If someone is struggling to get basics like food housing medicine and you give them free money, the money supply will create demand. The Feds dont care if they lose money to common people and forgive it just like now. Not saying there wont be cut back and hoarding cash by those who have it, it will be much less severe than 1929 but could drag on several years. The effect of 25% unemployment would be much less goods and services produced so negative GDP growth.Valuethinker wrote: ↑Tue Oct 19, 2021 6:23 am
The problem with your economics is that it assumes supply creates demand. But that's not actually what happens.
What actually happens during sharp downturns is that everyone cuts back their spending (businesses and consumers) and hoards cash. Low interest rates don't matter if your alternative is to lend your money to someone and risk losing it.
Planning for a crash like 1929?
Re: Planning for a crash like 1929?
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
- burritoLover
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Re: Planning for a crash like 1929?
So if there's now a floor to equity loss due to more recent monetary strategies of the fed, then we should expect the long-term return of the equity market to be lower than the historical average going forward?
Re: Planning for a crash like 1929?
Or they could just exacerbate a 90% drop.WarAdmiral wrote: ↑Tue Oct 19, 2021 1:42 am Today's stock owners include influential CEOs, foreign governments, members of congress. They won't be able to prevent a 50% drop but they will certainly prevent a 90% drop.
All these assumptions thrown out about where the bottom is--they're just assumptions.
Look, you need to imagine your portfolio w/ a 100 percent stock wipeout.
Remember the old saying "don't invest in the stock market what you can't afford to lose"? It's still relevant, especially when you're near or in retirement.
And don't fool yourself about the world ending with a major crash that doesn't bounce back in your lifetime. The world won't end. People will move on. Some will thrive. Some will jump out of buildings. If you're out there too far on the risk curve, thinking that you're safe because of some rationale that amounts to little more than hope or denial, you're more likely to be one of the latter than the former.
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Re: Planning for a crash like 1929?
This is simply impossible advice for 99% of people. Even those with pensions, since the bulk of those pensions are invested in the stock market. There is no point in considering a 90% (or 100%) wipe out because most people cannot change their behavior enough to do anything about it.
Talk like that leads to people YOLO-ing into dumb assets or not saving/investing at all.
There is no perfect safety, unless you're in the top .1% with a private army and secure compounds around the world.
Re: Planning for a crash like 1929?
The average annual total return and compound annual growth rate of the S&P index, including dividends, since inception in 1926 has been approximately 9.8% but the last 10 years its been giving 50% higher returns than the average so in the next several years the chance of reverting to the mean and thereby smaller returns for a decade is possible. The Feds cant guarantee a floor to equity loss they can only make it less severe by injecting liquidity.burritoLover wrote: ↑Tue Oct 19, 2021 7:39 am So if there's now a floor to equity loss due to more recent monetary strategies of the fed, then we should expect the long-term return of the equity market to be lower than the historical average going forward?
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Planning for a crash like 1929?
There's clearly a lot of such sentiment in the market, even by smart money, the first part 'Fed put' (those believing it should also I agree conclude the second part, lower return). But 'smart money' is often Other People's Money. I believe in general 'really bad things can't happen because we're so advanced now' is dangerous thinking with your own money. Although there's the usual 'behavioral economics' aspect for retail investors. If the people on the thread misguidedly, IMO, 'explaining' how the market 'couldn't' melt down were to be convinced they are just thinking too narrowly* they might become afraid to invest in stocks at all. But in most cases (though depending on circumstance) they probably should have some money in stocks. Recognizing something as *possible* is not saying it's *likely*.burritoLover wrote: ↑Tue Oct 19, 2021 7:39 am So if there's now a floor to equity loss due to more recent monetary strategies of the fed, then we should expect the long-term return of the equity market to be lower than the historical average going forward?
But another more recent comparison is this. The CPI adjusted low point of the S&P (raw index number, because we're talking price change here) in 2009 is around 81% below the current level. What law of nature says it couldn't 'possibly' revisit that level? I think Valuethinker in post above laid out the various different people, attitudes and policies which could have prevented or seriously delayed the 2009 bounce back. And that's not even accounting for 'flapping of a butterfly's wing' type things. We don't actually know why the market reached that level rather than bouncing back from a higher one or going to a lower one. And that's with a set piece scenario, we have no idea what a future crisis would center around let alone the details.
I look at my portfolio in three standard cases, 25% down (estimating what that would mean for real estate which I also have significant exposure to), 50% down and revisiting the March '09 low inflation adjusted. We're in a fortunate position that we could get by with normal returns (rather than a head spinning bounce back) from the -81% case, but that's where I want us to be (with no further significant labor income). Of course there is no 'absolute worst case', but putting the stock market returning to a level it was at only 12 yrs ago in the same category as 'aliens invade' would seem odd to me.
*one potential blind spot: what if a huge future crisis revolved around loss of confidence in rich country fiat currency government(s) over indebtedness and related central bank actions? If stepping in to back up and bail out everybody eventually exacerbates the crisis rather than solving it.
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Re: Planning for a crash like 1929?
+1namajones wrote: ↑Tue Oct 19, 2021 8:28 am
Or they could just exacerbate a 90% drop.
All these assumptions thrown out about where the bottom is--they're just assumptions.
Look, you need to imagine your portfolio w/ a 100 percent stock wipeout.
Remember the old saying "don't invest in the stock market what you can't afford to lose"? It's still relevant, especially when you're near or in retirement.
And don't fool yourself about the world ending with a major crash that doesn't bounce back in your lifetime. The world won't end. People will move on. Some will thrive. Some will jump out of buildings. If you're out there too far on the risk curve, thinking that you're safe because of some rationale that amounts to little more than hope or denial, you're more likely to be one of the latter than the former.
This is realistic perspective, and excellent advice.
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Re: Planning for a crash like 1929?
That's subjective. If you're looking at risk-adjusted returns then having lower CAGR but lower volatility is *better*, and that's kind of the point.minimalistmarc wrote: ↑Tue Oct 19, 2021 6:06 am Unfortunately you will most likely end up worse off, like the vast majority of market timers. If you have a genuine edge on the market then you might end up very rich.
I don't do what the OP does, but staying on the sidelines during 1929-like years has some merit.
Re: Planning for a crash like 1929?
You're probably right. My point, though, is that if you pick a number that represents a percentage market decline--any number--what is it based on? 50%? I've been reading that on these boards for years, including just 5 years ago, after which the market has doubled. So what would it be for those folks now? 75%? What has accounted for the 100% gain over the past 5 years to make us think that 50% is still the max drawdown? Multiple choice: Share buybacks. Quantitative easing. Creative accounting. Hope and dreams. Sustainable earnings. TINA. Other.fortunefavored wrote: ↑Tue Oct 19, 2021 8:58 amThis is simply impossible advice for 99% of people. Even those with pensions, since the bulk of those pensions are invested in the stock market. There is no point in considering a 90% (or 100%) wipe out because most people cannot change their behavior enough to do anything about it.
Talk like that leads to people YOLO-ing into dumb assets or not saving/investing at all.
There is no perfect safety, unless you're in the top .1% with a private army and secure compounds around the world.
So let's say your calculation includes 30%, 70%, 40%, 80%? Why?
I just erased all of the human factor in my own head and said 100%. Yes, I do that calculation w/ my portfolio. If I lost 100% of my equity holdings, I would still be okay. Not as rich, for sure, but not standing in bread lines, either.
You see, when calculating less than 100%, you're probably also considering something else: a point at which you'd sell. Right? "My max possible point of pain is 50%." Okay, what then? You sell at 60%?
By configuring your portfolio so that a max drawdown of 100% would not have you standing in bread lines or living in the dumpster down the road, you are saying that your portfolio could weather any storm in equities. That's what you need to be able to say. Otherwise, you're too far out on the risk curve.
I'm speaking mostly to near retirees and retirees here. Yes, when you have 20 years of accumulation left, such calculations may be less relevant. But to someone without earning power left, you've got to be able to say, "if this stock allocation I have goes to $0, I'll still be okay."
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Re: Planning for a crash like 1929?
50% is oft-thrown around as a "reasonable" drop because historically it has been, outside of the Great Depression. I said it previously, but investing is inherently an optimistic pursuit. If you really believe stocks will go to 0, you should not be investing at all.namajones wrote: ↑Tue Oct 19, 2021 9:39 amYou're probably right. My point, though, is that if you pick a number that represents a percentage market decline--any number--what is it based on? 50%? I've been reading that on these boards for years, including just 5 years ago, after which the market has doubled. So what would it be for those folks now? 75%? What has accounted for the 100% gain over the past 5 years to make us think that 50% is still the max drawdown?fortunefavored wrote: ↑Tue Oct 19, 2021 8:58 amThis is simply impossible advice for 99% of people. Even those with pensions, since the bulk of those pensions are invested in the stock market. There is no point in considering a 90% (or 100%) wipe out because most people cannot change their behavior enough to do anything about it.
Talk like that leads to people YOLO-ing into dumb assets or not saving/investing at all.
There is no perfect safety, unless you're in the top .1% with a private army and secure compounds around the world.
So let's say your calculation includes 30%, 70%, 40%, 80%? Why?
I just erased all of the human factor in my own head and said 100%. Yes, I do that calculation w/ my portfolio. If I lost 100% of my equity holdings, I would still be okay. Not as rich, for sure, but not standing in bread lines, either.
You see, when calculating less than 100%, you're probably also considering something else: a point at which you'd sell. Right? "My max possible point of pain is 50%." Okay, what then? You sell at 60%?
You see, by configuring your portfolio so that a max drawdown of 100% would not have you standing in bread lines or living in the dumpster down the road, you are saying that your portfolio could weather any storm in equities. That's what you need to be able to say. Otherwise, you're too far out on the risk curve.
I'm speaking mostly to near retirees and retirees here. Yes, when you have 20 years of accumulation left, such calculations may be less relevant. But to someone without earning power left, you've got to be able to say, "if this stock allocation I have goes to $0, I'll still be okay."
Most people, even at retirement, need equity gains for the next 30 or 40 years. Sure, you can taper it down as you get into your 70s and 80s (and most people do) but for the vast majority of your investing life, say from 18 to 78, you will need to spend 60 years significantly exposed to the equity market.
An 80 or 100% draw down is so exceedingly unlikely that planning around it will severely limit what you can do with your life. That is what leads to the "I will work until I die even with 50X expenses" threads. Which is fine if you want/can do that, but most people don't want to, and won't need to.
Re: Planning for a crash like 1929?
Yes, there will be a crash. No, you cannot time it. Ergo, don't just stand there--do nothing!
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Re: Planning for a crash like 1929?
Great book. Hits home a little harder because I live relatively close to and have family in Youngstown, OHGrt2bOutdoors wrote: ↑Mon Oct 18, 2021 7:30 pmRead the book, The Great Depression. A Diary by Benjamin Roth. You’ll want to sell everything you got, put it in a lockbox that no one knows about and hold on for dear life. It’s really a depressing book but the biggest lesson out of that book to keep lots of liquidity available in the form of cash. Back then, banks were failing left and right, up and down. The author lamented not having enough cash or rather any cash to take advantage of the bargains to be had, selling for 90 percent off. And you think a 20 percent selloff is bad?? But if you have cash, those service workers you couldn’t find to repair your home will be very easy to find and the cost will be cheap, cheap, cheap. Deflation will set in and if you want to eat, bargains will be made.MathWizard wrote: ↑Mon Oct 18, 2021 6:51 pm Have no debt, own your own home.
Preferably have land that you can grow food and get water on,but if not,have rain barrels to water your garden (assuming you are not in Colorado).
The big thing about 1929 was to live through it.
You could buy the farms from those going bankrupt if you had spare cash. Though I would prefer just buying goods directly from farmers,or local butcher, to keep them going, and for me to cut out the middle man.
Re: Planning for a crash like 1929?
Except people almost always end up getting to the sidelines in 1927, or staying on the sidelines too long.Marseille07 wrote: ↑Tue Oct 19, 2021 9:35 amThat's subjective. If you're looking at risk-adjusted returns then having lower CAGR but lower volatility is *better*, and that's kind of the point.minimalistmarc wrote: ↑Tue Oct 19, 2021 6:06 am Unfortunately you will most likely end up worse off, like the vast majority of market timers. If you have a genuine edge on the market then you might end up very rich.
I don't do what the OP does, but staying on the sidelines during 1929-like years has some merit.
It's always easy to look back and say "Yeah, getting out in 1999 or 1929 would indeed have paid off", but anyone following valuations would have actually lowered stock allocation in 1992 (!!), and gotten all the way out in 1996, not 1999.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: Planning for a crash like 1929?
Well, rockstar is using valuations but that's just one of many strategies. If one's solely using 300-day moving average for example, you pretty much dodge 1929 easy after the initial hit.HomerJ wrote: ↑Tue Oct 19, 2021 10:12 amExcept people almost always end up getting to the sidelines in 1927, or staying on the sidelines too long.Marseille07 wrote: ↑Tue Oct 19, 2021 9:35 amThat's subjective. If you're looking at risk-adjusted returns then having lower CAGR but lower volatility is *better*, and that's kind of the point.minimalistmarc wrote: ↑Tue Oct 19, 2021 6:06 am Unfortunately you will most likely end up worse off, like the vast majority of market timers. If you have a genuine edge on the market then you might end up very rich.
I don't do what the OP does, but staying on the sidelines during 1929-like years has some merit.
It's always easy to look back and say "Yeah, getting out in 1999 or 1929 would indeed have paid off", but anyone following valuations would have actually lowered stock allocation in 1992 (!!), and gotten all the way out in 1996, not 1999.
This is not beating the market on a CAGR basis, but beating on a risk-adjusted basis.
- willthrill81
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Re: Planning for a crash like 1929?
I've seen at least one academic publication that showed about a 1% higher CAGR for the 200 DMA vs. buy-and-hold of the S&P 500 over the last ~70 years or so, IIRC. But I don't think that timing/trend following strategies should generally be used in the pursuit of a higher long-term CAGR; rather, they should be likely be used as a risk mitigation strategy, a means to hopefully avoid prolonged and deep market downturns.Marseille07 wrote: ↑Tue Oct 19, 2021 10:16 amWell, rockstar is using valuations but that's just one of many strategies. If one's solely using 300-day moving average for example, you pretty much dodge 1929 easy after the initial hit.HomerJ wrote: ↑Tue Oct 19, 2021 10:12 amExcept people almost always end up getting to the sidelines in 1927, or staying on the sidelines too long.Marseille07 wrote: ↑Tue Oct 19, 2021 9:35 amThat's subjective. If you're looking at risk-adjusted returns then having lower CAGR but lower volatility is *better*, and that's kind of the point.minimalistmarc wrote: ↑Tue Oct 19, 2021 6:06 am Unfortunately you will most likely end up worse off, like the vast majority of market timers. If you have a genuine edge on the market then you might end up very rich.
I don't do what the OP does, but staying on the sidelines during 1929-like years has some merit.
It's always easy to look back and say "Yeah, getting out in 1999 or 1929 would indeed have paid off", but anyone following valuations would have actually lowered stock allocation in 1992 (!!), and gotten all the way out in 1996, not 1999.
This is not beating the market on a CAGR basis, but beating on a risk-adjusted basis.
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Re: Planning for a crash like 1929?
I'm not aware that 200 DMA would carry a higher CAGR. Just quickly cooked this up, this aligns with my understanding:willthrill81 wrote: ↑Tue Oct 19, 2021 10:19 am I've seen at least one academic publication that showed about a 1% higher CAGR for the 200 DMA vs. buy-and-hold of the S&P 500 over the last ~70 years or so, IIRC. But I don't think that timing/trend following strategies should generally be used in the pursuit of a higher long-term CAGR; rather, they should be likely be used as a risk mitigation strategy, a means to hopefully avoid prolonged and deep market downturns.
https://www.portfoliovisualizer.com/tes ... odWeight=0
You're correct that it's clearly much safer than B&H.
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Re: Planning for a crash like 1929?
Use any fixed income other than 'cash' as the out of market asset, and you'll see that the 200 DMA outperformed, potentially significantly, as in the case of LTT.Marseille07 wrote: ↑Tue Oct 19, 2021 10:26 amI'm not aware that 200 DMA would carry a higher CAGR. Just quickly cooked this up, this aligns with my understanding:willthrill81 wrote: ↑Tue Oct 19, 2021 10:19 am I've seen at least one academic publication that showed about a 1% higher CAGR for the 200 DMA vs. buy-and-hold of the S&P 500 over the last ~70 years or so, IIRC. But I don't think that timing/trend following strategies should generally be used in the pursuit of a higher long-term CAGR; rather, they should be likely be used as a risk mitigation strategy, a means to hopefully avoid prolonged and deep market downturns.
https://www.portfoliovisualizer.com/tes ... odWeight=0
You're correct that it's clearly much safer than B&H.
The Sensible Steward
Re: Planning for a crash like 1929?
Yep, looking back, you can always find the strategy that would get you out at the right time.Marseille07 wrote: ↑Tue Oct 19, 2021 10:16 am Well, rockstar is using valuations but that's just one of many strategies. If one's solely using 300-day moving average for example, you pretty much dodge 1929 easy after the initial hit.
But those strategies don't always work going forward. If they did, market-timing would be easy.
And there's always the false signals that have one jumping in and out multiple times.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Planning for a crash like 1929?
Starting point is pretty important.willthrill81 wrote: ↑Tue Oct 19, 2021 10:19 am I've seen at least one academic publication that showed about a 1% higher CAGR for the 200 DMA vs. buy-and-hold of the S&P 500 over the last ~70 years or so, IIRC. But I don't think that timing/trend following strategies should generally be used in the pursuit of a higher long-term CAGR; rather, they should be likely be used as a risk mitigation strategy, a means to hopefully avoid prolonged and deep market downturns.
Does it show every 20-year and 30-year period? Starting in every possible month?
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Planning for a crash like 1929?
During the 40s-70s too? Or just from the 80s on when bonds (especially Long-term bonds) have done very well?willthrill81 wrote: ↑Tue Oct 19, 2021 10:29 am Use any fixed income other than 'cash' as the out of market asset, and you'll see that the 200 DMA outperformed, potentially significantly, as in the case of LTT.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: Planning for a crash like 1929?
I'm not sure if I like the idea. When your out of market asset isn't cash, your backtests would curve-fit.willthrill81 wrote: ↑Tue Oct 19, 2021 10:29 am Use any fixed income other than 'cash' as the out of market asset, and you'll see that the 200 DMA outperformed, potentially significantly, as in the case of LTT.
Re: Planning for a crash like 1929?
No country has ever printed it's way to prosperity. Since 2008, the US has added $22T in new debt, with the Fed adding another $8T to it's balance sheet. The current market IMO is almost entirely artificial, propped up by printing, buybacks and manipulated interest rates. An 80% drop would merely bring us back to a valuation in line with real, not artificial, productive output.
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Re: Planning for a crash like 1929?
It's been several years since I read the paper, and I cannot recall the title, the authors' names, or their methods now. I'll try to find it.HomerJ wrote: ↑Tue Oct 19, 2021 10:38 amStarting point is pretty important.willthrill81 wrote: ↑Tue Oct 19, 2021 10:19 am I've seen at least one academic publication that showed about a 1% higher CAGR for the 200 DMA vs. buy-and-hold of the S&P 500 over the last ~70 years or so, IIRC. But I don't think that timing/trend following strategies should generally be used in the pursuit of a higher long-term CAGR; rather, they should be likely be used as a risk mitigation strategy, a means to hopefully avoid prolonged and deep market downturns.
Does it show every 20-year and 30-year period? Starting in every possible month?
I believe that it went back to the 1950s.HomerJ wrote: ↑Tue Oct 19, 2021 10:39 amDuring the 40s-70s too? Or just from the 80s on when bonds (especially Long-term bonds) have done very well?willthrill81 wrote: ↑Tue Oct 19, 2021 10:29 am Use any fixed income other than 'cash' as the out of market asset, and you'll see that the 200 DMA outperformed, potentially significantly, as in the case of LTT.
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Re: Planning for a crash like 1929?
If we're around the borderline of 200 DMA, fakeouts can and do happen. However, 200 DMA is actually quite stable for the most part; this is why it's a safe strategy. And this is not hindsight bias, it really is effective in terms of reducing your drawdown.HomerJ wrote: ↑Tue Oct 19, 2021 10:36 am Yep, looking back, you can always find the strategy that would get you out at the right time.
But those strategies don't always work going forward. If they did, market-timing would be easy.
And there's always the false signals that have one jumping in and out multiple times.
As I said, however, that the CAGR is likely going to be lower than B&H. Also, it doesn't really help if we pull a Nikkei.
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Re: Planning for a crash like 1929?
I don't follow. There is no 'curve fitting' when you specify the testing parameters a priori.Marseille07 wrote: ↑Tue Oct 19, 2021 10:42 amI'm not sure if I like the idea. When your out of market asset isn't cash, your backtests would curve-fit.willthrill81 wrote: ↑Tue Oct 19, 2021 10:29 am Use any fixed income other than 'cash' as the out of market asset, and you'll see that the 200 DMA outperformed, potentially significantly, as in the case of LTT.
More importantly, why would an investor who wanted to be out of stocks not be interested in getting a higher yield than cash on their assets?
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Re: Planning for a crash like 1929?
Is there something magical about number 89? Why couldn't it be 97? Is there any rational reason where 89 is probable but 97 is NOT?brian91480 wrote: ↑Mon Oct 18, 2021 3:39 pm If I can't retire until I'm prepared to withstand an 89% drop in asset prices, then I'll never retire. Nor will anyone else on this forum.
At some point, you need to take a leap of faith. You can only plan for so much.
Re: Planning for a crash like 1929?
and this will seem obvious in hindsight.Rat_Race wrote: ↑Tue Oct 19, 2021 10:44 am No country has ever printed it's way to prosperity. Since 2008, the US has added $22T in new debt, with the Fed adding another $8T to it's balance sheet. The current market IMO is almost entirely artificial, propped up by printing, buybacks and manipulated interest rates. An 80% drop would merely bring us back to a valuation in line with real, not artificial, productive output.
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Re: Planning for a crash like 1929?
It's not 'a priori' when you try a bunch of different out-of-market assets and see which one looks better.willthrill81 wrote: ↑Tue Oct 19, 2021 10:48 am I don't follow. There is no 'curve fitting' when you specify the testing parameters a priori.
If I select MSFT, AAPL, TSLA a priori and see which ones performed best, I can't declare any one of them having "an edge" even though one of them would come out victorious.
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Re: Planning for a crash like 1929?
I agree, but note what I said: any fixed income beyond cash would have performed better, and it's easy to see why: their yields were higher.Marseille07 wrote: ↑Tue Oct 19, 2021 11:01 amIt's not 'a priori' when you try a bunch of different out-of-market assets and see which one looks better.willthrill81 wrote: ↑Tue Oct 19, 2021 10:48 am I don't follow. There is no 'curve fitting' when you specify the testing parameters a priori.
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Re: Planning for a crash like 1929?
At the risk of stating the obvious: hedges aren't free.
The bigger the risk you seek to insure against, the more it costs. Insuring against the risk that the stock market goes to zero is very expensive indeed. As another poster mentioned, there are some risks that are just too big and too unlikely for it to make any sense to insure against, or too big to realistically insure against at all. Even a private army and a bunker is no guarantee if civilization collapses. Your soldiers could turn against you, another army could breach your compound, etc. For the average person, extensive doomsday prepping comes at the expense of other financial priorities.
As someone planning for the future (of any sort, not just financial), you are just going to have to accept that there will exist tail risk of catastrophe that causes all your plans to go awry. You and your family could all die tomorrow in a tragic accident and all that financial tail risk would be moot. And in the end, none of us gets out of here alive.
The good news (from a financial perspective) is that a BH approach holds up pretty well even in a 1929 scenario. No, you won't retire as luxuriously as you might have liked, but someone retiring according to BH guidelines wouldn't have starved in such a market. If you are young and still contributing a large crash is nothing but a bump in the road and a buying opportunity. Sure, it would be psychologically difficult to see 1/2 my net worth evaporate, but it wouldn't substantially change my plans.
As a final note, I'd encourage pursuing some back threads on BH. Every few months someone posts that they are going all cash because they think a big crash is coming for one reason or another. Some of those have come back months or years later wondering what to do after never having gotten to their expected reentry point. It's a near certainty that one day the person making such a thread will be right, just as all the prophets of doom that the financial press loves to give airtime to. But the fact is that you probably won't be the one to get it right.
The bigger the risk you seek to insure against, the more it costs. Insuring against the risk that the stock market goes to zero is very expensive indeed. As another poster mentioned, there are some risks that are just too big and too unlikely for it to make any sense to insure against, or too big to realistically insure against at all. Even a private army and a bunker is no guarantee if civilization collapses. Your soldiers could turn against you, another army could breach your compound, etc. For the average person, extensive doomsday prepping comes at the expense of other financial priorities.
As someone planning for the future (of any sort, not just financial), you are just going to have to accept that there will exist tail risk of catastrophe that causes all your plans to go awry. You and your family could all die tomorrow in a tragic accident and all that financial tail risk would be moot. And in the end, none of us gets out of here alive.
The good news (from a financial perspective) is that a BH approach holds up pretty well even in a 1929 scenario. No, you won't retire as luxuriously as you might have liked, but someone retiring according to BH guidelines wouldn't have starved in such a market. If you are young and still contributing a large crash is nothing but a bump in the road and a buying opportunity. Sure, it would be psychologically difficult to see 1/2 my net worth evaporate, but it wouldn't substantially change my plans.
As a final note, I'd encourage pursuing some back threads on BH. Every few months someone posts that they are going all cash because they think a big crash is coming for one reason or another. Some of those have come back months or years later wondering what to do after never having gotten to their expected reentry point. It's a near certainty that one day the person making such a thread will be right, just as all the prophets of doom that the financial press loves to give airtime to. But the fact is that you probably won't be the one to get it right.
Last edited by alfaspider on Tue Oct 19, 2021 11:14 am, edited 1 time in total.
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Re: Planning for a crash like 1929?
It's shorter than 70 years, but I don't see it either: https://www.portfoliovisualizer.com/tes ... odWeight=0willthrill81 wrote: ↑Tue Oct 19, 2021 11:03 am I agree, but note what I said: any fixed income beyond cash would have performed better, and it's easy to see why: their yields were higher.
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Re: Planning for a crash like 1929?
Plus the world has flattened dramatically since 1929. Information flow and Computerized exchanges allow anyone to invest quickly..WarAdmiral wrote: ↑Tue Oct 19, 2021 1:42 am Let's not forget the number and type of stock holders in 1929 versus post-2021 world.
Today's stock owners include influential CEOs, foreign governments, members of congress. They won't be able to prevent a 50% drop but they will certainly prevent a 90% drop.
As the drop gets deeper more buyers will move in.
And in case of an unlikely catastrophic event, Govt. will provide Bread, Water and Roof, in which case your Cash, Bonds, Gold or Silver is useless anyway.
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Re: Planning for a crash like 1929?
That only goes back to 2003.Marseille07 wrote: ↑Tue Oct 19, 2021 11:14 amIt's shorter than 70 years, but I don't see it either: https://www.portfoliovisualizer.com/tes ... odWeight=0willthrill81 wrote: ↑Tue Oct 19, 2021 11:03 am I agree, but note what I said: any fixed income beyond cash would have performed better, and it's easy to see why: their yields were higher.
The Sensible Steward
Re: Planning for a crash like 1929?
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Last edited by Juice3 on Fri Jul 14, 2023 1:55 pm, edited 2 times in total.
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Re: Planning for a crash like 1929?
Another point I'd make is that radical mispricing of assets is much more likely when there is poor access to information. The 1929 crash not only predated modern mass communications, but also predated most of the regulatory environment that ensured investors had accurate disclosure of what they were investing in, and how profitable the companies they were shareholders in really were. The modern regime isn't perfect- there are still Enrons and Theranos's out there, but companies can't play fast and loose in remotely the same manner they did 100 years ago.WarAdmiral wrote: ↑Tue Oct 19, 2021 11:15 amPlus the world has flattened dramatically since 1929. Information flow and Computerized exchanges allow anyone to invest quickly..WarAdmiral wrote: ↑Tue Oct 19, 2021 1:42 am Let's not forget the number and type of stock holders in 1929 versus post-2021 world.
Today's stock owners include influential CEOs, foreign governments, members of congress. They won't be able to prevent a 50% drop but they will certainly prevent a 90% drop.
As the drop gets deeper more buyers will move in.
And in case of an unlikely catastrophic event, Govt. will provide Bread, Water and Roof, in which case your Cash, Bonds, Gold or Silver is useless anyway.
I think a 90% drop that stays down for a prolonged period of time could only happen if coupled with some extrinsic calamity (war, mass destruction of communication infrastructure, etc.) A simple financial panic is probably not enough.
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Re: Planning for a crash like 1929?
I'm not as troubled by a Nikkei situation. People are so anchored to the blowoff top of the bubble, but forget that it was really only a 6-year period where things were so frothy. Erase the blowoff top, and you have the 2000 tech bust and 2008 financial crisis downturn that mirrors our own, but the overall trend line is slow growth in line with the country's. A Japanese BH style investor wouldn't have fared so poorly unless they retired in the late 80s based on those blowoff tops with an equity heavy portfolio.Juice3 wrote: ↑Tue Oct 19, 2021 11:29 amAny many have pointed out, the boglehead philosophy should endure a situation like the great depression.
This is because the recovery period was relatively short.
I find the Nikkei situation much more disturbing as it lasted decades.
As also pointed out, emotional and societal issues may come into play with "doomsday" scenarios that could create chaos.
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Re: Planning for a crash like 1929?
Time for the dragon portfolio
https://www.georgegammon.com/best-investment-portfolio/
It works in 100% of the centuries tested over the past 100 years
https://www.georgegammon.com/best-investment-portfolio/
It works in 100% of the centuries tested over the past 100 years
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Re: Planning for a crash like 1929?
It just means the difference is negligible. I agree it's *probably* a good idea to use LTT instead of cash, though.willthrill81 wrote: ↑Tue Oct 19, 2021 11:16 amThat only goes back to 2003.Marseille07 wrote: ↑Tue Oct 19, 2021 11:14 amIt's shorter than 70 years, but I don't see it either: https://www.portfoliovisualizer.com/tes ... odWeight=0willthrill81 wrote: ↑Tue Oct 19, 2021 11:03 am I agree, but note what I said: any fixed income beyond cash would have performed better, and it's easy to see why: their yields were higher.
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Re: Planning for a crash like 1929?
I'm planning on a 50% drop in stocks, and still maintaining my lifestyle.Grt2bOutdoors wrote: ↑Mon Oct 18, 2021 7:30 pmRead the book, The Great Depression. A Diary by Benjamin Roth. You’ll want to sell everything you got, put it in a lockbox that no one knows about and hold on for dear life. It’s really a depressing book but the biggest lesson out of that book to keep lots of liquidity available in the form of cash. Back then, banks were failing left and right, up and down. The author lamented not having enough cash or rather any cash to take advantage of the bargains to be had, selling for 90 percent off. And you think a 20 percent selloff is bad?? But if you have cash, those service workers you couldn’t find to repair your home will be very easy to find and the cost will be cheap, cheap, cheap. Deflation will set in and if you want to eat, bargains will be made.MathWizard wrote: ↑Mon Oct 18, 2021 6:51 pm Have no debt, own your own home.
Preferably have land that you can grow food and get water on,but if not,have rain barrels to water your garden (assuming you are not in Colorado).
The big thing about 1929 was to live through it.
You could buy the farms from those going bankrupt if you had spare cash. Though I would prefer just buying goods directly from farmers,or local butcher, to keep them going, and for me to cut out the middle man.
My backup plans beyond that become more like prepper material, but are not really different than
what my parents/grandparents lived like.
I was going by what my parents and grandparents said, who lived through the Great Depression. Of course, they were farmers in the midwest,
so maybe in the cities it was a different matter.
You are right about bargains. They told stories about morticians trading a burial for 160 acres of land.
Other farmers who had money bought additional land for pennies on the dollar, and became the new well-to-do.
I'm not sure that I could take advantage of my neighbors as they did.
My family just hung on, hoping for better times. They bartered with other farmers, but were otherwise self sufficient,
they farmed with horses, growing their own feed fore the horses, cattle and chickens. Corn, milk, eggs, oatmeal and what they
canned from the garden were their meals. Water came from the well.
Heat came from a (corn) cob stove that as also the cookstove and hot water heater. The cobs came from the hand corn sheller.
We have some land in the country, with a free-flowing well, and that is the absolute backup plan.
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Re: Planning for a crash like 1929?
Long-term, it is solely company earnings that drive gains no matter what floor there is. Intervention like this (by placing a floor) increases the "quality" of the market, so the "prices" (in metric terms) are likely to be higher and the "volatility" (in the usual case) to be lower. The impact of expected returns depends on the pricing of the guarantee into the stocks, unless one suspects company earnings and growth to be less as well. Nevertheless, it skews the distribution of returns to have a major negative tail.burritoLover wrote: ↑Tue Oct 19, 2021 7:39 am So if there's now a floor to equity loss due to more recent monetary strategies of the fed, then we should expect the long-term return of the equity market to be lower than the historical average going forward?
Why in the world should there be a major negative tail when they are guaranteeing a floor? Answer: nothing is guaranteed. Even a question of them not providing a floor will greatly drop the stock price close to the "floor" and the volatility increases (the result of the negative skew because of the loss of perceived quality). If they provide it, then things rebound quickly; if they do not, then the prices drop even further. Compliments of the increased volatility. Hence, the negative skew is increased because of a "floor". That means more likely gains, and unlikely yet major crashes.
It is fascinating/worrisome when you think about it (depending on your risk skew preference).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: Planning for a crash like 1929?
Yeah, a normal Boglehead would rebalance during that run-up and lock in a ton of those gains. And then lose less during the following crash.alfaspider wrote: ↑Tue Oct 19, 2021 11:38 amI'm not as troubled by a Nikkei situation. People are so anchored to the blowoff top of the bubble, but forget that it was really only a 6-year period where things were so frothy. Erase the blowoff top, and you have the 2000 tech bust and 2008 financial crisis downturn that mirrors our own, but the overall trend line is slow growth in line with the country's. A Japanese BH style investor wouldn't have fared so poorly unless they retired in the late 80s based on those blowoff tops with an equity heavy portfolio.Juice3 wrote: ↑Tue Oct 19, 2021 11:29 amAny many have pointed out, the boglehead philosophy should endure a situation like the great depression.
This is because the recovery period was relatively short.
I find the Nikkei situation much more disturbing as it lasted decades.
As also pointed out, emotional and societal issues may come into play with "doomsday" scenarios that could create chaos.
A super conservative Boglehead (like me), would have changed their allocation to even more conservative right before retirement, especially after such a large run-up, and locked in even more gains.
See, if you were already close to retirement when that huge run-up happened, you would have shot past what you needed, and could have locked in those gains past your number.
In fact, I'm doing this right now.
We've had a very nice run up in the past few years, and I've gone past my number earlier than I expected, and now I'm just locking in cash.
I have my basic 25x in a 50/50 portfolio which is probably conservative enough (although it's 4 years earlier than I expected), but I've also managed to build up another 3x in cash/bonds... I'm shooting for the full 4x in cash/bonds to bridge the gap to my planned retirement year (or just break even for a year, and then the 3x in cash/bonds will be enough)
Just plain rebalancing protects a normal Boglehead nearing retirement quite well. The market could crash next month, but people who have been rebalancing this year will still get to keep at least SOME of the 20% gains we've seen this year.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Planning for a crash like 1929?
My parents still have 110 acres out in the country, with a well, and a river, and a wood-stove (and plenty of forest), so that's my ultimate backup plan as well.MathWizard wrote: ↑Tue Oct 19, 2021 11:51 am We have some land in the country, with a free-flowing well, and that is the absolute backup plan.
I don't ever expect to use it, but it's nice that it's there. I will hate to sell it when they pass. I will want to keep it, but not sure how.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Planning for a crash like 1929?
This reads like a very smart plan. Are you at all worried about capital-gains taxes as you exchange stocks for bonds? This personally worries me.HomerJ wrote: ↑Tue Oct 19, 2021 12:03 pmYeah, a normal Boglehead would rebalance during that run-up and lock in a ton of those gains. And then lose less during the following crash.alfaspider wrote: ↑Tue Oct 19, 2021 11:38 amI'm not as troubled by a Nikkei situation. People are so anchored to the blowoff top of the bubble, but forget that it was really only a 6-year period where things were so frothy. Erase the blowoff top, and you have the 2000 tech bust and 2008 financial crisis downturn that mirrors our own, but the overall trend line is slow growth in line with the country's. A Japanese BH style investor wouldn't have fared so poorly unless they retired in the late 80s based on those blowoff tops with an equity heavy portfolio.Juice3 wrote: ↑Tue Oct 19, 2021 11:29 amAny many have pointed out, the boglehead philosophy should endure a situation like the great depression.
This is because the recovery period was relatively short.
I find the Nikkei situation much more disturbing as it lasted decades.
As also pointed out, emotional and societal issues may come into play with "doomsday" scenarios that could create chaos.
A super conservative Boglehead (like me), would have changed their allocation to even more conservative right before retirement, especially after such a large run-up, and locked in even more gains.
See, if you were already close to retirement when that huge run-up happened, you would have shot past what you needed, and could have locked in those gains past your number.
In fact, I'm doing this right now.
We've had a very nice run up in the past few years, and I've gone past my number earlier than I expected, and now I'm just locking in cash.
I have my basic 25x in a 50/50 portfolio which is probably conservative enough (although it's 4 years earlier than I expected), but I've also managed to build up another 3x in cash/bonds... I'm shooting for the full 4x in cash/bonds to bridge the gap to my planned retirement year (or just break even for a year, and then the 3x in cash/bonds will be enough)
Just plain rebalancing protects a normal Boglehead nearing retirement quite well. The market could crash next month, but people who have been rebalancing this year will still get to keep at least SOME of the 20% gains we've seen this year.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Re: Planning for a crash like 1929?
I rebalance in my IRA and 401k to avoid taxes.mikejuss wrote: ↑Tue Oct 19, 2021 12:24 pmThis reads like a very smart plan. Are you at all worried about capital-gains taxes as you exchange stocks for bonds? This personally worries me.HomerJ wrote: ↑Tue Oct 19, 2021 12:03 pmYeah, a normal Boglehead would rebalance during that run-up and lock in a ton of those gains. And then lose less during the following crash.alfaspider wrote: ↑Tue Oct 19, 2021 11:38 amI'm not as troubled by a Nikkei situation. People are so anchored to the blowoff top of the bubble, but forget that it was really only a 6-year period where things were so frothy. Erase the blowoff top, and you have the 2000 tech bust and 2008 financial crisis downturn that mirrors our own, but the overall trend line is slow growth in line with the country's. A Japanese BH style investor wouldn't have fared so poorly unless they retired in the late 80s based on those blowoff tops with an equity heavy portfolio.Juice3 wrote: ↑Tue Oct 19, 2021 11:29 amAny many have pointed out, the boglehead philosophy should endure a situation like the great depression.
This is because the recovery period was relatively short.
I find the Nikkei situation much more disturbing as it lasted decades.
As also pointed out, emotional and societal issues may come into play with "doomsday" scenarios that could create chaos.
A super conservative Boglehead (like me), would have changed their allocation to even more conservative right before retirement, especially after such a large run-up, and locked in even more gains.
See, if you were already close to retirement when that huge run-up happened, you would have shot past what you needed, and could have locked in those gains past your number.
In fact, I'm doing this right now.
We've had a very nice run up in the past few years, and I've gone past my number earlier than I expected, and now I'm just locking in cash.
I have my basic 25x in a 50/50 portfolio which is probably conservative enough (although it's 4 years earlier than I expected), but I've also managed to build up another 3x in cash/bonds... I'm shooting for the full 4x in cash/bonds to bridge the gap to my planned retirement year (or just break even for a year, and then the 3x in cash/bonds will be enough)
Just plain rebalancing protects a normal Boglehead nearing retirement quite well. The market could crash next month, but people who have been rebalancing this year will still get to keep at least SOME of the 20% gains we've seen this year.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Planning for a crash like 1929?
I see. Do you worry about being bond-heavy in your Roth IRA and losing out on tax-free equities growth? I wish there were a silver bullet that solved all of these problems.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Re: Planning for a crash like 1929?
Not that worried about it... In my taxable accounts, I have Total Stock Market Index Fund, which is very tax efficient.
I won't sell any of that and incur capital gains until I'm no longer working. And then my income will be low enough to keep taxes to a minimum. I can probably game my income enough so my capital gain taxes are 0%. (under $80,000 married jointly pays 0% capital gains).
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Planning for a crash like 1929?
Oh I see...sailaway wrote: ↑Mon Oct 18, 2021 5:40 pmNo, because you sell the stocks to take out the loan. However, in many cases, it comes with a similar risk: some plans require you to pay back the loan within months of termination. So if you lose your job and can't pay the lump sum, you may owe taxes and penalties.joelly wrote: ↑Mon Oct 18, 2021 5:30 pmThank you for your fast response. I really appreciate it.sailaway wrote: ↑Mon Oct 18, 2021 5:07 pmWhen people borrow against their stock portfolio, it is generally a callable loan. As such, when the market crashes, those loans may be called, but by the time you get around to selling stocks to cover the loan, you are underwater. So you have wiped out your stock holdings and still owe money. This was an exasperating factor in the 1929 crash, just like jumbo and sub prime mortgages were a factor in the 2008 crash.joelly wrote: ↑Mon Oct 18, 2021 4:56 pmHi!sailaway wrote: ↑Mon Oct 18, 2021 1:36 pm
A lot of the guardrails that exist today were put into place precisely of because of the fallout from 1929 and the ensuing decade, which also saw a series of major weather events on top of poor farming techniques.
Anything can happen, but the run on the banks that exasperated the situation in 1929 is somewhat less likely as long as people are willing to trust FDIC.
As long as you don't have margin loans, your best insurance against a long crash is some cash, some flexibility and a willingness to help your neighbors.
Would you please elaborate what do you mean by "margin loans"?
Thank you!
Is taking a loan out of a 401k plan consider a margin loan?
Thank you!
It's like borrowing against your home and then the market crash and now your home is valued less than the loan.
Re: Planning for a crash like 1929?
There's a lot of agreement that there are guardrails to avoid such a scenario, but at the same time the existence and reliance of those guardrails lead to people taking more and more risk (moral hazard) to the extent that eventually it can all come crashing down. I'm not saying it will or is likely, but it isn't implausible.
However unless the whole financial system just falls apart, being able to get a hold of your liquid "safe" assets for an extended time seems less likely than in 1929. The greater risk is we go through several of those cycles and over correct with liquidity to the point of inflation.
To me the prospect of a massive stock market crash is one reason to hold on to bonds and other comparatively safe assets, even if their returns are very low.
However unless the whole financial system just falls apart, being able to get a hold of your liquid "safe" assets for an extended time seems less likely than in 1929. The greater risk is we go through several of those cycles and over correct with liquidity to the point of inflation.
To me the prospect of a massive stock market crash is one reason to hold on to bonds and other comparatively safe assets, even if their returns are very low.
Re: Planning for a crash like 1929?
What's the likelihood of a global pandemic? For a long time, the last one was the 1918 Influenza Pandemic.$questions wrote: ↑Mon Oct 18, 2021 1:27 pm When planning for my financial future, should I be prepared to take a loss as high as 89% in my stock portfolio like the crash which occurred in 1929? I've lived through the dot-com bubble, and the crashes in 2008, 2020, and 1987 but I've never experienced a stock market crash as big as 1929.
What's the likelihood of something like this occurring again?
Then COVID hit. Low probability events do occur.
I think one way to prepare is to put yourself in the mindset of someone who lived through it.
An excellent read is "The Great Depression, a Diary" by Benjamin Roth. This is diary by an investor who documented events on a day by day basis.
Other excellent reads:
viewtopic.php?t=25126 Discovering risk level was wrong during the crash (2008)
viewtopic.php?t=30085 Being ready for maximum tolerable loss (2008)
It's a lot easier to plan for a 1929 crash if you are in accumulation mode, and stay employed throughout. It's a lot harder if you're living off your portfolio at the time.
I have several plans laid out in my IPS depending on what types of stresses hit. I include job loss as well as market crashes as potential financial stresses.
Potential actions include multiple options for drastically reducing expenses, introducing new income streams, replenishing investment accounts, changing Social Security claiming strategy, or even going back to work.
Re: Planning for a crash like 1929?
Interesting. I'd love to see those plans.wolf359 wrote: ↑Tue Oct 19, 2021 1:32 pmLow probability events do occur.
I have several plans laid out in my IPS depending on what types of stresses hit. I include job loss as well as market crashes as potential financial stresses.
Potential actions include multiple options for drastically reducing expenses, introducing new income streams, replenishing investment accounts, changing Social Security claiming strategy, or even going back to work.
How low does the probability need to be for it to be included in your plans?
- Do you have a plan for collapse of the world's financial systems?
- Do you have a plan for the loss of all communications infrastructure?
This isn't just my wallet. It's an organizer, a memory and an old friend.