Planning for a crash like 1929?

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HomerJ
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Re: Planning for a crash like 1929?

Post by HomerJ »

JoeRetire wrote: Tue Oct 19, 2021 1:44 pm
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.
Interesting. I'd love to see those plans.

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?
He stated his plans include the loss of a job or a market crash (that presumably doesn't recover very quickly). Those seem pretty reasonable scenarios to plan around.
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Re: Planning for a crash like 1929?

Post by ApeAttack »

JoeRetire wrote: Tue Oct 19, 2021 6:02 am
ApeAttack wrote: Mon Oct 18, 2021 8:06 pm
JoeRetire wrote: Mon Oct 18, 2021 3:29 pm
$questions wrote: Mon Oct 18, 2021 1:27 pm What's the likelihood of something like this occurring again?
Exceedingly slim.
That's what they thought in 1928.

Maybe they were right and got unlucky. Lost a 1-in-100 game of Russian roulette. :/
Whatever they thought in 1928 has no bearing on the likelihood of something happening now.

I think my chances of rolling snake eyes with dice are 1/36. If I now roll snake eyes does it make any sense to say that the likelihood has changed?
When I wrote the comment, I was thinking about the odds of something very, very bad happening in general. But yeah, the odds of 1929 replaying itself today are very slim.
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Re: Planning for a crash like 1929?

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JackoC
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Re: Planning for a crash like 1929?

Post by JackoC »

alfaspider wrote: Tue Oct 19, 2021 11:30 am
WarAdmiral wrote: Tue Oct 19, 2021 11:15 am
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.
Plus the world has flattened dramatically since 1929. Information flow and Computerized exchanges allow anyone to invest quickly..
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.
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.

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.
IMO something like that *probably* won't happen at all.

But if the bar is 'implausible' or even 'less likely that it was' I think the arguments given in that series of posts could actually cut either way. A 'flat' world is also one in which destructive panic dynamics in different markets aren't as insulated from one another as they once were, but could cascade more quickly globally to the point where they aren't stoppable by any national entity, and effectively coordinated international action isn't as easy. Likewise as long as human nature remains unchanged more complete information and known 'guardrails' will both at least somewhat offset themselves by encouraging more risk taking. Information was much less efficiently transmitted 100 yrs ago...and risk premia tended to be higher (and bond yields and dividends yields were also higher, etc). There might or might not be progress toward more net stability.

Rare events form a small sample by definition to make any statistical argument in this regard. And the narrative type arguments can very easily fall victim to confirmation bias IMO. I don't think soothing narratives about how today's system is inherently much more stable are provably wrong, but I don't much buy that argument myself. I think it's entirely plausible the US stock market would return to the CPI adjusted level it reached only 12+ yrs ago, -81% from now's level, and not bounce back strongly from that. People who believe there are really basic problems with how the US economy and government financing now work (and not excluding problems in other countries or the whole world system), that would imply far lower valuations if recognized, will probably not be vindicated IMO. But I'm not nearly sure they won't be. :happy

Also I think 'you couldn't possibly position yourself to survive that' sometimes comes from people counting on healthy returns of a large allocation to stocks to get where they feel they need to go, again confirmation bias. I couldn't withstand absolute meltdown of *everything*, nobody could. But an 81% drop in the stock market, thereafter no dramatic bounce back, though only relatively mild haircuts to 'safe' bond values? I believe I can, I specifically position myself so I could.

Also even since my last post another gave a 'behavioral economics' pitch ie. 'if people believe those terrible things were possible they might not save at all'. It suggests sugarcoating reality for people to get them to do what one feels they should. I think that's a problem sometimes in this forum's collective approach to and by the more naive posters.
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Re: Planning for a crash like 1929?

Post by Northern Flicker »

jarjarM wrote: Mon Oct 18, 2021 7:36 pm
Northern Flicker wrote: Mon Oct 18, 2021 7:34 pm In the great depression, lots of portfolios went to zero because of leverage.
So just like today, plenty of leveraged portfolios around too :twisted:
I think leverage was much more pervasive in the 1920's. And there were bucket shops that essentially were bookies for stock investments-- if you invested in GM, your shares were just an IOU and the bucket shop may have taken your $ and invested in something they believed would outperform GM.

There was no deposit account insurance and no SIPC insurance for accounts. It was the wild west. Investors often did not hold diversified portfolios. Diversifying away security-specific risk was not well understood.

Ben Bernanke spent a big part of his career studying the great depression and mistakes that were made. The Fed tightened the money supply, the opposite of what was needed, in the mistaken belief that it would force bad loans to default so that settlements could be negotiated and the rot removed from creditors' balance sheets. Our best understanding is that this made the downturn much deeper and last much longer.

So, I don't think we will see a repeat of the events of the great depression. Could a different scenario play out with a result as painful or moreso? I'm pretty sure the answer is yes. I assume it is a very low likelihood event. Ten years ago, I would have said the same about the likelihood of a global coronavirus pandemic.
JackoC
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Re: Planning for a crash like 1929?

Post by JackoC »

Northern Flicker wrote: Tue Oct 19, 2021 3:47 pm
jarjarM wrote: Mon Oct 18, 2021 7:36 pm
Northern Flicker wrote: Mon Oct 18, 2021 7:34 pm In the great depression, lots of portfolios went to zero because of leverage.
So just like today, plenty of leveraged portfolios around too :twisted:
I think leverage was much more pervasive in the 1920's. And there were bucket shops that essentially were bookies for stock investments-- if you invested in GM, your shares were just an IOU and the bucket shop may have taken your $ and invested in something they believed would outperform GM.

There was no deposit account insurance and no SIPC insurance for accounts. It was the wild west. Investors often did not hold diversified portfolios. Diversifying away security-specific risk was not well understood.

Ben Bernanke spent a big part of his career studying the great depression and mistakes that were made. The Fed tightened the money supply, the opposite of what was needed, in the mistaken belief that it would force bad loans to default so that settlements could be negotiated and the rot removed from creditors' balance sheets. Our best understanding is that this made the downturn much deeper and last much longer.

So, I don't think we will see a repeat of the events of the great depression. Could a different scenario play out with a result as painful or moreso? I'm pretty sure the answer is yes. I assume it is a very low likelihood event. Ten years ago, I would have said the same about the likelihood of a global coronavirus pandemic.
As you get to in the final paragraph, it's one thing to focus on a very specific rerun of the 1929 crash and another to consider any possible crash as serious, with the latter thing being the seemingly relevant one for real world planning now. Ben Bernanke and loads of other people know more than I do about Great Depression history besides being smarter, but the problem is human nature and how it tends to cause panics/crashes, and how making one form less likely can ultimately lead to making another form more likely, because 'guardrails' tend to make humans go around curve faster than if it was sheer drop without one. It's hard to measure that effect in advance.

And on debt specifically, private sector debt in 1929 in the US was roughly 140% of GDP. Now it's around 228%. And the special emphasis on stock margin debt in 1929 is in part a cultural phenomenon IMO rather than there actually being anything *that* much more toxic about it than other debt. Also consider that implicit debt in derivatives markets isn't included in either number and derivatives notional amount is order of 10 times GDP now v almost nothing then (the net risk is far smaller due to offsets within the same entities but it wouldn't be hard for net to be large relative to speculative debt back then as % of GDP). And this is under the IMO questionable assumption that the much larger, than then as % of GDP, public debt could never itself be the source of an unprecedented crisis, or at least undermine the ability to counter one starting in the private sector.

I assume the likelihood is low, but I'm not sure what it is and a brief review of changes to regulatory framework since 1929 would not provide me much information to make that assessment, again given that if the stock market face plants and stays there for years, it's not going to help me much if it's a different specific set of circumstances than 1929, not sure why the discussion would even focus on that. I'd take it be a drop similar to that, not a drop for the same reasons.

period article has nominal private debt in 1929, compare to standard references for nominal GDP at that time and the private debt ratio now.
https://fraser.stlouisfed.org/files/doc ... 0-1944.pdf
Last edited by JackoC on Tue Oct 19, 2021 4:24 pm, edited 1 time in total.
alfaspider
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Re: Planning for a crash like 1929?

Post by alfaspider »

JackoC wrote: Tue Oct 19, 2021 3:38 pm
alfaspider wrote: Tue Oct 19, 2021 11:30 am
WarAdmiral wrote: Tue Oct 19, 2021 11:15 am
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.
Plus the world has flattened dramatically since 1929. Information flow and Computerized exchanges allow anyone to invest quickly..
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.
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.

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.
IMO something like that *probably* won't happen at all.

But if the bar is 'implausible' or even 'less likely that it was' I think the arguments given in that series of posts could actually cut either way. A 'flat' world is also one in which destructive panic dynamics in different markets aren't as insulated from one another as they once were, but could cascade more quickly globally to the point where they aren't stoppable by any national entity, and effectively coordinated international action isn't as easy. Likewise as long as human nature remains unchanged more complete information and known 'guardrails' will both at least somewhat offset themselves by encouraging more risk taking. Information was much less efficiently transmitted 100 yrs ago...and risk premia tended to be higher (and bond yields and dividends yields were also higher, etc). There might or might not be progress toward more net stability.

Rare events form a small sample by definition to make any statistical argument in this regard. And the narrative type arguments can very easily fall victim to confirmation bias IMO. I don't think soothing narratives about how today's system is inherently much more stable are provably wrong, but I don't much buy that argument myself. I think it's entirely plausible the US stock market would return to the CPI adjusted level it reached only 12+ yrs ago, -81% from now's level, and not bounce back strongly from that. People who believe there are really basic problems with how the US economy and government financing now work (and not excluding problems in other countries or the whole world system), that would imply far lower valuations if recognized, will probably not be vindicated IMO. But I'm not nearly sure they won't be. :happy

Also I think 'you couldn't possibly position yourself to survive that' sometimes comes from people counting on healthy returns of a large allocation to stocks to get where they feel they need to go, again confirmation bias. I couldn't withstand absolute meltdown of *everything*, nobody could. But an 81% drop in the stock market, thereafter no dramatic bounce back, though only relatively mild haircuts to 'safe' bond values? I believe I can, I specifically position myself so I could.

Also even since my last post another gave a 'behavioral economics' pitch ie. 'if people believe those terrible things were possible they might not save at all'. It suggests sugarcoating reality for people to get them to do what one feels they should. I think that's a problem sometimes in this forum's collective approach to and by the more naive posters.
Going back to my first post on the topic, insurance isn't free. Sure, you CAN position yourself do do well in a permanent 80% downturn, but effectively insuring against such a downturn is going to be expensive.

But I still think that's rather unlikely. Returning to a CPI adjusted level 12 years ago would also presume doing away with all economic growth that has occurred since that time. Such a thing would require more than a market panic. It would require something extrinsic to happen.
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Re: Planning for a crash like 1929?

Post by JackoC »

alfaspider wrote: Tue Oct 19, 2021 4:20 pm
JackoC wrote: Tue Oct 19, 2021 3:38 pm
Also I think 'you couldn't possibly position yourself to survive that' sometimes comes from people counting on healthy returns of a large allocation to stocks to get where they feel they need to go, again confirmation bias. I couldn't withstand absolute meltdown of *everything*, nobody could. But an 81% drop in the stock market, thereafter no dramatic bounce back, though only relatively mild haircuts to 'safe' bond values? I believe I can, I specifically position myself so I could.
1. Going back to my first post on the topic, insurance isn't free. Sure, you CAN position yourself do do well in a permanent 80% downturn, but effectively insuring against such a downturn is going to be expensive.

2. But I still think that's rather unlikely. Returning to a CPI adjusted level 12 years ago would also presume doing away with all economic growth that has occurred since that time. Such a thing would require more than a market panic. It would require something extrinsic to happen.
1. Some goalpost shifting there, though maybe just loose phrasing between what I said 'I couldn't withstand everything melting down I could withstand an 80% drop' to 'position yourself to do well in an 80% drop'. If you mean eg. doing 'the big short' to make your fortune betting on a big downturn I agree. I'm not sure 'expensive' really applies to being conservative enough to *withstand* that kind of drop, though of course there's opportunity cost and I think I have a realistic idea how much higher my expected return would be if I positioned myself so an 80%* stock market drop was game over (which for a retired person it could be).

2. I didn't say it was likely. I specifically said I didn't think it was. I do however think it plausible, non-negligible, and see no reason to exclude 'something extrinsic' if it's plausible. Again as in my PS to Northern Flicker, from the assumed perspective of real world personal financial planning not sure why 'planning for a crash like 1929' would be read as 'a crisis just like 1929 in the particulars', but rather would naturally and logically be interpreted as a crash similarly large and long lived for any reason.

*also note again that's the distance to the CPI adjusted low of SPX, dropping to same % of GDP as was reached in 2009 now would put the drop still ~76%.
59Gibson
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Re: Planning for a crash like 1929?

Post by 59Gibson »

HomerJ wrote: Mon Oct 18, 2021 4:59 pm
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.
If you're 50/50 at retirement with 25x saved, you'll have 12 years of expenses in bonds. So as long as the stock market bounces back within 12 years, one could withstand a 89% drop.

And, of course, if we really had the Great Depression II, with 25% unemployment, and shanty-towns and bread lines, I'd skip all my traveling plans, and most luxuries, and probably be able stretch that 12.5 years out to 20+ years, and be happy that my family is still warm, fed, and dry.
+1 I think this is an important point, if a great depression hit do you really think you'll go on spending close to the same. Prices of things ( that are available) will probably have nose dived. I think I would just plan on half of spending, even if it means discomfort - considering the ravages surrounding us. How much travel, driving, eating out, new anything??
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Re: Planning for a crash like 1929?

Post by Nate79 »

The discussion on what happened in 1929 and the length of the recovery has been discussed extensively in the past such as here:

viewtopic.php?p=4439709#p4439709

To rehash what I previously posted.
There was was a false recovery after the 1929 crash and the market again quickly crashed and didn't fully recover until 1944. It was 15 years, from 1929 - 1944 approx to fully recover. This is with dividends reinvested and doesn't include inflation. Including inflation it is much worse (full recovery by 1949). 20 years of no return (inflation adjusted).

The stock market drop with dividends was about -85% nominal.

Data source: https://dqydj.com/sp-500-return-calculator/
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Re: Planning for a crash like 1929?

Post by goodenyou »

When I see this title, I think it should be sung like Prince’s song “Party Like it’s 1999”.
"Ignorance more frequently begets confidence than does knowledge" | “At 50, everyone has the face he deserves”
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Re: Planning for a crash like 1929?

Post by brian91480 »

wrongfunds wrote: Tue Oct 19, 2021 10:57 am
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.
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?
I / others in this forum would also be doomed at 88%! There's no magical cut off point for dooms day.

But that's my overall point... don't plan major life decisions, in general, if you need to pass a threshold of avoiding dooms day. I CAN'T GO ON THAT TRIP BECAUSE THE PLANE COULD CRASH.

I plan to take basic precautions for my retirement planning, but not let a potential doomsday scenario change how to live life.

-- Brian
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Re: Planning for a crash like 1929?

Post by rockstar »

minimalistmarc wrote: Tue Oct 19, 2021 6:06 am
rockstar wrote: Mon Oct 18, 2021 7:07 pm
MarkRoulo wrote: Mon Oct 18, 2021 6:55 pm
rockstar wrote: Mon Oct 18, 2021 6:42 pm Would you really sit on the sidelines and watch that much of your money go up in smoke?
The problem is that while you are experiencing this you don't know when it will end.

I did set through the dot-com implosion and the 2008 stock market (and the 2020 drop) without selling any stock.

Each of these was around a 50% drop. By the time things get to, say, 75% it is easy to imagine saying, "Why sell now?"

But if you expect to bail at a 50% drop then maybe your asset allocation is too high to begin with?

There is a "classic" Boglehead thread from 2008 kicked off by Sheepdog that captures this: viewtopic.php?t=25126
I bailed at the 300 day moving average back in March 2020, and I bought back in the last two days of March 2020. Basically, I buy at valuation and sell at moving average. Both are quantitative, not gut feel. No way am I going to sit back and watch my money evaporate into thin air.
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.
The idea isn't to beat the market. The idea is capital preservation. Right now, bonds are bleeding people slowly as they're not providing a real yield. I need a strategy that preserves my capital until I can get back to a real yield again.
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Re: Planning for a crash like 1929?

Post by spammagnet »

$questions wrote: Mon Oct 18, 2021 1:27 pmWhat's the likelihood of something like this occurring again?
I thing it's extremely remote but I can't say never. I suspect that the federal government would remain solvent (in some manner of speaking) and continue provide Medicare and pay SSA benefits. In that case, my vacation budget goes out the window but I'll be fine.
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Re: Planning for a crash like 1929?

Post by Northern Flicker »

JackoC wrote: And on debt specifically, private sector debt in 1929 in the US was roughly 140% of GDP. Now it's around 228%. And the special emphasis on stock margin debt in 1929 is in part a cultural phenomenon IMO rather than there actually being anything *that* much more toxic about it than other debt.
A big chunk of that debt is mortgage debt. A much larger proportion of the US populace owns their own home. Home mortgages don't generate margin calls when stocks selloff sharply. Forced liquidations of stocks due to margin calls contributes to a feedback loop where stock prices falling trigger more stock sales.

So stock leverage where the stocks are the collateral is materially more toxic in my view. People will find a way to pay their mortgage to prevent foreclosure before they will try to find the cash to service margin debt in a margin call.
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Re: Planning for a crash like 1929?

Post by RoadagentMN »

Northern Flicker wrote: Tue Oct 19, 2021 8:32 pm
JackoC wrote: And on debt specifically, private sector debt in 1929 in the US was roughly 140% of GDP. Now it's around 228%. And the special emphasis on stock margin debt in 1929 is in part a cultural phenomenon IMO rather than there actually being anything *that* much more toxic about it than other debt.
A big chunk of that debt is mortgage debt. A much larger proportion of the US populace owns their own home. Home mortgages don't generate margin calls when stocks selloff sharply. Forced liquidations of stocks due to margin calls contributes to a feedback loop where stock prices falling trigger more stock sales.

So stock leverage where the stocks are the collateral is materially more toxic in my view. People will find a way to pay their mortgage to prevent foreclosure before they will try to find the cash to service margin debt in a margin call.
Historically, the less you owed on your mortgage the quicker the bank would push on a foreclosure.
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Re: Planning for a crash like 1929?

Post by jarjarM »

Northern Flicker wrote: Tue Oct 19, 2021 3:47 pm
jarjarM wrote: Mon Oct 18, 2021 7:36 pm
Northern Flicker wrote: Mon Oct 18, 2021 7:34 pm In the great depression, lots of portfolios went to zero because of leverage.
So just like today, plenty of leveraged portfolios around too :twisted:
I think leverage was much more pervasive in the 1920's. And there were bucket shops that essentially were bookies for stock investments-- if you invested in GM, your shares were just an IOU and the bucket shop may have taken your $ and invested in something they believed would outperform GM.

There was no deposit account insurance and no SIPC insurance for accounts. It was the wild west. Investors often did not hold diversified portfolios. Diversifying away security-specific risk was not well understood.

Ben Bernanke spent a big part of his career studying the great depression and mistakes that were made. The Fed tightened the money supply, the opposite of what was needed, in the mistaken belief that it would force bad loans to default so that settlements could be negotiated and the rot removed from creditors' balance sheets. Our best understanding is that this made the downturn much deeper and last much longer.

So, I don't think we will see a repeat of the events of the great depression. Could a different scenario play out with a result as painful or moreso? I'm pretty sure the answer is yes. I assume it is a very low likelihood event. Ten years ago, I would have said the same about the likelihood of a global coronavirus pandemic.
Yeah, I remember reading a bit in depth about great depression and the mistakes made back then that plunge the whole economy into depression even though stock ownership were way more limited back then. Though there has been plenty of analysis on the explosion in usage of leverage (margin loan or otherwise) compare to the last 70 years and that could eventually exacerbate a normal bear market to a great recession. But who knows...

I too think that there will be unforeseen events that brings pain and suffering and great economic woes in the future, it could be an AI revolution, or simply someone made an error in a popular software library that cause a worldwide outage of data warehouse or something none of us even thought about yet. The only certainty is that there will be plenty of uncertainties out there.
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Re: Planning for a crash like 1929?

Post by wrongfunds »

RoadagentMN wrote: Tue Oct 19, 2021 9:03 pm
Northern Flicker wrote: Tue Oct 19, 2021 8:32 pm
JackoC wrote: And on debt specifically, private sector debt in 1929 in the US was roughly 140% of GDP. Now it's around 228%. And the special emphasis on stock margin debt in 1929 is in part a cultural phenomenon IMO rather than there actually being anything *that* much more toxic about it than other debt.
A big chunk of that debt is mortgage debt. A much larger proportion of the US populace owns their own home. Home mortgages don't generate margin calls when stocks selloff sharply. Forced liquidations of stocks due to margin calls contributes to a feedback loop where stock prices falling trigger more stock sales.

So stock leverage where the stocks are the collateral is materially more toxic in my view. People will find a way to pay their mortgage to prevent foreclosure before they will try to find the cash to service margin debt in a margin call.
Historically, the less you owed on your mortgage the quicker the bank would push on a foreclosure.
Ironically, that makes sense. If you borrow $100 from a bank, bank has the upper hand but if you borrow $100million from the bank, you own the bank!
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Re: Planning for a crash like 1929?

Post by make_a_better_world »

There are several significant risks many of us would like to hedge against including a crash of the US equity market, inflation of US dollar, interest rate risk.

The most effective/feasible hedges in my mind in decreasing order are:

1. Have an income that is likely to continue through a crash (ex. physician). Easy to say, tough to do. I also do not know your age. The income should adjust with inflation. One can purchase equity after a crash with DCA. In the Great Depression one could have made substantial wealth if one had money to buy after the crash which is a big if.

2. Own many of the things you will need such as your house.

3. Have enough reserves kept outside of equity holdings.

4. Hold international equities to diversify across countries and currencies.

5. Open an account in a foreign currency and purchase property internationally or ensure you are in a position to (some countries have laws against property ownership for non-citizens). This is a very effective hedge for US-doomsday but expensive and complicated and seems extreme to me. A wealthy person I know recently did just that out of concerns our economy will collapse and "it will be too late to act once it happens."

A lot of the world will be effected if the US economy is. But I am optimistic as our capabilities and safety nets are greater today than in 1929.
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Re: Planning for a crash like 1929?

Post by Juice3 »

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JackoC
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Re: Planning for a crash like 1929?

Post by JackoC »

Northern Flicker wrote: Tue Oct 19, 2021 8:32 pm
JackoC wrote: And on debt specifically, private sector debt in 1929 in the US was roughly 140% of GDP. Now it's around 228%. And the special emphasis on stock margin debt in 1929 is in part a cultural phenomenon IMO rather than there actually being anything *that* much more toxic about it than other debt.
A big chunk of that debt is mortgage debt. A much larger proportion of the US populace owns their own home. Home mortgages don't generate margin calls when stocks selloff sharply. Forced liquidations of stocks due to margin calls contributes to a feedback loop where stock prices falling trigger more stock sales.

So stock leverage where the stocks are the collateral is materially more toxic in my view. People will find a way to pay their mortgage to prevent foreclosure before they will try to find the cash to service margin debt in a margin call.
Yet, the last fairly large crisis had its root in people not being able to pay (or the fear they would not be able to pay, it proved overblown in the event) mortgages. And mortgage debt is only one aspect of the growth in debt. Again the quoted figures don't include net derivatives leverage at all, which has tended to replace explicit borrowing for purposes of financial speculation, and that does work on margin. Again, gross derivative notional (around $230tril so over 10 times GDP) is not an accurate estimate of the degree of net leverage since so many contracts offset within the same financial institutions, and it a lot of it represents leverage of fixed income positions not as volatile. However a quite small fraction of that is a lot speculative leverage even compared to 1929.

Again I think's now somewhat of a cultural tradition in the US to recite the specific excesses of the 1920's and the ways they were ostensibly remedied after the crash. It's an echo I believe of the process of getting people to overcome their fear and trauma at the time. Which was necessary, you can't recover from a panic till *people* stop panicking. But I think it can lead to a bit of a blinkered view of the prospect for future disastrous panics. And a theme 'well we don't have that kind of high indebtedness and speculation now' seems like an example of that. We have much more indebtedness now, public sector, private sector, including large speculative implicit borrowing, worldwide. We *hope* the generally better ways of measuring and regulating that larger risk we have now will prevent an even bigger crash eventually. And that hope might be fulfilled, but might not be, in my view.
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Re: Planning for a crash like 1929?

Post by 220volt »

It's pretty simple to prepare for 89% drop. All you have to do is make sure you can comfortably live off of remaining 11% ;)
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Re: Planning for a crash like 1929?

Post by Zeno »

JackoC wrote: Wed Oct 20, 2021 8:56 am Again I think's now somewhat of a cultural tradition in the US to recite the specific excesses of the 1920's and the ways they were ostensibly remedied after the crash. It's an echo I believe of the process of getting people to overcome their fear and trauma at the time. Which was necessary, you can't recover from a panic till *people* stop panicking. But I think it can lead to a bit of a blinkered view of the prospect for future disastrous panics. And a theme 'well we don't have that kind of high indebtedness and speculation now' seems like an example of that. We have much more indebtedness now, public sector, private sector, including large speculative implicit borrowing, worldwide. We *hope* the generally better ways of measuring and regulating that larger risk we have now will prevent an even bigger crash eventually. And that hope might be fulfilled, but might not be, in my view.
Last edited by Zeno on Sat Mar 19, 2022 9:33 pm, edited 1 time in total.
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Re: Planning for a crash like 1929?

Post by Marseille07 »

Juice3 wrote: Wed Oct 20, 2021 5:50 am
alfaspider wrote: Tue Oct 19, 2021 11:38 am
Juice3 wrote: Tue Oct 19, 2021 11:29 am
$questions wrote: Mon Oct 18, 2021 1:27 pm take a loss as high as 89% in my stock portfolio
Any 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.
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.
It would be interesting if some enterprising Boglehead did a SWR study on Japan using Nikkei.
I believe this is done, and iirc the SWR was 0.5% or something really low. Not a surprise though.
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Re: Planning for a crash like 1929?

Post by willthrill81 »

Juice3 wrote: Wed Oct 20, 2021 5:50 am
alfaspider wrote: Tue Oct 19, 2021 11:38 am
Juice3 wrote: Tue Oct 19, 2021 11:29 am
$questions wrote: Mon Oct 18, 2021 1:27 pm take a loss as high as 89% in my stock portfolio
Any 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.
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.
It would be interesting if some enterprising Boglehead did a SWR study on Japan using Nikkei.
It's easy to do so using Portfolio Charts' withdrawal rate chart. Below are the 30 year SWRs for Japan since 1970 for different asset allocations.

60% Japanese stock / 40% Japanese bonds
3.0% SWR

30% Japanese stock / 15% U.S. stock / 15% ex-U.S. stock / 40% Japanese bonds
3.8%

30% Japanese stock / 30% ex-U.S. stock / 40% Japanese bonds
3.8%

30% Japanese stock / 30% U.S. stock / 40% Japanese bonds
3.8%

Japan's yen gaining incredible strength from 1970-1995 put a lot of downward pressure on foreign stocks' returns.
Last edited by willthrill81 on Wed Oct 20, 2021 12:17 pm, edited 1 time in total.
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Re: Planning for a crash like 1929?

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If you are 100% in https://www.firecalc.com/ then the Great Depression is factored in along with the arguably worse 70's stagflation. In the unlikely event of an 89% drop in equities that would indicate that all the safeguards put in place and massive government intervention have failed and then I suppose all bets are off at that point.
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Re: Planning for a crash like 1929?

Post by wrongfunds »

220volt wrote: Wed Oct 20, 2021 9:29 am It's pretty simple to prepare for 89% drop. All you have to do is make sure you can comfortably live off of remaining 11% ;)
But what is so magical about 89? It could be 98 too! So you need to live off on 2%
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Re: Planning for a crash like 1929?

Post by Marseille07 »

willthrill81 wrote: Wed Oct 20, 2021 10:43 am It's easy to do so using Portfolio Charts' withdrawal rate chart. Below are the 30 year SWRs for Japan since 1970 for different asset allocations.

60% Japanese stock / 40% Japanese bonds
3.8% SWR

30% Japanese stock / 15% U.S. stock / 15% ex-U.S. stock / 40% Japanese bonds
3.8%

30% Japanese stock / 30% ex-U.S. stock / 40% Japanese bonds
3.8%

30% Japanese stock / 30% U.S. stock / 40% Japanese bonds
3.8%

It's shocking to many, but higher allocations to either U.S. or ex-U.S. stock would have actually led to a lower SWR for Japanese retirees. This was due to Japan's yen gaining incredible strength following the nation's long stock market decline. If your home country's currency becomes stronger, it puts downward pressure on returns from foreign stock.
I don't understand this. If we are talking about Nikkei, aren't we talking about 60% Japanese stocks / 40% Japanese bonds denominated in yen?

This chart from Wade Pfau is more like what I remember seeing and what I mentioned upthread: Image
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Re: Planning for a crash like 1929?

Post by willthrill81 »

Marseille07 wrote: Wed Oct 20, 2021 11:11 am
willthrill81 wrote: Wed Oct 20, 2021 10:43 am It's easy to do so using Portfolio Charts' withdrawal rate chart. Below are the 30 year SWRs for Japan since 1970 for different asset allocations.

60% Japanese stock / 40% Japanese bonds
3.8% SWR

30% Japanese stock / 15% U.S. stock / 15% ex-U.S. stock / 40% Japanese bonds
3.8%

30% Japanese stock / 30% ex-U.S. stock / 40% Japanese bonds
3.8%

30% Japanese stock / 30% U.S. stock / 40% Japanese bonds
3.8%

It's shocking to many, but higher allocations to either U.S. or ex-U.S. stock would have actually led to a lower SWR for Japanese retirees. This was due to Japan's yen gaining incredible strength following the nation's long stock market decline. If your home country's currency becomes stronger, it puts downward pressure on returns from foreign stock.
I don't understand this. If we are talking about Nikkei, aren't we talking about 60% Japanese stocks / 40% Japanese bonds denominated in yen?

This chart from Wade Pfau is more like what I remember seeing and what I mentioned upthread: Image
I'll bet that he used pre-1970 data to come up with that result. It's clear that the Nikkei's long decline didn't produce a .5% SWR. WW2 probably did that.
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Re: Planning for a crash like 1929?

Post by 220volt »

wrongfunds wrote: Wed Oct 20, 2021 11:04 am
220volt wrote: Wed Oct 20, 2021 9:29 am It's pretty simple to prepare for 89% drop. All you have to do is make sure you can comfortably live off of remaining 11% ;)
But what is so magical about 89? It could be 98 too! So you need to live off on 2%
My point exactly. If you're not comfortable with the "unknown" then you need to be prepared to live off of 0% investments. In other words, investing is not for you. I was being sarcastic ;)
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Re: Planning for a crash like 1929?

Post by Marseille07 »

willthrill81 wrote: Wed Oct 20, 2021 11:22 am I'll bet that he used pre-1970 data to come up with that result. It's clear that the Nikkei's long decline didn't produce a .5% SWR. WW2 probably did that.
The paper is here: https://papers.ssrn.com/sol3/papers.cfm ... id=1699526

You're right, the table says the SAFEMAX year is 1940, pre-WW2.
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Re: Planning for a crash like 1929?

Post by willthrill81 »

Marseille07 wrote: Wed Oct 20, 2021 11:31 am
willthrill81 wrote: Wed Oct 20, 2021 11:22 am I'll bet that he used pre-1970 data to come up with that result. It's clear that the Nikkei's long decline didn't produce a .5% SWR. WW2 probably did that.
The paper is here: https://papers.ssrn.com/sol3/papers.cfm ... id=1699526

You're right, the table says the SAFEMAX year is 1940, pre-WW2.
A great many, probably most, of the very low SWRs we've seen for industrialized nations over the last ~100 years or so were directly linked to the nation being highly involved in WW1 or WW2. That's where foreign diversification may have helped (but perhaps not as much as some might think), but the most effective means of dealing with such events was to (1) get out of that nation and/or (2) stores lots of beans, bullets, Band-aids, and bars of gold.
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Re: Planning for a crash like 1929?

Post by halfnine »

willthrill81 wrote: Wed Oct 20, 2021 11:22 am
Marseille07 wrote: Wed Oct 20, 2021 11:11 am
willthrill81 wrote: Wed Oct 20, 2021 10:43 am It's easy to do so using Portfolio Charts' withdrawal rate chart. Below are the 30 year SWRs for Japan since 1970 for different asset allocations.

60% Japanese stock / 40% Japanese bonds
3.8% SWR

30% Japanese stock / 15% U.S. stock / 15% ex-U.S. stock / 40% Japanese bonds
3.8%

30% Japanese stock / 30% ex-U.S. stock / 40% Japanese bonds
3.8%

30% Japanese stock / 30% U.S. stock / 40% Japanese bonds
3.8%

It's shocking to many, but higher allocations to either U.S. or ex-U.S. stock would have actually led to a lower SWR for Japanese retirees. This was due to Japan's yen gaining incredible strength following the nation's long stock market decline. If your home country's currency becomes stronger, it puts downward pressure on returns from foreign stock.
I don't understand this. If we are talking about Nikkei, aren't we talking about 60% Japanese stocks / 40% Japanese bonds denominated in yen?

This chart from Wade Pfau is more like what I remember seeing and what I mentioned upthread: Image
I'll bet that he used pre-1970 data to come up with that result. It's clear that the Nikkei's long decline didn't produce a .5% SWR. WW2 probably did that.
These numbers do not look correct to me and it is not what I get when I plug in the data. But maybe I am doing it incorrectly.

OTOH, I agree the 0.5% SWR stems from WWII era. The SWR for an all Japanese allocation I am pretty sure was definitely lower than 3.8% from the Nikki decline and international diversification definitely helped tremendously during this time frame. However, the international diversification that helped Japan in that crisis was a huge detriment to the SWRs in the 1970s (1974?). And, this is often an oversight when one looks at Japanese data as one tends to assume the lowest SWR result given at different allocations all refer to the same year (the Nikkei decline) when they do not.
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Re: Planning for a crash like 1929?

Post by Forester »

$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?
Unlikely given all the public attention to tail hedging or desperate elaborations on risk parity. Most probable is everyone's portfolios go exactly sideways in real terms for a decade however clever their strategies are. You'll likely lose more money and create your own 1929/2008 by panicking and abandoning your plan.

There will be lucky investors who latch onto the few investments which do well in the 2020s (oil stocks? uranium? gold miners?). These opportunities are gambles which are impossible to know in advance.
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Re: Planning for a crash like 1929?

Post by willthrill81 »

halfnine wrote: Wed Oct 20, 2021 11:52 am The SWR for an all Japanese allocation I am pretty sure was definitely lower than 3.8% from the Nikki decline and international diversification definitely helped tremendously during this time frame.
I just looked at it again, and the 30 year SWR for a Japanese investor with 60% in Japanese stock and 40% Japanese bonds was 3.0% (and I've edited my post above to reflect this). Global diversification would have helped, but I don't know that I would call it 'tremendously'. Moving half of the stock into ex-U.S. and U.S. stocks (i.e., 30% Japanese stock / 15% ex-U.S. / 15% U.S.) would boosted the 30 year SWR to 3.8%. That was certainly helpful, but not as helpful as many might believe. The primary reason that international diversification didn't help more was exchange rates. Japan's yen gained more than 4x in value relative to the U.S. dollar from 1970 to 1995. That put huge downward pressure on the returns of ex-Japanese stocks for Japanese investors over that period.

Image
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Re: Planning for a crash like 1929?

Post by Marseille07 »

willthrill81 wrote: Wed Oct 20, 2021 12:15 pm Japan's yen gained more than 4x in value relative to the U.S. dollar from 1970 to 1995. That put huge downward pressure on the returns of ex-Japanese stocks for Japanese investors over that period.
I'm not sure if this is true. On the one hand, they receive less yen on the dollar. On the other hand, stronger yen means they can buy more US stocks. Iiuc they completely dominated the Hawaii real estate market in 1989 because yen got stronger (and the bubble).
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Re: Planning for a crash like 1929?

Post by jsapiandante »

$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?
The likelihood of that happening again definitely isn't 0%. But the SWR took that into consideration and survived 95% of the time in a 30 year period. I'm young and have never experienced all those crashes you've mentioned (at least with skin in the game) but as long as you're flexible with your spending, I think you'll be okay. I'm sure most people here isn't planning to withdraw a fixed amount (adjusted for inflation) and keep it that way for the next 30, 40, or 50 years without taking into account what the market is doing or how their portfolio is holding up when times are going bad. If a market crash were to happen, I would cut back on expenses (take 1 vacation instead of 2, eat out less, etc.) or go back to work for a few years to take pressure off our portfolio (it is not beneath me).

Now, if you're retiring with the bare minimum expenses in mind, your choices will be limited but it still wouldn't be the end of the world. If the actual end-of-the-world did occur, well...no planning will ever solve that problem. Money and SWR will be meaningless and you'll most likely be hunting for your food for survival. That's a topic for another thread.
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Re: Planning for a crash like 1929?

Post by willthrill81 »

Marseille07 wrote: Wed Oct 20, 2021 12:38 pm
willthrill81 wrote: Wed Oct 20, 2021 12:15 pm Japan's yen gained more than 4x in value relative to the U.S. dollar from 1970 to 1995. That put huge downward pressure on the returns of ex-Japanese stocks for Japanese investors over that period.
I'm not sure if this is true. On the one hand, they receive less yen on the dollar. On the other hand, stronger yen means they can buy more US stocks. Iiuc they completely dominated the Hawaii real estate market in 1989 because yen got stronger (and the bubble).
Yes, stronger yen means that Japanese investors could buy more U.S. stock, but it certainly depressed returns. For instance, if U.S. stocks doubled in value, but the USD lost half its value relative to yen, Japanese investors would be no better off for having owned U.S. stock.
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Re: Planning for a crash like 1929?

Post by JDave »

If you really want to know how to prepare, read "The Mandibles" by Lionel Shriver. And get a job where you're paid by the government.
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Re: Planning for a crash like 1929?

Post by aristotelian »

JDave wrote: Wed Oct 20, 2021 1:18 pm If you really want to know how to prepare, read "The Mandibles" by Lionel Shriver. And get a job where you're paid by the government.
Great book although it is so bleak there's not much actionable in it. I remember reading it in the midst of the December 2018 mini-bear and had to put it down it was making me so anxious.

The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
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Re: Planning for a crash like 1929?

Post by halfnine »

willthrill81 wrote: Wed Oct 20, 2021 12:15 pm ...I just looked at it again, and the 30 year SWR for a Japanese investor with 60% in Japanese stock and 40% Japanese bonds was 3.0% (and I've edited my post above to reflect this). Global diversification would have helped, but I don't know that I would call it 'tremendously'. Moving half of the stock into ex-U.S. and U.S. stocks (i.e., 30% Japanese stock / 15% ex-U.S. / 15% U.S.) would boosted the 30 year SWR to 3.8%...
It was probably lost in the details but I was indicating that foreign diversification helped tremendously to the Class of 1990. OTOH, I think they were actually over 4.5%. But, the point I was trying to get to above is one can not look at that Class in isolation. As such, the 3.8% is likely the Class of 1974 who were actually hindered by foreign diversification.
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Re: Planning for a crash like 1929?

Post by willthrill81 »

aristotelian wrote: Wed Oct 20, 2021 1:33 pm The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
I have serious doubts as to how many investors would have the intestinal fortitude to actually do that (i.e., sell their 'safe' bonds to buy stocks that have lost most of their value).
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Re: Planning for a crash like 1929?

Post by namajones »

willthrill81 wrote: Wed Oct 20, 2021 2:01 pm
aristotelian wrote: Wed Oct 20, 2021 1:33 pm The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
I have serious doubts as to how many investors would have the intestinal fortitude to actually do that (i.e., sell their 'safe' bonds to buy stocks that have lost most of their value).
You see, this is why asset allocations of even 60/40 are simply too risky for many investors, particularly retirees. If your equities have just taken a 60 percent nosedive, are you really going to risk your remaining safe assets when your earning years are behind you or you've lost your job in the midst of a panice? Would be much easier to do so if your bond allocation was hefty.
Last edited by namajones on Wed Oct 20, 2021 2:09 pm, edited 1 time in total.
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Re: Planning for a crash like 1929?

Post by HomerJ »

namajones wrote: Wed Oct 20, 2021 2:04 pm
willthrill81 wrote: Wed Oct 20, 2021 2:01 pm
aristotelian wrote: Wed Oct 20, 2021 1:33 pm The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
I have serious doubts as to how many investors would have the intestinal fortitude to actually do that (i.e., sell their 'safe' bonds to buy stocks that have lost most of their value).
You see, this is why asset allocations of even 60/40 are simply too risky for many investors, particularly retirees. If your equities have just taken a 60 percent nosedive, are you really going to risk your remaining safe assets? Would be much easier to do so if your bond allocation was hefty.
You don't need to rebalance for a 60/40 allocation to work in retirement. Just being able to spend from the bond side while you wait for the stock side to recover is enough.

We're really just trying to teach people not to SELL during the market crash. That's the first step, and a victory for any investor who can learn that much. Having 40% in bonds might be enough to achieve that.

I know it worked for me in 2008. I rebalanced once into stocks, but then got too scared to buy any more during the downturn (except with new 401k contributions - I had no problems putting NEW money 100% in stocks). But having a couple of hundred thousand in safe bonds kept from ever thinking about selling stocks... I never thought about selling. Thanks to Bogleheads (see my join date), and the large safety net of bonds.
Last edited by HomerJ on Wed Oct 20, 2021 2:15 pm, edited 2 times in total.
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Re: Planning for a crash like 1929?

Post by Marseille07 »

willthrill81 wrote: Wed Oct 20, 2021 2:01 pm
aristotelian wrote: Wed Oct 20, 2021 1:33 pm The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
I have serious doubts as to how many investors would have the intestinal fortitude to actually do that (i.e., sell their 'safe' bonds to buy stocks that have lost most of their value).
But you don't need to. The rebalancing myth has been debunked.
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Re: Planning for a crash like 1929?

Post by wrongfunds »

Marseille07 wrote: Wed Oct 20, 2021 2:10 pm
willthrill81 wrote: Wed Oct 20, 2021 2:01 pm
aristotelian wrote: Wed Oct 20, 2021 1:33 pm The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
I have serious doubts as to how many investors would have the intestinal fortitude to actually do that (i.e., sell their 'safe' bonds to buy stocks that have lost most of their value).
But you don't need to. The rebalancing myth has been debunked.
I would like to know where rebalancing myth has been debunked.
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Re: Planning for a crash like 1929?

Post by aristotelian »

willthrill81 wrote: Wed Oct 20, 2021 2:01 pm
aristotelian wrote: Wed Oct 20, 2021 1:33 pm The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
I have serious doubts as to how many investors would have the intestinal fortitude to actually do that (i.e., sell their 'safe' bonds to buy stocks that have lost most of their value).
Agreed. It's a great idea in hindsight but difficult to do in the moment. That said, I don't see a better option than to diversify with bonds and hope for the best.
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Re: Planning for a crash like 1929?

Post by Marseille07 »

wrongfunds wrote: Wed Oct 20, 2021 2:24 pm
Marseille07 wrote: Wed Oct 20, 2021 2:10 pm
willthrill81 wrote: Wed Oct 20, 2021 2:01 pm
aristotelian wrote: Wed Oct 20, 2021 1:33 pm The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
I have serious doubts as to how many investors would have the intestinal fortitude to actually do that (i.e., sell their 'safe' bonds to buy stocks that have lost most of their value).
But you don't need to. The rebalancing myth has been debunked.
I would like to know where rebalancing myth has been debunked.
PV doesn't let me show rebalancing vs no rebalancing side by side, but you can play with something like this: https://www.portfoliovisualizer.com/bac ... tion2_1=40
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Re: Planning for a crash like 1929?

Post by mr_brightside »

willthrill81 wrote: Wed Oct 20, 2021 2:01 pm
aristotelian wrote: Wed Oct 20, 2021 1:33 pm The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
I have serious doubts as to how many investors would have the intestinal fortitude to actually do that (i.e., sell their 'safe' bonds to buy stocks that have lost most of their value).
well the easy real-world test is: what did one do when the Dow was dropping 10K in mid-March 2020 and everyone was convinced the end was near ? (rhetorical question...) :beer

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vanbogle59
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Re: Planning for a crash like 1929?

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wrongfunds wrote: Wed Oct 20, 2021 2:24 pm
Marseille07 wrote: Wed Oct 20, 2021 2:10 pm
willthrill81 wrote: Wed Oct 20, 2021 2:01 pm
aristotelian wrote: Wed Oct 20, 2021 1:33 pm The Great Depression: A Diary by Benajmin Roth is also excellent. If I remember correctly, he says throughout the book how he wishes he had more high quality bonds to cash in and buy stocks at dirt cheap prices. Still seems like good advice.
I have serious doubts as to how many investors would have the intestinal fortitude to actually do that (i.e., sell their 'safe' bonds to buy stocks that have lost most of their value).
But you don't need to. The rebalancing myth has been debunked.
I would like to know where rebalancing myth has been debunked.
Serious question:
What, specifically do you mean?
Are you saying no one actually rebalances? Or, rebalancing lowers portfolio returns? Or something else?
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