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EdLaFave

Potential crash?

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It looks like the market is down about 8% over the last week or so. Maybe this is the start of the next crash, maybe it'll level off, or maybe it'll quickly bounce back. My emotions are convinced we're witnessing the start of the next crash, but emotions have zero predictive power and must be entirely ignored.

Remember from 11/30/2015 to 2/15/2016 when the market went down about 12 percent? Well by 4/22/2016 it jumped up 14% only to keep going up and up from there. So it is important you don't pull your money out and miss these really rapid ascents.

...or if it keeps dropping, maybe we'll use this thread to commiserate. Either way, I'll be maintaining my huge allocation to stocks no matter what. Best of luck to everybody!

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Yes.  Stay the course.  I have not done anything but staying the course.  It could go down more but it could also go back up.  I have no idea what's going to happen so I'm not doing anything.

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Remember

The stock market is driven by emotion. As soon as people start getting hyped up  and scared over a little bad news they start selling their stocks which creates an avalanche. I had to turn the tv off today, everybody was talking about it and interviewing experts on what they think was happening. THEY DON"T KNOW.

The economy itself is sound. Lets face it, its been going up for a long time and it was time for a pullback. Its a healthy thing. Don't do anything other than look at your allocation and make sure you are happy with it.  Once this flash crash ends consider adding more bonds and cash if stuff like this scares you.  I've been through much worse and each time I did nothing and came out ahead in the long run.

Focus on being diversified,  keeping your costs low ,and continue to add to your nest egg regardless what the market is doing..

If things continue to tumble and this does turn into something significant you should realize that dollar cost averaging is a successful strategy in such an environment.

2 cents tony

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I never want to see a crash and although, when measured over a decade or so, the stock market tracks the underlying fundamentals fairly well...I’d prefer to live in a more rational world where the window is closer to a few months.

BUT, if we’re going to have a crash in the next five years then I’d prefer to just get it over with right now. This would be my first crash with significant assets where I stand to lose hundreds of thousands of dollars. So it’ll be interesting to see if I’m as much of a cold calculating machine as I like to believe I am.

...I have no clue if the economy is sound. Isn’t it always sound right up until it suddenly isn’t?

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Ed

I have to wonder if Yellen's comments about valuations being high had something to do with this. Of course she really didn't say anything most of us didn't already know. Trump needs to stop talking about the market and how well its doing as a sign the economy is strong. He is encouraging speculation and false euphoria which only is driving up the market unnaturally higher. 

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Yellen definitely said some things that we already knew, but hearing it from the chair of the Fed conceivably could have made people take it more seriously? Who knows?

I can think of a few political reasons that make it unwise for Trump to take credit for the market after a decade of excellent returns. If the market does crash (especially after getting rid of Yellen, somebody who seems to be well regarded, after just one term) that'll actually be an interesting social experiment...do the folks who supported Trump because of the "economy" dump him during a crash or does the cult of personality, bordering on religion, protect Trump/Republicans from such a response. I'd prefer not to find out, but who knows?

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Oh yes.Trump will go down hard if the markets fail. He came in as the business president so he is skating on thin ice when he keeps bragging about all his economic accomplishments . He's really created some high expectations for himself. I wonder if Yellen leaving and being replaced with Jerome Powell might have spooked the markets. I believe he just started yesterday. His appointed indicates to me that The federal reserve will no longer be an independent body....... if you know what i am getting at.

Anyways last time I looked the markets have stabilized some. Its only down about 100. A good sign. (I THINK)

 

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Ed, you certainly know this, but I feel compelled to remind you (and other readers) in hopes of calming any fear that the sky will fall this week: 10 - 20% market declines are normal features of investing that occur more-or-less annually.  The rarity of such pullbacks in the last few years is an anomaly.  For a young investor such as yourself, "corrections," bear markets and even the occasional crash provide opportunities to accumulate (through dollar-cost-averaging) at lower prices. 

I concur that "emotions have zero predictive power" and that "it is important you don't pull your money out."  Still, I think this moment of volatility is a good occasion for everyone to reassess their long-term asset allocation: If you worry or lose sleep due to market gyrations, recall the famous advice of JP Morgan, "sell down to the sleeping point."  

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I think this is a good occasion to reassess your long-term asset allocation: If you worry or lose sleep due to market gyrations (your post here is evidence that you may be experiencing some jitters), recall the famous advice of JP Morgan, "sell down to the sleeping point."  

 
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I think this is good advice similar to my advice. Ed.  I would suggest you start moving away from a 100% stock portfolio if thats where you currently are and adapt  a your age in bonds philosophy or some similar protective model. You have a  large nest egg and you have committed yourself to a expensive house purchase. You are doing great. This might be the time to make a small move if you are 100% equities. Steve here at 403bwise was the one who warned me that I was too heavily invested in equities and he was right. I took his advice. I don't regret having a more balanced portfolio now . Vanguard's chart below is a useful reminder

ie_rangeofreturns_002.png

ie_rangeofreturns_002.png

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The last time I remember not having "short term fear" was sometime around late 2008 or mid 2009. My fear has steadily increased ever since. I never allow emotion to change my investing behavior, but I enjoy acknowledging my emotion as if it were coming from another person. I like to observe all of the incredibly foolish things, backed up by absolutely no evidence, that this 'other' person tells me to do.

I sleep like a baby because long ago I resigned myself to the math that requires me to lose half my nest egg every so often. So I'm more than fine with the stock heavy portfolio, but I'll never believe anybody who claims to have not even noticed a crash (which this is not) in a stock heavy portfolio. In fact, there is even some sick part of me that will enjoy a crash. I guess its the same psychology behind cheering for your sports team to lose every game once they've proven they are going to have a bad year (or few years).

I'm young in terms of age, but not in terms of (hopeful) retirement date. If we don't have a crash (soon) then I believe I'll have enough to retire in 2 years, but there is a lot of hesitancy there. Would I actually have enough to retire or has an overly exuberant bull market (just waiting to crash) merely given me the illusion that I have enough? It may be necessary to work through one crash and retire two years into the recovery? On the other side of the coin, if I had more bonds in my portfolio I'd have to work longer due to the lower expected returns.

When we start talking about crashes and opportunities it gets a bit philosophical. I'm personally of the belief that crashes do not provide opportunities when compared to the imaginary alternative of a stock market that behaves rationally according to business fundamentals. "Opportunity" only exists because you were previously ripped off by unjustifiably expensive stocks. I'm of the opinion that bubbles and crashes merely increase uncertainty (not opportunity), making it more difficult to plan and therefore requiring you to work longer, "just to be safe."

I don't think dollar cost averaging is advisable. If you've got a chunk of money sitting out of the market then you're reducing your expected returns by not investing it all at once because statistically speaking the stock market will be higher tomorrow than it is today. If you're fearful of risk then you should increase your bonds and put all the money in right away.

Those considering dollar cost averaging often fall into a logic fallacy. Whether all of your money is in the stock market or in a checking account, every day we have to decide how much of our money should be in the market. However, it is only the person who just received a windfall of some kind who concludes their money should go from 0% in the market to 100% in the market over a period of time. Nobody ever sells out of the market only to immediately DCA back in.

It also seems people use the term DCA to refer to the regular contributions you make from each paycheck, but I'd personally consider that to be a distinct activity that probably isn't worthy of having a fancy name.

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RE:  Dollar cost averaging: I meant it in the latter sense... regular (biweekly, monthly, whatever) contributions to savings.  I invoked it only in the hope of avoiding any suggestion that "an opportunity to accumulate" meant market timing.  

RE: retirement dates.  This is obviously a personal choice, but if I were you, I'd err on the side of accumulating more while you can, assuming that current conditions (work environment, health issues) don't argue for retirement to start right away.   The financial podcaster Paul Merriman advocates what he calls "oversaving"; I think he advises people aim for TWICE the nestegg amount that seems to meet needs before retiring, though that would be quite a reach for most of us.  But the advantages of such a scenario are obvious.

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 Dollar cost averaging: I meant it in the latter sense... regular (biweekly, monthly, whatever) contributions to savings. 

I think dollar cost averaging might mean different things to different people. I have no problem dumping a lump sum amount into an investment  instead of investing it slowly but doing it right now would be ill advised just the same IMHO. I am saying what I think Whyme is trying to say (always more eloquently than me BTW) that right now, or during any downward trend, you don't stop investing. In fact by continuing your regular  monthly, weekly etc. investing  amount even as the market is heading south allows you to buy more shares  which could eventually pay off .  Just as you can't predict how high a market might climb you also can't predict the market bottom. So dollar cost averaging works in this type of environment.

I realize DCA has lost its luster as an investment technique and many younger folks don't embrace it. But Warren Buffet today said he recommended dollar cost averaging in the current environment instead of stopping your investing in the stock market.. I would trust his judgement.

BTW, I think the market will hit 30,000+.The tax cut will help power the market forward for a while. At some point I would be very very careful because I think the bubble will burst. Be ready. Of course predicting a market top or bottom is impossible so its just a big guess on my part.

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Stock market cycles go from low valuations to high valuations and back again.  These cycles can  10 maybe 20 years to complete.  Coming into this last correction valuations were about as high if not higher than any other cycle. (1920-1929 & 1987-1999)

So  If valuations revert to the mean  (see charts in link)  that would be an opportunity for some but a nightmare for others that did expect valuation levels to get that low.

http://stockcharts.com/articles/chartwatchers/2018/01/Market-Still-Overvalued-or-Maybe-Not.html

This isn't  forecast but an observation.   I don't know if markets ever get to low levels again but would not be surprised if they did.   Stock indexes have traded at 10X earnings w/ 6% dividend yields a number of times in the past. (2008 they got real close to those levels.)

Have a plan & stick with it

bearmarkets.png

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1 hour ago, whyme said:

RE: retirement dates.  This is obviously a personal choice, but if I were you, I'd err on the side of accumulating more while you can

I'm open to the wisdom of the crowd and to understand how you come to your conclusions.

Desired Income

We'd like to be in a situation where (on average) our wealth grows each year after we pay for expenses. We aren't particularly interested in trying to time our deaths at dollar 0. On the other hand I'm not particularly interested in working longer only to marginally decrease the risk of running out of money.

I believe we can live extremely comfortably on about 69k and I could bring that down to about 56k without experiencing too much discomfort if I had to.

If things got a bit tougher and I still had a mortgage at that point then I could sell the way-to-expensive house, buy something way cheaper with the proceeds, and reduce yearly expenditures by roughly 18k. If I didn't have a mortgage then I could do the same, but pocket a few hundred thousand to increase the nest egg. So I have a lot of flexibility with expenses.

My Wife

My wife is on track to become a principal in a few years, which pays roughly 81k in Florida. For over a decade now she's been pretty firm about wanting to work into her 60s, maybe longer. Obviously external factors can always prevent that from happening.

If I were to retire early, she would want to keep working and her income would allow our investments to grow untouched.

If she were to work into her 60s the value of her pension would be about 44k (in today's dollars) when she retires and there wouldn't be a COLA.

Me

When I retire I want to feel comfortable that I don't need to earn another dollar. However, I may wind up working part time in my current industry (which would still be quite profitable) or my other interests may or may not end up generating income. The point here is that retirement doesn't mean I go away, it just means I do what I want when I want, which may or may not generate more income.

So having said all of that, the big question is, how much of a nest egg do you think is necessary to achieve success as I've defined it?

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Ed

You have strategies beyond the stock market which is great.

Quote

So having said all of that, the big question is, how much of a nest egg do you think is necessary to achieve success as I've defined it?

 

I think less than the financial industry leads us to believe but it depends on the person and their financial acumen.

 

I think fear is a successful selling strategy the financial industry uses. For many its a good thing. They need to be reminded and helped to save. I think in your case you are more than well covered . You save, you both have careers and you are both ambitious. You don't fit the profile of the kind of people I would worry much about. I would say you are in a very good place. My wife and I were teachers so right off the bat we made less money than what you are making as a couple, and your income potential is higher.. We fell for all the 403b annuity crap.You are already enlightened on that subject.We had no ambitions of climbing the ladder of success. We just wanted to stop having to work. The issue we are having now is that although at age 63 (me) and age 55  wife ,  with no debt plus two pensions, and substantial savings,we now are looking at ourselves wondering why we saved and sacrificed so much. Perhaps we should have enjoyed our lives more, traveled more, and spent more but its not in our DNA. I had to beg my wife today to go spend $50.00 dollars today to get her hair done . She thinks its too expensive.  I tell her its alright. She says its too expensive. She buys all her clothes at second hand shops. I tell her she doesn't have to. She does anyways.  Maybe we should have spent more in our younger days. Still its great to know that no matter what life might throw at us as you get older, we will be just fine. Security is an important thing. My brother and sister are the complete opposite. They are both struggling, not saving much and I see no indications of where their money is going. Their houses are average and their cars are dated. So what on earth are they doing with their money ?? Maybe they are saving and keeping it under wraps but that is not the impression I am getting. I worry more about folks that can't seem to save a dime. They confuse me because I am just the opposite. Ken is right though everybody needs a plan but money is a sensitive issue so offering advice is something I don't want to give  to others who know me one on one unless they ask.

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