conservative.
Several times lately I’ve called up a chart of the S&P 500 index going way back. I suggest readers do so because it provides quite a perspective. The climb starts out slow, some bumps in 2000, 2007, etc. and then the slope of each of the next extended up periods gets steeper and steeper until this last period since “Liberation Day” is incredibly steep. In other words, the S&P has been climbing at a rate that can’t go on forever. Therefore, I think something will break, and the crisis will be a doosey, however, I know not when and why. What I do know is that the solution will be to print more money, and create more debt. How that might affect one’s portfolio is something to consider.
Thanks Dick, interesting to think about when the market is “choppy”.
I think a time like this is a good test of how well your allocation truly matches your risk profile. Many will say they have a high risk tolerance, but the reality of seeing stock markets losses shows otherwise.
Personally, if I check into see how a particular index is performing, I will also zoom out to 1 year, 5 year, 10 year. It puts the short term oscillations into context, as well as showing the market movements over a timeframe that actually matches our investing horizon.
I have to confess that I have more in invested in equities and more invested in technology than is recommended for being so near the start of retirement. But I also know I have also greatly benefited from these investments and have started my post-earned income years with much more than I would have had using a more conservative strategy.
I do not think of volatility as being the same as or even similar to risk. I prioritize longer term data over short term, with 10-year results given the most weight; I do not even consider investments with less than 10-years of history. One of my analysis “spreadsheets” is a table showing annual returns of each of my investments for as far back as possible. With that I can do a “what if I owned my current investments” during prior market corrections to back before the dot-com era, and would I be okay with these investments?
This year I increased what I call stable-value investments (cash, short term bonds, CDs…) to about 20% of my total, and considered more but decided that I already had enough to accommodate the volatility cycle that may now have started since there is virtually zero risk that I will ever be forced to sell depreciated investments and have enough stable-value to fund my needs and desires for any statistically probable down-market duration.
So my action plan now is to do nothing.
I really like your comment that volatility does not equal risk. It annoys me that so much of personal finance commentary uses these terms interchangeably.
Humble Reader, as I was finishing the second paragraph, my thoughts were going towards you having a potential risk of sequence problem. Then I read your final paragraph. You have it covered nicely. Bravo.
1st rule of investing …
If you can’t sleep at night your allocation is wrong
I can’t sleep… but it is my knees, back and other body parts keeping me awake. So is my allocation wrong? 😏
It might be your bladder. 😢
If you’re not lying awake thinking about MONEY … probably not.
disclaimer: I am not a professional – or otherwise – financial advisor so pay me no heed.
Well honestly that would be a little too much information for Humble Dollar 😳
Channeling Bill Bernstein, “When I am up at night worrying, I count my TIPS to sleep”.
But, I must confess, FOMO is strong when friends breathlessly tell you about the eye popping returns they got with their tech investments!
That’s the $64,000 question. I’m reasonably sure the stock market can’t keep going up 20% every year.
I like others (including Nick Maggiulli) feel similarly at this time as we did in 2021. This seems crazy. It feels like being at the top of a very high roller coaster. I’m sure it goes down, I just don’t know when or how fast.
That said, I haven’t really changed my allocations or behavior. I’m a bit paralyzed with indecision. But my investment horizon remains many decades, so that gives me comfort to “don’t just do something, stand there!”
I feel like we are due for at least a correction, maybe more. Seems like AI may be getting ahead of itself a little bit. We don’t rely very much on our IRAs, as SS and a couple puny pensions cover nearly all our spending. We also have a substantial cash position, and wouldn’t turn our noses up at an S&P500 fire sale.
Personally, I consider this as a blip in the long term scheme of things. It is quite common to have interyear drops (and gains) of 5%. It happens on average at least once a year. A 10% drop occurs every 30 months or so (see chart). The trick is to stick to your plan, not over react, and rebalance if your asset ratios move beyond your preset AA levels.
After reading the chart and the three lessons there in, it was interesting to read the disclaimer “Be sure to talk to your financial professional before making any changes to your financial plan.”
Personally, I think everyone has to look to one’s own solution based on short/long term needs. For sure, if one looks at the S&P Shiller CAPE ratio, I think some caution is in order. And has been, for some time.
That’s the best advice, Jeff. I consider every drop the market has ever had to be a blip. Some blips are just bigger than others.
Also, see this chart of interyear drops vs overall yearly returns. It puts short term changes into perspective.
I’m totally comfortable with the situation. My portfolio is invested in such a way that a ten year drawdown before recovery wouldn’t unduly concern me. I feel that when spending from a portfolio during retirement you should always have a minimum of 4 years consumption needs disconnect from the market. It’s to stressful otherwise.
Logical and wise, Mark.
Logically I know you are right. I don’t rely on investments in retirement, but when I see $100,000 disappear (even temporarily) within a couple of weeks, it doesn’t feel good.
I think to myself, what if those investments were paying for retirement. I admire those who remain stoic through it all.
If the drop of 100K is on a 10 million portfolio balance you shouldn’t blink. If the same dollar drop occurs on a 1 million portfolio balance and you can’t sleep you have too high an allocation to equities. Yesterday the Morningstar total market index dropped 1.5% and our portfolio dropped 0.5% and I didn’t bat an eye. This proves my 45/45/10 allocation is correct for my risk tolerance.
Also where there is a significant drop in the markets like in April (I consider significant being near correction territory) I merely look at when my portfolio value was the same balance as the current. Usually it is less than a year’s progress lost (‘21-‘22 being an exception).
The regret and dislike you feel when markets drop? That emotional reaction is precisely why, in my opinion, those of us funding our retirement from a portfolio must hold a substantial, multi-year buffer of cash and short-dated bonds. For me, that means an annuity, a bond ladder, and a generous dollop of cash. My belief is simple: If you don’t need to take risk to fund your lifestyle, you absolutely shouldn’t take it.
Good point
VWRL is basically back where it was a shade more than a month ago so more or less nothing. You have no need to worry. You’ve already won the game and it is featherbedding for you. If you find the downs too stressful maybe move out of equities entirely- alternatively find a perspective that in year, 1 year, 2 year volatility doesn’t matter at all as after all it is your heirs’ money.
But that 100k likely appeared relatively quickly as well given how sharply the markets have risen even since the summer.
Indeed, Current portfolio levels have dropped to what they were in September. But I remember being ecstatic at that time, grateful for how much values had risen post the decline/recovery from last March! Just have to maintain proper perspective.
Exactly. Easy come, easy go.
Accurate, but it felt better on the way up🤑
That’s because studies have shown that we “feel” losses twice as much as we “feel” gains.
I hear you!