Lessons from this crash

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
pasadena
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Re: Lessons from this crash

Post by pasadena »

- My AA works for me. I still sleep just as well as I did a year ago, I'm just not as excited when I look at the market in the morning.
- Bonds can suck big time (but they're still down less than stocks so they're doing their job, kinda).
- TLH is fun.
- We're lucky, compared to the rest of the world.

Also, this is the first time in my adult life that inflation is high. Interesting.

I guess my biggest lesson is that recency bias is very real, and can be very dangerous.

Oh, and bogleheads were right.
nigel_ht
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Re: Lessons from this crash

Post by nigel_ht »

Normchad wrote: Thu May 12, 2022 2:15 pm
Marseille07 wrote: Thu May 12, 2022 2:07 pm
I don't agree. While I'm not impacted, lots of people didn't expect equities crashing -19% and bonds crashing -10% at the same time. One of the basic premises of a Boglehead portfolio is inverse correlation of stocks and bonds.

I'm fully aware correlation can break down at times, what I'm saying is that people didn't expect that to happen in 2022.

To go even further, if correlation can't be relied upon then one should question if they should be holding bonds at all.
If people weren’t expecting interest rates to rise, and to allow for inflation, and know that those things would also impact equities, then I don’t know what to say. Maybe a lot of people throwing money around and just not understanding what they’re doing.

At this point, it’s not a crash. A lot of people seem to be down overall about 15%. That is absolutely expected. Again, if folks are panicking over that, then they’re probably doomed when the off-cited 50% haircut comes.
Well, if you believe this to be true they really should fix their AA now...presumably eventually there will be capitulation and a flight to safety.

Now IS the time to panic...because you sure don't want to do it when you are -50%...
rockstar
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Re: Lessons from this crash

Post by rockstar »

Marseille07 wrote: Thu May 12, 2022 6:31 pm
rockstar wrote: Thu May 12, 2022 6:19 pm I pretty much followed it. I didn't react exactly on the 200, but I came close. I'm in short term treasuries and gold right now.
Actually, following 200-day hasn't done all that well YTD as I see -15% instead of -20%. Better than B&H, but not by much.
You don't need to beat by much.
SantaClaraSurfer
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Joined: Tue Feb 19, 2019 10:09 am

Re: Lessons from this crash

Post by SantaClaraSurfer »

1. Not a crash.

2. I have a deeper respect for keeping it simple, and keeping to the discipline of investing our surplus into taxable once per month.

3. While it's just a corner of our retirement pyramid that includes a diverse array of investments, one thing about our I-bonds and EE-bonds is that they never lose nominal value and, collectively, protect us from the swings of both inflation and deflation.

Let me put it this way, you could look at your Treasury Direct balance every day, but you'd get awfully bored doing so.

And there's something to that, I think.
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PicassoSparks
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Re: Lessons from this crash

Post by PicassoSparks »

Marseille07 wrote: Thu May 12, 2022 2:07 pm I don't agree. While I'm not impacted, lots of people didn't expect equities crashing -19% and bonds crashing -10% at the same time. One of the basic premises of a Boglehead portfolio is inverse correlation of stocks and bonds.
That’s not true. That’s a foundation of hedgefundie’s excellent adventure but never a foundation of the 60/40. If you thought it was, you’ve badly misunderstood. Bonds offer only reduced volatility. Sometimes it’s negatively correlated but not always. Bonds continue to do their job, which is to be lower volatility than an all stock portfolio.
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Nate79
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Re: Lessons from this crash

Post by Nate79 »

Not a lesson but a trend that when small pull backs like this happen, inexperienced investors create threads about the drop.
59Gibson
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Re: Lessons from this crash

Post by 59Gibson »

I learned a 15-20% drop in the market extinguishes the " Can I retire at 35 posts on BH.. And haven't seen 2,,3,4,5% SWR posts for quite some time.
nigel_ht
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Re: Lessons from this crash

Post by nigel_ht »

59Gibson wrote: Thu May 12, 2022 9:49 pm I learned a 15-20% drop in the market extinguishes the " Can I retire at 35 posts on BH.. And haven't seen 2,,3,4,5% SWR posts for quite some time.
4% should still work for a normal retirement.

3.something% should still work for an early retirement.

I'm too lazy to even bother looking on ERN and that data is getting kind of old anyway. Call it 3% and save a little more.
jaqenhghar
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Re: Lessons from this crash

Post by jaqenhghar »

donaldfair71 wrote: Thu May 12, 2022 5:37 pm It really, kind of like the last 1, confirms that I can sleep at night with 100% equities in my portfolio.

At the same time, it confirms that I probably don’t want to be 100% equities if I were within 10 years of retirement. Don’t know if I’d feel as comfortable.
Am curious, what would your asset allocation be if you were within 10 years of retiring?
Doogie
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Re: Lessons from this crash

Post by Doogie »

GAAP wrote: Thu May 12, 2022 1:10 pm The primary lesson for me is that people are remarkably brilliant at finding ways to make the same old mistakes.

ARKK -61.36% YTD at the moment, for example.
I was just thinking the other day I am so glad I joined the Bogleheads a few years ago and got out of my QQQJ + ARKK into just VTI taxable folio back in the fall.

-20% > -70%

Also resisting the urge to move to a large cap "NASDAQ" fund from FXAIX after NASDAQ run up the prior year in the 401K

Doogie
Ari
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Re: Lessons from this crash

Post by Ari »

I’m one of those who haven’t really noticed. I’m 100% stocks which makes it easier to ignore the noise. I don’t do bonds so I don’t have any expectation of being shielded from downturns. I know what I signed up for. This is hardly even noticeable, but just some noise on the general upward trajectory.
All in, all the time.
boogiehead
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Re: Lessons from this crash

Post by boogiehead »

Cash may have lost its crown for a while, but ultimately Cash is King :beer!
Marseille07
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Re: Lessons from this crash

Post by Marseille07 »

boogiehead wrote: Fri May 13, 2022 12:32 am Cash may have lost its crown for a while, but ultimately Cash is King :beer!
Cash is king. Now, holding equities is generally better, but holding bonds vs cash is debatable. I think bonds looked a lot better than they are because of falling yields (1982-2021).
secondopinion
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Re: Lessons from this crash

Post by secondopinion »

Marseille07 wrote: Fri May 13, 2022 12:39 am
boogiehead wrote: Fri May 13, 2022 12:32 am Cash may have lost its crown for a while, but ultimately Cash is King :beer!
Cash is king. Now, holding equities is generally better, but holding bonds vs cash is debatable. I think bonds looked a lot better than they are because of falling yields (1982-2021).
Short-term fixed-income for anyone? We do not need to decide between holding general bonds and holding cash by holding short-term bonds; it ends up being half-right regardless of what the market does.
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.
eldinerocheapo
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Re: Lessons from this crash

Post by eldinerocheapo »

Well, I've learned the sun still comes up, the sky is still blue, my beer is still cold, and my dog still loves me. Other than that, I've been making some Roth conversions to take advantage of the "discounts" in my current NAV in Wellington.
"Dream, Dare, Do."
donaldfair71
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Re: Lessons from this crash

Post by donaldfair71 »

jaqenhghar wrote: Thu May 12, 2022 10:14 pm
donaldfair71 wrote: Thu May 12, 2022 5:37 pm It really, kind of like the last 1, confirms that I can sleep at night with 100% equities in my portfolio.

At the same time, it confirms that I probably don’t want to be 100% equities if I were within 10 years of retirement. Don’t know if I’d feel as comfortable.
Am curious, what would your asset allocation be if you were within 10 years of retiring?
I have to work until 56 (I’m 41) to qualify for a pension. I can work longer but 56 is the minimum.

My plan is to begin adding 1% of fixed income/year starting at 46 and retiring at 90/10 with a pension that serves as the rest of my “fixed income” need.

Without a pension, I would adjust by starting 10 years out and add 2%\year in fixed income. Would be a tad harder to time retirement, but I would gauge on the low end (earlier than later) and work from there. Enter retirement at 80/20 with an expected 5 years withdrawals of FI at all times.
dekecarver
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Re: Lessons from this crash

Post by dekecarver »

My father was correct when he said something like, when there is a 20-50% drop:
A 20-50% decline should be no big deal at some financial point in your life.
There is something to be said for being financially diverse.
If you need the money, and can't stomach the risk, then you need not invest; go cash.
If you can't stomach a financial decline in your youthful stage, you probably can't stomach it in yout preservation stage.
People accept 20-50% declines over a 3-5 year period every day when they buy a depreciating asset/liability, a new car; they know its coming, it's all proportionate and apparently they can afford it or really aren't concerned about it.
I generally wouldn't know what the market is doing if I didn't turn on the TV or open the laptop.

Pay attention to how you feel about your given situation, that will give you a good understanding of what a crisis means to you and potentially what you need to do different once the angst and brain fog clears.
Tinyz
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Re: Lessons from this crash

Post by Tinyz »

Fortunate as compared to rest of world.

Has a job that pays.
Has a house.
Has food, water and gas.
My shares of best companies in US are still here.

I am in good hands. I like it. Many people are working hard for me and with me. I still need to work hard for my dream.
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djmbob
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Re: Lessons from this crash

Post by djmbob »

For a long time I watched Longinvest's posts about moving to an all-in-one fund, I wasn't good at rebalancing. This February, after my spouse and I re-accomplished our estate documents and set up a family trust, I made the move to Lifestrategy Moderate Growth and and TSP L2025 for all of our retirement accounts, and sleep well at night. Thank you, Longinvest!

Since I wont be tapping most RMDs until I need to (Fully retired and 65 this Dec), I'm even thinking of moving TSP to L2030 to bump up equity position a bit now that prices have come down.

Cheers,
Ray
:sharebeer
z3r0c00l
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Re: Lessons from this crash

Post by z3r0c00l »

secondopinion wrote: Fri May 13, 2022 2:21 am
Marseille07 wrote: Fri May 13, 2022 12:39 am
boogiehead wrote: Fri May 13, 2022 12:32 am Cash may have lost its crown for a while, but ultimately Cash is King :beer!
Cash is king. Now, holding equities is generally better, but holding bonds vs cash is debatable. I think bonds looked a lot better than they are because of falling yields (1982-2021).
Short-term fixed-income for anyone? We do not need to decide between holding general bonds and holding cash by holding short-term bonds; it ends up being half-right regardless of what the market does.
That was my move, needed to start buying bonds this year for AA and went with VBIRX, a short term bond fund with 2.7 year duration. It is paying much better than cash, 2.1% more than a banking account for example, but with half the interest rate risk of Total Bond which pays little more.
70% Global Stocks / 30% Bonds
wolf359
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Re: Lessons from this crash

Post by wolf359 »

nigel_ht wrote: Thu May 12, 2022 7:30 pm
Normchad wrote: Thu May 12, 2022 2:15 pm
Marseille07 wrote: Thu May 12, 2022 2:07 pm
I don't agree. While I'm not impacted, lots of people didn't expect equities crashing -19% and bonds crashing -10% at the same time. One of the basic premises of a Boglehead portfolio is inverse correlation of stocks and bonds.

I'm fully aware correlation can break down at times, what I'm saying is that people didn't expect that to happen in 2022.

To go even further, if correlation can't be relied upon then one should question if they should be holding bonds at all.
If people weren’t expecting interest rates to rise, and to allow for inflation, and know that those things would also impact equities, then I don’t know what to say. Maybe a lot of people throwing money around and just not understanding what they’re doing.

At this point, it’s not a crash. A lot of people seem to be down overall about 15%. That is absolutely expected. Again, if folks are panicking over that, then they’re probably doomed when the off-cited 50% haircut comes.
Well, if you believe this to be true they really should fix their AA now...presumably eventually there will be capitulation and a flight to safety.

Now IS the time to panic...because you sure don't want to do it when you are -50%...
What is interesting this time is where people will go when they do the flight to safety. Bonds are down significantly for that asset class, so people might hesitate to do the normal reaction of rebalancing to bonds. And outright selling and holding cash when inflation is so high?
KneeReplacementTutor
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Re: Lessons from this crash

Post by KneeReplacementTutor »

jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
I think the markets are demonstrating why an individual investor continues to need an asset allocation they can stick to regardless of current market conditions.
starfury
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Re: Lessons from this crash

Post by starfury »

My lessons:

1) How to TLH. I think I will save $1000 on next year's taxes at the cost of a few button clicks. I feel dirty but will learn to live with it. :beer
2) Not to freak out and react emotionally when the market goes down significantly. (This is the first major down market I've actually paid attention to.)
H-Town
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Re: Lessons from this crash

Post by H-Town »

KneeReplacementTutor wrote: Fri May 13, 2022 8:55 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
I think the markets are demonstrating why an individual investor continues to need an asset allocation they can stick to regardless of current market conditions.
And how do you know what asset allocation you can stick with?

A) Use time machine to go to the future and know that 69/31 allocation is the “winning” ratio

B) Follow an arbitrary ratio 60/40 as it is often referred to in books and online discussion. But then your stomach still turns when you see you’re losing money every day. You hang on because others said 60/40 is good.

C) It doesn’t matter what asset allocation you have. You invest in stocks when your time horizon is greater than 10-15 years. You invest in bonds when bond duration meets your target time horizon. You invest in T-Bills and HYSA for any immediate needs less than a couple of years.

Which one make more sense?
Time is the ultimate currency.
Booglie
Posts: 152
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Re: Lessons from this crash

Post by Booglie »

H-Town wrote: Fri May 13, 2022 9:05 am You invest in stocks when your time horizon is greater than 10-15 years. You invest in bonds when bond duration meets your target time horizon. You invest in T-Bills and HYSA for any immediate needs less than a couple of years.

Which one make more sense?
If I have 90% bonds and 10% stocks, why would I need a horizon greater than 10-15 years? Sounds very arbitrary.
What really matters is the overall portfolio volatility. You pick a rate that will yield a volatility that matches your risk tolerance.

After all, it doesn't matter if you have a investing horizon of 50 years if your stock portfolio drops to zero and you are liquidated, does it?
RJC
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Re: Lessons from this crash

Post by RJC »

That staying the course with broad market index funds is the right choice. When everyone else was talking about the next hot stock or crypto, I would feel a little bummed out watching the market move so slowly. Now I remember why I chose this path.
H-Town
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Re: Lessons from this crash

Post by H-Town »

Booglie wrote: Fri May 13, 2022 9:08 am
H-Town wrote: Fri May 13, 2022 9:05 am You invest in stocks when your time horizon is greater than 10-15 years. You invest in bonds when bond duration meets your target time horizon. You invest in T-Bills and HYSA for any immediate needs less than a couple of years.

Which one make more sense?
If I have 90% bonds and 10% stocks, why would I need a horizon greater than 10-15 years? Sounds very arbitrary.
What really matters is the overall portfolio volatility. You pick a rate that will yield a volatility that matches your risk tolerance.

After all, it doesn't matter if you have a investing horizon of 50 years if your stock portfolio drops to zero and you are liquidated, does it?
That’s my point. It doesn’t matter. 60/40 or 70/30, or 90/10 are just some arbitrary ratio. How do you know you can tolerate the volatility if you never been a bear market before? As your portfolio grows larger, it means more dollar loss with a percentage decrease. Most would learn it the hard way, would they?

When I see advice about pick an allocation that they can stomach. Okay, how exactly one would do that?
Time is the ultimate currency.
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goingup
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Re: Lessons from this crash

Post by goingup »

jay22 wrote: Thu May 12, 2022 3:12 pm For people saying, this is not a crash or a bear market, that's just semantics.

VTI down 20%+ in 4 months is not a normal market pullback.
It feels normal to me. Pullbacks more than 20% are never fun, but happen every couple of years. The ones I can think of are: 2000, 2008-09, 2011, 2015, 2018, 2020. And this one. The bond pullback has surprised me but all investments have risk.
wilked
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Re: Lessons from this crash

Post by wilked »

Lesson is that OP has not yet experienced a crash.

You’ll know it when you feel it…
Booglie
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Re: Lessons from this crash

Post by Booglie »

H-Town wrote: Fri May 13, 2022 9:14 am
Booglie wrote: Fri May 13, 2022 9:08 am
H-Town wrote: Fri May 13, 2022 9:05 am You invest in stocks when your time horizon is greater than 10-15 years. You invest in bonds when bond duration meets your target time horizon. You invest in T-Bills and HYSA for any immediate needs less than a couple of years.

Which one make more sense?
If I have 90% bonds and 10% stocks, why would I need a horizon greater than 10-15 years? Sounds very arbitrary.
What really matters is the overall portfolio volatility. You pick a rate that will yield a volatility that matches your risk tolerance.

After all, it doesn't matter if you have a investing horizon of 50 years if your stock portfolio drops to zero and you are liquidated, does it?
That’s my point. It doesn’t matter. 60/40 or 70/30, or 90/10 are just some arbitrary ratio. How do you know you can tolerate the volatility if you never been a bear market before? As your portfolio grows larger, it means more dollar loss with a percentage decrease. Most would learn it the hard way, would they?

When I see advice about pick an allocation that they can stomach. Okay, how exactly one would do that?
That's easier explained than done, because this has a psychological component. You need to experience a downturn to find out your true psychological risk tolerance.

Risk since the 2020 crash has pretty much doubled (you can use the VIX as a proxy for risk), so risk tolerance is also dynamic. When markets are calmer, you can take a bit more risk than normal; the riskier the markets are, the less risk you can take.

Of course, that's not a boglehead approach, so many people here would frown on my take regards investing.
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firebirdparts
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Re: Lessons from this crash

Post by firebirdparts »

H-Town wrote: Fri May 13, 2022 9:05 am
KneeReplacementTutor wrote: Fri May 13, 2022 8:55 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
I think the markets are demonstrating why an individual investor continues to need an asset allocation they can stick to regardless of current market conditions.
And how do you know what asset allocation you can stick with?

A) Use time machine to go to the future and know that 69/31 allocation is the “winning” ratio

B) Follow an arbitrary ratio 60/40 as it is often referred to in books and online discussion. But then your stomach still turns when you see you’re losing money every day. You hang on because others said 60/40 is good.

C) It doesn’t matter what asset allocation you have. You invest in stocks when your time horizon is greater than 10-15 years. You invest in bonds when bond duration meets your target time horizon. You invest in T-Bills and HYSA for any immediate needs less than a couple of years.

Which one make more sense?
Well, the standard answer is "your personal risk tolerance" and I guess we presume this is knowable. What "makes more sense" might be 100% equities all the time. The important thing is to just understand that it was never totally about just sense, and it's really not about results. Once in a while somebody will preface a really dumb decision by saying "of course, what really matters is the results (and so therefore 200% TQQQ is the correct answer, or whatever, blah blah blah, TSLA calls, ARKK, whatever it is)".

And as you can see by the millions of words in this forum, it doesn't really matter what any one person thinks about "all these people dumber than me". You may not see:
1: Here is this behavior Trap
2: Here maybe is a way you can avoid this behavior trap

If you don't pick up on that connection then it might all sound like jibber jabber. "Stay the Course" is a way of avoiding a certain potential event. If you imagine the event is unimportant, then you'd conclude Bogle didn't know what he was talking about.
This time is the same
Booglie
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Re: Lessons from this crash

Post by Booglie »

firebirdparts wrote: Fri May 13, 2022 9:25 am
H-Town wrote: Fri May 13, 2022 9:05 am
KneeReplacementTutor wrote: Fri May 13, 2022 8:55 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
I think the markets are demonstrating why an individual investor continues to need an asset allocation they can stick to regardless of current market conditions.
And how do you know what asset allocation you can stick with?

A) Use time machine to go to the future and know that 69/31 allocation is the “winning” ratio

B) Follow an arbitrary ratio 60/40 as it is often referred to in books and online discussion. But then your stomach still turns when you see you’re losing money every day. You hang on because others said 60/40 is good.

C) It doesn’t matter what asset allocation you have. You invest in stocks when your time horizon is greater than 10-15 years. You invest in bonds when bond duration meets your target time horizon. You invest in T-Bills and HYSA for any immediate needs less than a couple of years.

Which one make more sense?
Well, the standard answer is "your personal risk tolerance" and I guess we presume this is knowable. What "makes more sense" might be 100% equities all the time. The important thing is to just understand that it was never totally about just sense, and it's really not about results. Once in a while somebody will preface a really dumb decision by saying "of course, what really matters is the results (and so therefore 200% TQQQ is the correct answer, or whatever, blah blah blah, TSLA calls, ARKK, whatever it is)".

And as you can see by the millions of words in this forum, it doesn't really matter what any one person thinks about "all these people dumber than me". You may not see:
1: Here is this behavior Trap
2: Here maybe is a way you can avoid this behavior trap

If you don't pick up on that connection then it might all sound like jibber jabber.
If you are ok with the possibility of losing everything, then 100% TQQQ might be the correct choice for you indeed.
But the thing is, some people THINK they are ok losing everything, and when they actually lose a big part of their portfolio, they start to panic.
That's because their implied thinking is: "that's just a theoretical risk, and it's never going to happen".

Except the theoretical risk does happen sometimes.
KneeReplacementTutor
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Re: Lessons from this crash

Post by KneeReplacementTutor »

H-Town wrote: Fri May 13, 2022 9:05 am
KneeReplacementTutor wrote: Fri May 13, 2022 8:55 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
I think the markets are demonstrating why an individual investor continues to need an asset allocation they can stick to regardless of current market conditions.
Which one make more sense?


Honestly, none. I don't invest "arbitrarily" or try to "win". No time machine involved. No guarantees of return. I think the key phrase you mentioned that resonates with me most is "stick with". That requires commitment which requires discipline. That's my answer: I choose an allocation that I hope will help me reach my long term goal. My investment return is part of my plan to obtain that goal. I discipline myself to remain committed and "stick with" my allocation in times like these, if that makes sense.
Marseille07
Posts: 16054
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Re: Lessons from this crash

Post by Marseille07 »

secondopinion wrote: Fri May 13, 2022 2:21 am Short-term fixed-income for anyone? We do not need to decide between holding general bonds and holding cash by holding short-term bonds; it ends up being half-right regardless of what the market does.
I prefer cash because I don't have to sell anything, it's always available. But if you want to make just a bit more than cash, then STFI is a fine choice.
H-Town
Posts: 5911
Joined: Sun Feb 26, 2017 1:08 pm

Re: Lessons from this crash

Post by H-Town »

firebirdparts wrote: Fri May 13, 2022 9:25 am
H-Town wrote: Fri May 13, 2022 9:05 am
KneeReplacementTutor wrote: Fri May 13, 2022 8:55 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
I think the markets are demonstrating why an individual investor continues to need an asset allocation they can stick to regardless of current market conditions.
And how do you know what asset allocation you can stick with?

A) Use time machine to go to the future and know that 69/31 allocation is the “winning” ratio

B) Follow an arbitrary ratio 60/40 as it is often referred to in books and online discussion. But then your stomach still turns when you see you’re losing money every day. You hang on because others said 60/40 is good.

C) It doesn’t matter what asset allocation you have. You invest in stocks when your time horizon is greater than 10-15 years. You invest in bonds when bond duration meets your target time horizon. You invest in T-Bills and HYSA for any immediate needs less than a couple of years.

Which one make more sense?
Well, the standard answer is "your personal risk tolerance" and I guess we presume this is knowable. What "makes more sense" might be 100% equities all the time. The important thing is to just understand that it was never totally about just sense, and it's really not about results. Once in a while somebody will preface a really dumb decision by saying "of course, what really matters is the results (and so therefore 200% TQQQ is the correct answer, or whatever, blah blah blah, TSLA calls, ARKK, whatever it is)".

And as you can see by the millions of words in this forum, it doesn't really matter what any one person thinks about "all these people dumber than me". You may not see:
1: Here is this behavior Trap
2: Here maybe is a way you can avoid this behavior trap

If you don't pick up on that connection then it might all sound like jibber jabber. "Stay the Course" is a way of avoiding a certain potential event. If you imagine the event is unimportant, then you'd conclude Bogle didn't know what he was talking about.
I agree on all points. There are so much nuance behind the advice: "pick an asset allocation that you can tolerate". New investors may not know where to start. Experience investors who have gone through market ups and downs will have a sense of what works for them. That's why I picked on the advice.
Time is the ultimate currency.
iskey
Posts: 88
Joined: Fri Jan 30, 2015 12:24 pm

Re: Lessons from this crash

Post by iskey »

H-Town wrote: Fri May 13, 2022 9:05 am
KneeReplacementTutor wrote: Fri May 13, 2022 8:55 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
I think the markets are demonstrating why an individual investor continues to need an asset allocation they can stick to regardless of current market conditions.
And how do you know what asset allocation you can stick with?
Even an early investor could make a spreadsheet that includes hypothetical future retirement account balances. Then run some scenarios with 90/10, 75/25, 60/40 etc., and see what happens to the balance when there is a drop of 10%, 20%, 50% etc. in stocks and/or bonds. One could first try and visualize what it would feel like to have, say $750,000. Then try and visualize how you would feel if that balance drops to $600k, $400k, $250k etc. Would also need to try their best to estimate future expenses, kids, lifesytle etc.
dertere
Posts: 83
Joined: Fri Sep 03, 2021 12:23 pm

Re: Lessons from this crash

Post by dertere »

dboeger1 wrote: Thu May 12, 2022 5:51 pm
BigJohn wrote: Thu May 12, 2022 5:44 pm Frankly, I think inflation, not the stock market, is the more atypical and worrisome thing happening right now.
Related to that, one thing that never occurred to me until reading a recent post on here was that since gains are taxed, even "inflation-protected" assets lose to inflation after taxes in taxable accounts. It should be obvious, but it's not something anyone really thought or talked about after decades of low inflation. I used to not be super concerned about inflation because retirement calculators always just assumed nominal return - inflation = real return, but in many cases, that's not actually true. It kind of changes the whole calculus for investing over long time horizons, especially for things like FIRE, because even if you assume historically good real returns, if the time horizon sees high inflation, a bigger chunk of those real returns could be taxable.
Aren't tax brackets and most other elements of the tax code annually adjusted for inflation, so if your nominal returns increase but your real returns stay the same, in terms of real dollars the taxes are static? Is the concern that the adjustments don't accurately track true inflation, or is there some element that I'm overlooking?
atdharris
Posts: 2091
Joined: Wed Jan 02, 2019 2:18 pm

Re: Lessons from this crash

Post by atdharris »

The lessons I've learned (so far) is I am comfortable being 100% equities. It sucks to watch my accounts drop 15-20%, but I am not losing sleep over it. I have everything I could need right now and the things I want can wait a little bit.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Lessons from this crash

Post by Marseille07 »

atdharris wrote: Fri May 13, 2022 10:38 am The lessons I've learned (so far) is I am comfortable being 100% equities. It sucks to watch my accounts drop 15-20%, but I am not losing sleep over it. I have everything I could need right now and the things I want can wait a little bit.
How do you deal with emergencies, like suddenly your car breaks down and you have to buy a new one? Imo having some cash helps immensely while not hurting the return much.
atdharris
Posts: 2091
Joined: Wed Jan 02, 2019 2:18 pm

Re: Lessons from this crash

Post by atdharris »

Marseille07 wrote: Fri May 13, 2022 10:47 am
atdharris wrote: Fri May 13, 2022 10:38 am The lessons I've learned (so far) is I am comfortable being 100% equities. It sucks to watch my accounts drop 15-20%, but I am not losing sleep over it. I have everything I could need right now and the things I want can wait a little bit.
How do you deal with emergencies, like suddenly your car breaks down and you have to buy a new one? Imo having some cash helps immensely while not hurting the return much.
I keep ~7-8 months of living expenses in cash. My taxable account is also 3x my salary
Fallible
Posts: 8798
Joined: Fri Nov 27, 2009 3:44 pm

Re: Lessons from this crash

Post by Fallible »

H-Town wrote: Fri May 13, 2022 10:08 am
firebirdparts wrote: Fri May 13, 2022 9:25 am
H-Town wrote: Fri May 13, 2022 9:05 am
KneeReplacementTutor wrote: Fri May 13, 2022 8:55 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
I think the markets are demonstrating why an individual investor continues to need an asset allocation they can stick to regardless of current market conditions.
And how do you know what asset allocation you can stick with?

A) Use time machine to go to the future and know that 69/31 allocation is the “winning” ratio

B) Follow an arbitrary ratio 60/40 as it is often referred to in books and online discussion. But then your stomach still turns when you see you’re losing money every day. You hang on because others said 60/40 is good.

C) It doesn’t matter what asset allocation you have. You invest in stocks when your time horizon is greater than 10-15 years. You invest in bonds when bond duration meets your target time horizon. You invest in T-Bills and HYSA for any immediate needs less than a couple of years.

Which one make more sense?
Well, the standard answer is "your personal risk tolerance" and I guess we presume this is knowable. What "makes more sense" might be 100% equities all the time. The important thing is to just understand that it was never totally about just sense, and it's really not about results. Once in a while somebody will preface a really dumb decision by saying "of course, what really matters is the results (and so therefore 200% TQQQ is the correct answer, or whatever, blah blah blah, TSLA calls, ARKK, whatever it is)".

And as you can see by the millions of words in this forum, it doesn't really matter what any one person thinks about "all these people dumber than me". You may not see:
1: Here is this behavior Trap
2: Here maybe is a way you can avoid this behavior trap

If you don't pick up on that connection then it might all sound like jibber jabber. "Stay the Course" is a way of avoiding a certain potential event. If you imagine the event is unimportant, then you'd conclude Bogle didn't know what he was talking about.
I agree on all points. There are so much nuance behind the advice: "pick an asset allocation that you can tolerate". New investors may not know where to start. Experience investors who have gone through market ups and downs will have a sense of what works for them. That's why I picked on the advice.
No need to pick on the advice: it's stated simply and is basically correct. Unfortunately, for us all-too-human investors, it's not easy to do. So we do the best we can, or "good enough," as author Morgan Housel has put it. And the way to do it is to read and learn.

New investors and experienced investors revisiting investing basics such as deciding an asset allocation and how much risk to tolerate can find those basics in the BH wiki, such as "Getting started," "Asset allocation," "Risk tolerance," and all good books and blogs on investing listed in the wiki's "Book recommendations and reviews" page. These topics also have been discussed and linked to often on the forum.
Last edited by Fallible on Fri May 13, 2022 11:15 am, edited 1 time in total.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Lessons from this crash

Post by Marseille07 »

atdharris wrote: Fri May 13, 2022 11:02 am I keep ~7-8 months of living expenses in cash. My taxable account is also 3x my salary
Oh...so you are technically not 100% equities...which is fine. I sometimes ponder reaching 95/5 (including EF) too.
atdharris
Posts: 2091
Joined: Wed Jan 02, 2019 2:18 pm

Re: Lessons from this crash

Post by atdharris »

Marseille07 wrote: Fri May 13, 2022 11:12 am
atdharris wrote: Fri May 13, 2022 11:02 am I keep ~7-8 months of living expenses in cash. My taxable account is also 3x my salary
Oh...so you are technically not 100% equities...which is fine. I sometimes ponder reaching 95/5 (including EF) too.
Yes. I should say all of my investible cash is 100% in equities. But I do have cash on hand should I need it.
rebellovw
Posts: 1748
Joined: Tue Aug 16, 2016 4:30 pm

Re: Lessons from this crash

Post by rebellovw »

I feel let down by the 3 fund portfolio and will definitely be changing that (I wish mine was TSM,TBM, TIPS FUND.) Especially after reading many folks here that I admire that talk well about TBM/3Funds - that they also have TIPs type fund in addition to TBM.

My Fixed asset - I'm so glad that I didn't follow others advice here regarding taking my large emergency fund and simply investing that into the 3 fund vs using CDs and cash - otherwise I'd be 100% fixed asset in TBM.

Staying the course but hoping to change that when the course returns back in the future. Now is not a good time to give up on TBM.
anoop
Posts: 3931
Joined: Tue Mar 04, 2014 12:33 am

Re: Lessons from this crash

Post by anoop »

jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
What crash? Serious question. S&P500 did not even make it to the official definition of a bear market (20% drop).
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Lessons from this crash

Post by Marseille07 »

anoop wrote: Fri May 13, 2022 11:30 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
What crash? Serious question. S&P500 did not even make it to the official definition of a bear market (20% drop).
Great. So one lesson from this downturn is to create a thread after confirming -20%?
anoop
Posts: 3931
Joined: Tue Mar 04, 2014 12:33 am

Re: Lessons from this crash

Post by anoop »

Marseille07 wrote: Fri May 13, 2022 11:35 am
anoop wrote: Fri May 13, 2022 11:30 am
jay22 wrote: Thu May 12, 2022 12:02 pm What are the lessons that BHs have learned from this crash?
What crash? Serious question. S&P500 did not even make it to the official definition of a bear market (20% drop).
Great. So one lesson from this downturn is to create a thread after confirming -20%?
:)

There is since 2009 only one lesson --

Do Not Fight the Fed

Since they are not accommodating now, we know asset prices will be falling.
rgs92
Posts: 3436
Joined: Mon Mar 02, 2009 7:00 pm

Re: Lessons from this crash

Post by rgs92 »

In terms of common questions here:

(1.) Q: Take pension as a lump sum or annuity? The replies often advise the lump sum option since you could invest your money and get a higher rate of return. Now risk and SORR (sequence of return risk) seems more important. Now the comfort and value of a lifelong series of payments seems a lot more desirable to sleep at night, even with inflation. It functions a ballast to pay your bills if you are living off your investments.

(2.) Q: Take Social Security early? Often the questioner thinks they could invest the money in the market and get a higher return. Thankfully the replies here mention that market risk is a major danger. But still, many questioners and posters do not take market risk seriously.

(3.) Q: 100% stocks? Well, not much to say here.

(4.) Q: Should I stop buying bonds and/or sell the ones I own? Well, this is usually asked now that they are generating decent interest payments. Back in 2020 there were many posts pointing out that bonds produced better returns over 10 or 20 years than stocks, so that a very high bond allocation was viable over the long term.

(5.) Q. Should I buy lots of long term bonds since over the long term they have produced great returns? These were always the most volatile and vulnerable types of bonds, and there was even speculation that interest rates could go negative. This was wildly optimistic for bonds.

(6.) Q. If stocks go down, bonds will go up to counter this. Now people are shocked to find that high interest rates (a common phenomenon in the past) brings them both down together.

(7.) This one might be controversial: Q. Are there any investments that track inflation? I think the answer is no. Only Social Security and a cost-of-living-adjusted pension do. So deferring Social Security by spending down a portfolio may be considered such an investment.

So what's actionable here? With both stocks and bonds, over the long term you've just got to take the bitter with the sweet, but you will be decently rewarded eventually.
mptness
Posts: 200
Joined: Sun Jun 03, 2012 3:54 pm

Re: Lessons from this crash

Post by mptness »

During a downturn some investors will be unaffected. Others may feel like it is a correction. To some it will feel like a recession, and to the most unfortunate among us it will feel like a depression. This can largely depend on how wealthy you were to begin with.
GAAP
Posts: 2560
Joined: Fri Apr 08, 2016 12:41 pm

Re: Lessons from this crash

Post by GAAP »

rgs92 wrote: Fri May 13, 2022 11:59 am (1.) Q: Take pension as a lump sum or annuity? The replies often advise the lump sum option since you could invest your money and get a higher rate of return. Now risk and SORR (sequence of return risk) seems more important. Now the comfort and value of a lifelong series of payments seems a lot more desirable to sleep at night, even with inflation. It functions a ballast to pay your bills if you are living off your investments.
The reality of most pensions in the USA is that the amount of money you get is based upon the expected returns of the plan -- returns that are frequently quite a bit more than likely for any investment that most retirees would make. A bequest motive may change the calculation somewhat, but otherwise the NPV of the income stream from most USA pensions is much better than the lump sum amount. Pensions in other countries that don't allow the funky accounting we use here may be a different story.

My wife took a lump sum payment, but that was due to insecurity about the survival of the pension plan itself, not any assumption of better return. I took a lump sum for a small (~$10K) amount, but it had no COLA and paid LT Treasury rates.
rgs92 wrote: Fri May 13, 2022 11:59 am (7.) This one might be controversial: Q. Are there any investments that track inflation? I think the answer is no. Only Social Security and a cost-of-living-adjusted pension do. So deferring Social Security by spending down a portfolio may be considered such an investment.
Very few pensions actually track inflation completely. Most have a fixed limit of 2-3%. Even the ones that do better often have an upper limit that would be exceeded in today's inflationary environment. Social Security is about the only thing with a true COLA. Delaying is absolutely a good choice -- but keep an eye on future funding...
rgs92 wrote: Fri May 13, 2022 11:59 am So what's actionable here? With both stocks and bonds, over the long term you've just got to take the bitter with the sweet, but you will be decently rewarded eventually.
Yup. I'm retired at 75/25 with no plans to change. I haven't bothered to actually look at portfolio performance recently. I just estimate my portfolio value loss at the level of the equity drop. Whenever I update my accounting records, I'll be pleasantly surprised.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
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