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12 hours ago, krow36 said:

We’ve been retired 28 years, mostly with an asset allocation of 40/60 with 5% bands before rebalancing. During the last year it’s crept up to about 44/56. As of tonight (Mar 12), it’s slid to 38/62. If it gets past 35/65, I plan to sell some bond funds and buy stock funds to rebalance. We are only pulling out about 2% which includes RMDs, so the downturn is not very threatening, so far anyway. Fingers crossed!!

Either you started teaching when you were 12 years old or you are now 108. I have been retired for only 12 years. 😁

Yeah. I looked at the 40/60 allocation years ago on Vanguard model portfolios (https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations ) At the time (and I still think so) I thought it was too big a risk for me to only get a historical gain of about .6% more of a return with the 40/60 than what I choose years ago, the 30/70 of 7.1%. 7.1% is plenty for me. I have been a happy camper for about 14 years with my 30/70 allocation, and it's holding up as it should now. 

I recall now that you have been retired for a long time. You would be a good candidate for the FI community to hear your story on how you did it. Assuming that we are both about the same age, I know there was little if any objective information except to go to a broker or insurance agent for advice. Now, there are literary thousands of financial blogs, webinars, books, articles, TV, radio shows, online discussion forums etc., everywhere, and the FI community has been meeting face-to-face on a regular basis around the country. 

I did learn a lot from "Money Talk" hosted by Bob Brinker radio show back in the middle 1990s, and magazines. Then the Bogleheads launched in 1998 and the rest is history.  

 

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If the losses today hold, my YTD return will be 11% which is approaching the loss of 2008 of 11.8%. My portfolio is doing what its designed to do, protect what I have invested for the last 25 years. If you are younger, this is time to buy on the cheap, and rebalance like crazy to capture those low equity index funds. 

March 18: VTI is trading at about $113.00 now, down another $13.00 or 10% today, from the high in early February of $168.71. 

I know this is short term thinking but we talk about buying when stocks are lower, and now may be an opportunity to purchase cheaper stocks. But we don't know just how far down this could go because we have a major worldwide crisis that I had not seen since 9/11, and my parent's experience with the Great Depression. This is a rare event, and it could last just a few months, and economic and social activity go back to near normal, or it could last longer. 

These are the four reactions to "buy and hold":

1. Buy and hold because of experience with other crashes and bears markets,

2. Bailout of your in-depth, thought-out plan, "can't take it anymore" while feeling angry, NEVER get back in because you thought that a diversified portfolio protects you from declines, 

3. Discover your genuine risk tolerance, adjust your stock/bond allocation as needed and keep it that way for the rest of your life because you have evolved into seasoned/experienced investor who seeks reasonable returns and is patient.

4. You read your tea leaves and got out several months ago. You are lucky. Nothing wrong with luck, it's also green too, but now you have the burden to try and get back in. That's a terrible position because you have to rely on luck again. Books have been written that warns against this strategy. 

 

I think the regulars here will do their due diligence and avoid the temptation to do #2 or #4. 

 

 

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I haven't looked at the most recent percentage drop in my portfolio, but it is substantial.  We know that you will buy more shares per dollar now than anytime in the past two or three years, so it is a relatively good time to buy for long term investors.  Of course nobody knows how much farther prices will drop or how many months or years (or even decades, in an extreme case) it will take to return to the previous highs.

One action that may be worth taking in these circumstances--though it only applies to taxable accounts, not 403b or IRA accounts--is "tax loss harvesting." If anyone reading this is not familiar, it means that you could sell a fund that is trading at a loss, relative to the price you paid for it.  Then, immediately buy a similar but non-identical fund with the sales proceeds.  For example, you could sell a total us market fund and replace it with an SP 500 fund, which historically has a very similar return since it accounts for the large majority of the total market.  The advantage to this is that you'll be able to claim the capital loss at tax time, which can be applied against any capital gains you have or as a deduction (up to some limit) applied to your taxable income.

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9 hours ago, whyme said:

hen, immediately buy a similar but non-identical fund with the sales proceeds.

Actually you could sell a Vanguard Total Stock Market Fund and Buy a Fidelity Total Stock Market  fund. and claim a loss .So you can essentially but the same index fund offered by different companies and still claim the tax loss IN A TAXABLE ACCOUNT. I found that out years ago when I made a change and that was exactly what I did.  If you plan on doing that make sure you double check my info but I am almost certain that is what I was able to do.The problem now is that my taxable accounts are still way ahead of any loss. We've had an amazing run.

Our situation is no way standard. We are in uncharted territory here.  I'm more concerned about the human element more than the financial element right now. When people start dying money doesn't matter.This virus is going to  fundamentally change the way we live, the way we work , the way we travel.,how we study and learn in school, and the way we invest. Maybe our political leaders will start working together again and work on improving our healthcare readiness.Something good is going to come out of this eventually. I'm seeing people walking, and kids out more playing  than I did previously in our neighborhood.  People want to help each other.  .More human contact now from a distance . A stroll is all we may have left right now but may encourage new habits.We hide in our houses and cars  too much here in Virginia even before the virus. We are heading into a new paradigm i'm convinced.

 

As far as the stock market goes, I'm not convinced trying to buy into the market right now is a good idea if you happen to have a big lump of cash hiding under your mattress or an inheritance .I would put it in a money market right now and wait this market out because it may not be done  shedding.. if you are investing monthly in increments into the market just keep doing what you are doing. As Steve mentions some of us may have to carefully  evaluate how to proceed with our investment strategy going forward.

stay safe

 

P.S. I am worried though that this may now spook a whole new generation of investors who may put their retirement at risk because they now are scared of market loses and will not return to the market. Those  of us here of course know better but novice investors who have only experienced good times may run for the hills permanently and never to return.  I am also wondering how the FIRE movement responds and if it changes their mentality.

Thanks for allowing me to share my thoughts. I'm just trying to stay positive.

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54 minutes ago, tony said:

Actually you could sell a Vanguard Total Stock Market Fund and Buy a Fidelity Total Stock Market  fund. and claim a loss

The IRS says that if you buy a "substantially identical" replacement then it'll trigger a wash sale, which you clearly do not want to do. The IRS has not explicitly defined what "substantially identical" means. Somebody could make the proposed exchange and claim a loss. However, in the event of an audit, I sure wouldn't want to be in the position of making the argument that those two funds aren't substantially identical.

57 minutes ago, tony said:

I'm not convinced trying to buy into the market right now is a good idea if you happen to have a big lump of cash hiding under your mattress or an inheritance .I would put it in a money market right now and wait this market out because it may not be done  shedding.

Just a word for anybody reading these comments. This is a form of market timing and is particularly dangerous because this is exactly how people miss the recovery after a crash. If you want to invest successfully accept the reality that nobody can predict the short term future so all you can do is buy and hold (no matter what is or isn't happening).

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36 minutes ago, EdLaFave said:

The IRS says that if you buy a "substantially identical" replacement then it'll trigger a wash sale, which you clearly do not want to do. The IRS has not explicitly defined what "substantially identical" means. Somebody could make the proposed exchange and claim a loss. However, in the event of an audit, I sure wouldn't want to be in the position of making the argument that those two funds aren't substantially identical.

I received this advice from Vanguard directly years ago. The rules were/are murky, that If I sold Fidelity Total and purchased Vanguard Total I would still have to pay taxes on  any gain.  But  I  sold my shares in Fidelity years ago at a loss moved to Vanguard Total 31 days later and took the loss on Vanguard's advice  and nothing  negative happened. I got the deduction.  You can do it. As I said don't just take my word for it, do your own research but it worked for me and that's what I was told by Vanguard to do. Not looking for an argument here. It was a one time thing. I'm not doing it over and over again to beat any system.To play it safe perhaps you should do what  Whyme  said and go from a 500 fund to a total fund to take the loss or visa versa.  What "substantially identical" means is interesting wording. Might it mean you can't sell a Fidelity Index Fund and then re buy it (the exact same fund).later just to take a loss ?.

In terms of a  significant lump sum non retirement account. i certainly would not drop it in the stock market right now under these circumstances. all at once was my point  i guess you could but it would not hurt to park it a while in a money money account instead of leaving it in a checking account collecting no interest on it. Is that marketing timing? I think it's just being cautious.

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I found this guide years ago: https://www.physicianonfire.com/tax-loss-harvesting-vanguard/

It's pretty neat because it has step-by-step screenss. Our taxable account went from 50k down to 35k, but I need a refresher on the information regarding wash sales. I forget if you can't buy anything similar in all your accounts(taxable, Roth, 403b, 457). That would be a headache since I have regular monthly automatic contributions to a few of those.

Another recent forum discussion on TLH: https://forum.mrmoneymustache.com/investor-alley/tax-loss-harvesting-rule-of-thumb/ (the internet is full of a bunch of right and wrong answers)

If you have the spare cash to stash away, always be buying. Stick to your plan, DCA and you'll be ok.

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22 minutes ago, tony said:

I  sold my shares in Fidelity years ago at a loss moved to Vanguard Total 31 days later and took the loss on Vanguard's advice

Without getting into the weeds, the Wash Sale is relevant to 30 days before Tax Loss Harvesting and 30 days after. If you wait 31 days after the sale, you could have bought right back into the fund that you sold from.

When people tax loss harvest they often want to avoid being out of the market. To accomplish this they will immediately exchange from the fund with a loss to another fund as long as that other fund isn't "substantially identical." This is why whyme talked about exchanging a total market us fund for an S&P 500, they both have extremely similar performance, but you can argue the absence of small and medium size companies in the S&P 500 fund prevents it from being considered "substantially identical."

22 minutes ago, tony said:

In terms of a  significant lump sum non retirement account. i certainly would not drop it in the stock market right now under these circumstances. all at once was my point  i guess you could but it would not hurt to park it a while in a money money account instead of leaving it in a checking account collecting no interest on it. Is that marketing timing? I think it's just being cautious.

This is a mental accounting fallacy. It isn't logical to treat money that is currently in cash differently than money that is currently in the market. We all have a total portfolio (regardless of what assets it is split between) and we all have to make a decision (every day) as to how that money is or isn't invested.

What your portfolio was invested in yesterday has no bearing on what it should be invested in today. Either you think it is a good to have Y dollars in the market or you don't, it doesn't matter where those dollars were invested yesterday.

This is absolutely marketing timing and market timing is usually considered cautious/fearful. Decisions you make based on short term market movements and this idea that you can predict the short term future, well that's market timing.

Market timers often find ways to do the wrong thing twice. During a bad market they won't put their money in because they're being cautious. During a bull market they'll pour it all back in because things are "good". The proverbial sell low and buy high.

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3 minutes ago, ScottO said:

I forget if you can't buy anything similar in all your accounts(taxable, Roth, 403b, 457).

I believe the IRS explicitly ruled that you can create a wash sale between your taxable account and your IRA. I don't believe they've explicitly ruled about employer sponsored accounts. I believe the spirit of the wash sale is pretty clear that it should apply to all accounts, but until the IRS makes it explicit then we don't know for sure. I don't play in that grey area.

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2 minutes ago, EdLaFave said:

Without getting into the weeds, the Wash Sale is relevant to 30 days before Tax Loss Harvesting and 30 days after. If you wait 31 days after the sell, you could have bought right back into the fund that you sold from.

 

I was trying to consolidate accounts and move them all to Vanguard. My goal was not necessarily to trigger a deduction. i was with my rights at 31 days and yes i could have repurchased the very same Fidelity fund but that wasn't my goal.

I guess we can argue all we want about what timing is as we continue to do . I might have a different understanding of it that you do. 

I'm just sharing my ideas and my  way of doing things. i'm not asking anyone to do what I do. I'm not trying to give anyone specific advice.

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12 minutes ago, ScottO said:

If you have the spare cash to stash away, always be buying. Stick to your plan, DCA and you'll be ok.

That was my point just don't dump it in all at once with a sudden windfall. Take time to think how you want to proceed. Don't make an emotional decision.DCA is the way back into the market. Although some experts say it doesn't matter if you lump sum an amount or DCA the money back into stocks. DCA is attacked by some as a useless endeavor. I always DCAveraged my accounts through thick and thin and it worked for me.

ScottO thanks for your contributions to this discussion and thanks for the links.

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People conflate DCA a lump sum with regularly investing money with each paycheck. The the former has a lower expected return, the latter is absolutely recommended.

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22 minutes ago, EdLaFave said:

People conflate DCA a lump sum with regularly investing money with each paycheck. The the former has a lower expected return, the latter is absolutely recommended.

Is that because of time?   How would it be different. ?  

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29 minutes ago, EdLaFave said:

People conflate DCA a lump sum with regularly investing money with each paycheck. The the former has a lower expected return, the latter is absolutely recommended.

I've seen a few articles recommending splitting up investments during volatile times, but I doubt any of us really have a significant sum where it matters. It's largely a short term mental exercise to avoid feeling like you bought in on the wrong day. Even using something like the $6k max contribution won't really matter how/when you put it in the market, all that matters is it being there... keep putting your drops in the bucket.

 

55 minutes ago, EdLaFave said:

I believe the IRS explicitly ruled that you can create a wash sale between your taxable account and your IRA. I don't believe they've explicitly ruled about employer sponsored accounts. I believe the spirit of the wash sale is pretty clear that it should apply to all accounts, but until the IRS makes it explicit then we don't know for sure. I don't play in that grey area.

I just read up on that. Investopedia has some guidance, but I appreciate your input. Seems like it's just IRAs are taxable accounts that fall under the IRS wash sale magnifying glass.

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34 minutes ago, tony said:

Is that because of time?   How would it be different. ?

Yes. Time out of the market, on net, hurts returns.

On average the stock market obviously goes up, otherwise we wouldn't put money in it. So if you sit on a pile of money for a fixed amount of time and slowly drip it into stocks, then statistically speaking you will miss out on gains (not losses). That's why you hear the phrase "time in the market, not timing the market" (or something along those lines). Of course, if you look at any individual time period you either lost or you won, but you're more likely to lose with DCA.

The only utility of DCA is convincing fearful people stuck in a fallacy to get their money in the market. Of course I'd argue strongly that if they're so fearful then the real problem is their asset allocation.

Now if you're just putting money in the market each time it becomes available to you (i.e. payday) then I don't really consider that to be a strategy. You're just investing whenever you can, not when you choose to believe it is a "good" time to invest.

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