RSS Feeds
Facebook
GRS Twitter
The U.S. stock markets have provided a wild ride over the past year. The S&P 500 stock market index recently posted its best five-month gain since 1938. Yet many people missed out on this. And no wonder.
During the previous five months, the market suffered one of its greatest five month losses, which understandably made investors gun-shy. In fact, many were shoveling money out of stocks instead of into them and so missed the turnaround.
Here are some actual numbers:
- From 01 October 2008 to 28 February 2009, the S&P 500 fell from 1164.74 to 735.09, a decline of 36.89% in five months.
- From 01 March 2009 to 31 July 2009, the S&P 500 rose from 735.09 to 987.48, an increase of 34.33% in five months.
I’m curious how the market fluctuations affected real people. I don’t mean professional investors or financial pundits, but small investors like you and me. Did people panic? Did they stop contributing to their retirement accounts? Did they pull money out? Or did they actually contribute more?
Over the past couple of months, several people have left bitter comments at GRS complaining that they know folks who “lost their retirement savings” in the crash, and sometimes insisting that I not promote the stock market as an investment vehicle. While I appreciate their concern, I don’t share their skepticism. I’m not convinced the market is broken.
Instead, I’ve tried to ignore my own trepidation, have tried to keep in mind Warren Buffett’s maxim: “Be fearful when others are greedy, and be greedy when others are fearful.” This has required a leap of faith.
Over the past year, I’ve consolidated several of my retirement accounts. I’ve taken money that was scattered in a variety of places and swept it into one account. As a result, I’ve posted two major transactions at Fidelity since last September.
Last September 29th — just days before the bottom fell out of the market — I moved about $46,000 into FFNOX, a collection of four index funds. I paid $24.20 per share. I thought I was getting a great deal.
As the market collapsed over the next few days, I felt sick to my stomach. I felt like I had made a terrible mistake. Like many of you, I wondered if I shouldn’t move my money someplace “safe”. But I didn’t do it. Instead, I placed my faith in the advice I’ve been reading for almost five years now. Though I’m well aware that past performance is no guarantee of future results, I took comfort in the record of long-term stock market performance. By early March, I’d become almost stoic about my losses.
When FFNOX bottomed out at $15.46 on March 9th, my investment in it was worth only about $29,000 — a decline of over 40%! By then, however, I wasn’t worried about getting out; I was worried about getting in. I knew that the second half of my retirement accounts was nearly ready to be moved, and I hoped I could invest the money soon. My reasoning was that if I could buy while prices were low (and I had no way of knowing they had actually bottomed out), maybe I could recover some of my losses when (if?) the market began to rise.
I wasn’t able to invest more money until May, however. By then the market had begun to rise — significantly. On May 7th, I bought roughly $49,000 worth of FFNOX at $19.82.
My cost basis for these two transactions at Fidelity — for the bulk of my retirement savings — was $95,020.05 for 4436.069 shares, or about $21.42 per share.
And where is FFNOX today?
As of August 19th, FFNOX is worth $22.44 per share. That’s still $1.76 per share below the price I paid for my first lot, but it’s $2.62 per share more than I paid for my second transaction. This retirement account is now worth $99,545.38, which is $4,525.33 more than my cost. That’s an increase of 4.76% during “the worst economy since the Great Depression”.
But that increase would not have been possible if I hadn’t been able to overcome ignore my fear of uncertainty. (And I’ll admit that there’s a part of me that worries the markets will crumble again tomorrow.)
Now that the economy seems to have turned the corner (or has it?), I’m curious how others reacted to the stock market turmoil. Did you pull your money out? If so, have you put money back into stocks? Did you stand pat? Did you make additional investments? What choices did you make — and why?
This article is about Investing, Real-Life, Retirement Friday, 21st August 2009 (by J.D. Roth)
I didn’t struggle with my decision, I knew this was a historic time and so I acted.
I bought more index funds. As much as I could.
Here’s the thing that upsets me when people take their money out of the market: the fear that other people and the media are causing in others. What they need to do is read a little bit of history: this stuff has happened before and will happen again. This is not a unique situation, it just feels like it to us.
The market is NOT broken. Warren Buffett IS right. Things WILL turn around.
That’s the reality.
I kept my money where it was, and kept the 401(k) contributions going where they went. I didn’t change anything. I wanted to put more into stocks, but there have been mass layoffs in my field and I decided that building my emergency fund was more important.
I will say I learned a couple of things, though. First, when I get near retirement, I’m going to play good defense with my money and get it mostly out of stocks. (I’m in my twenties. I’ve got time. But some of my relatives who are near retirement had a lot of their money in stocks, and I’ve seen exactly how badly that can play out.) And second, I’ve learned that I can’t set goals for how much money I want in my retirement accounts — that way lies madness. I can only set goals for how much I want to contribute.
I kept dollar cost averaging but I reevaluated my risk tolerance and slightly reduced my stock holdings. I didn’t see an option that was better. I don’t need the money for 25+ years and feel that the market will probably recover by then.
People invest based on emotions and because they do… they make bad decisions. Ignoring their fear is the best thing they can do when it comes to “reacting to the market”, I’ve know a lot of people that became scared of the market and when their 401(k) was down 40% they cashed out and now they’re looking to getting back in, their emotions got the best of them! Let’s connect the stock market and the real estate market and use the same emotions that the folks who cashed out of their 401(k)’s used. Well now that home value is down 20-30% I should sell it and in 5 years when the market comes back and its value rises back to the value it was in say… 2006, that’s when I want to buy it back. So in other words sell low and buy high. That’s what 50% of the people in the world do with their investments. They get scared and make bad decisions.
I have a kind of similar dumb luck story because in 2007 I cashed out my company matched retirement account (in Canada, so my RRSP) to buy a house (don’t worry, that was the intention of the account from the get-go).
I remember thinking that I should have moved to safer things because just before my withdrawal the market dropped by a few percent and I got out just after.
Well, after this the market tanked, but real estate in my city is positive for both 2008 and 2009 YOY in my purchase month, and I’ve been dollar costing through the roller coaster bank in to my retirement account (this time with retirement as the goal and not a home purchase). I’m under thirty and starting a retirement fund at what may turn out to possibly be the best time in my generation to be getting in . . . hopefully my random luck continues for the next 30 years
Goodness, I did NOT pull my money out. I was bummed I didn’t have any extra money to invest with when things really got bad. You know, buy low, sell high. Well, things got really low, so it’s a total buyer’s market out there.
The only thing I did do was re-evaluate my IRA mutual funds, and shift some money out of a crummy fund into a better one with lower fees…something I should have done much sooner.
I kept everything as it was - continued to invest every two weeks in index mutual funds and my retirement accounts. Here in Canada, thestock index went up almost 33% from Mar-1 to Jul-31 and I love the fact that through dollar-cost averaging I’ve actually come out ahead…or will pretty soon.
It has paid to stay cool. While I had extra funds and could’ve moved them into the market, I decided to beef up my emergency fund instead and that security blanket provides comfort each day.
My estimation though is that with all the trillions $ being pumped into the global economy by governments, we have another bubble in the making except this one is going to be “green” - but I plan to ride it all the way up…and down.
One of the best comments I heard during this time was from the 401k plan administrator for my office. Granted, he has an interest in us continuing to contribute to our plans, but his take was “hey guys, the entire market is on sale!”.
My husband and I have at least 30 years until we’re ready to retire, so we’re still contributing at least to the point of employer match on our 401k’s as well as maxing out our Roth accounts each year and contributing to the Sharebuilder account that we maintain.
My plan never changed a bit at either point: Invest automatically every month in low-cost index funds.
I’ve no clue where the market will go next month. But I bet it’ll be up in 30 years.
Also, love the Mr. Market reference.
Honestly, I got extremely lucky with my investments. I opened my Roth IRA this year with $1000 in January with Vanguard’s Star fund, and added another $1000 in Feb. In March, because it was a mix of stocks and bonds, it was sitting at around $1850. I decided to put in $1200 to get to the threshold for the Total Stock Index. After I did that, it fell a bit more to $2970, but then the recovery happened.
So far this year, I’ve put in $4200, and my account currently sits at $5621.34 - an increase of 33.8%.
I upped my contributions significantly in October 2008, but that was a fluke of timing - that’s the month where my company match scheme started. I maintained my monthly contributions into the account I’ve been using since 2006, with allocations slightly adjusted upwards in US indexes and down in Asian indexes.
Writers’ Coin hit it right on the head in the first comment.
I would like to add that, not only has it happened before, but “experts” were reacting the same way as well. In the late 70’s, well respected investment experts declared stocks dead right around the best time to actually invest in stocks. These same people also likely said the opposite during the boom years - “Buy at any price!”
It is those, like Buffett, that rise above the short-term considerations and view the big picture that actually end up buying low instead of selling low.
Having just started my job last summer, I bought my very first stocks (via index funds in my 401k) the week after the first ginormous market loss in September. I remember the some of the hysteria around the office from the older employees. I can’t say that if I had invested as much and as long as them that I wouldn’t have the same reaction, but I did watch the first 4 months of my contributions get chopped down over and over again.
But like my high school economics teacher always said, markets are cyclical, so I might as well get in while it’s down than when it’s up. Sure enough, it’s gained significant ground since March and is back in the black again.
At 24, I’m pretty certain the market will tank again before I retire. As long as I stick to the plan I’ve laid out along the way, I expect my reaction will be the same: change nothing.
I don’t have a lot of money in the stock market, so I left everything alone. We’re saving for a house right now, but once that’s done, we’ll begin investing more aggresively. But even when we’re investing significant (to us) amounts, I think I’d be more inclined to put my faith in the historical data and the advice from people like Buffet, especially because retirement is over 30 years away.
I invested more, because after a big set back I needed to contribute more to keep my retirement goals on track! I increased my 401K contributions by 5% and continued to max out my Roth IRA. I bought almost all stocks and only sold to move some individual stocks into index funds. I also spread contributions to the Roth out over the year instead of putting in the full contribution in Jan as I had been doing. I was very happy with the Roth IRA contribution I made in March, I wish I had bought even more now. Staying in the market has saved me many thousands.
Today, I am actually much more concerned about buying bonds than stocks as the possibility of high inflation and a future increase in interest rates would really hurt the value of bonds.
-Rick Francis
It made me take a look at both my 401k and IRA as everything was crashing and thats when I learned about dividends.
My 4 year old IRA through a mutual fund didn’t pass on the dividends to me so when everything crashed last fall I had less money than if I stuck it in a mattress. Likewise half of my 401k allocations were not.
I dumped my IRA and am doing it myself through sharebuilder and enjoying some DRIPs. At least now I am getting something for my time even when the share price goes down.
I left things as they were and continued to contribute my usual amount at every paycheque. My plan automatically rebalances with every purchase, so my stock and bond value ratio stayed the same, even though I was obviously selling bonds and buying more stocks. But this is just something that happens without me having to take care of it myself. I did one lump sum in February to max out my RRSPs for the year.
I see investing like this: a man walking up the stairs who is playing with a yo-yo. The yo-yo goes up, and the yo-yo goes down, just like the markets do. I don’t pay any attention to the yo-yo though, because by the end of his walk up the stairs (30 years) he’s going to be at the top, no matter what the yo-yo did.
I decreased the standing biweekly contributions by $50 each in May when my partner’s company gave all employees a choice between a 5% salary cut and a severance package. In July I increased the biweekly contribution by $100 each because I got a pay increase. So net up $50 over that time.
Because we are contributing on an ongoing basis (with changes in amounts, and the occasional lump sum), and we don’t have an easy way to see how much we have put it, we just track the worth of our investments overall. It generally goes up because we are making ongoing contributions that overshadow the market movements. Though Jan, Feb, Mar showed drops, July was back up to higher than we were in September 2008.
I guess I could have put in a lump sum amount when we saw the dip, but I decided that it was more important to conduct some repairs on the house. If you don’t keep on top of those you lose big time in the long run
Amusingly, when I called to increase the contribution, the company told me they had reevaluated the risk of the index fund I was in to be medium-high instead of just medium and reconfirmed that I was still comfortable with the allocation. I guess they had a lot of people calling up in panic when numbers started slipping.
“I’ve no clue where the market will go next month. But I bet it’ll be up in 30 years.”
Those are words to live by, Mike.
I contribute to my TSP (the gov’t employee equivalent of a 401K) but not much right now because I’m trying to build an emergency fund and pay graduate school tuition. So, I’m not very familiar with the stock market. Regardless, as I started to learn about what caused the crisis (reading, NPR, This American Life specials on it) I was disgusted. I take “voting with my dollars” seriously, do I really want my dollars supporting this system, where it seems there are people that just sit around thinking of schemes to make more and more money for the sake of making more and more money (the big example is mortgage backed securities). It just doesn’t seem right, my dad works everyday, producing goods, risking his life in a factory, but these people get gobs of money for pushing money around, and seemingly trying to make money for nothing?
I’m young, and maybe I just need to get over this idealism and maybe I’m completely misinformed, but I do know that when I start putting more money towards retirement, I will be thinking about green investing and microfinance so my money is working for more than myself and keeping my money away from the stock market giants even if it means I get less of a return.
Like many others that have posted I got lucky because I realized the risk versus reward was in my favor. My current employer 401k plan has an ESOP that allows meto buy company stock. This stock is a financial industry stock which got hammered due to concerns over AIG and other large banks. My company was included in the mix but was much lower risk then the others as it had less derivative risk. So long story short I was able to move 100% of my 401k (only about 30% of my overall retirement plan) into my company stock at roughly $11 a share.
During the next 4 months it dropped to $6 a share but then went up $22 where I got 50% out and then up to $25 where I got the other 50% out. Please realize the book value of the company was $24 when I got in so there was rational that the stock was a value due to system wide concerns and not company concerns. Also I have 30+ years to retirement and made a calculated investment based on risk and rewards and my understanding the markets probably would go up in the next 6 to 12 months.
Now I am back to 80% S&P Tracking, 15% International, and 5% ESOP. I maintained my dollar cost averaging throughout the decline and maintained my deferral percentage even with taking a pay cut (company wide).
Bought 2000 shares of Citigroup at $1 - this was my ’swing for the fences’ investment. The $2000 I invested is now worth almost $9000!
During this recession, I continued to invest $300 a month, while my investments are still down, I have been lucky to capture some extra shares when the hit their lows. I love investing!
I have been contributing to my 401k to the max I get matched for, and have not changed that at all. If I didn’t have debt and childcare, I’d probably have increased it.
Just goes to show that Dollar cost averaging over time is the simplest way to go. Trying to time the market only leads to tears. If your horizon is long-term, then short-term fluctuations should not affect your timing decisions.
I did the same as you. March 12 I divested almost all my savings and bonds and put them into a index superfund (that’s my name for an indexed fund invested in multiple other indexed funds). I did this under the same principle you stated earlier, which is the lower the market goes, the more of my cash I throw at it. This has turned out very well for me (fingers crossed!). It is not easy to do though. It reminds me of instrument flying in that your senses tell you you are upside down, but you just have to ignore them and continue flying based on what the instruments are telling you. Not easy.
In general my losses were about 40% and have recovered about that much, depending on where it is. But I am looking at my 401k funds, which were recommended by an advisor, and they’re underperforming the NASDAQ, S&P 500, and Dow Jones.
I hate looking at these and somehow still haven’t figured out how to allocate better. My plan is with ING Retirement; how do I figure out where to reallocate these to my advantage?
I rebalanced a little and increased my 401k contribution. Bought a few DOW 30 stocks early March. Best buy BAC +139%.
I saw it as a one in a lifetime opportunity.
My mom pulled everything out! Her investment advisor and I both told her that she was turning her paper losses into real losses, but she’s less than 10 years from retirement and losing her money made her ill to think about. I guess the one bit of good news is that she withdrew her money before some of the biggest losses, and now she’s probably got her money in more appropriate investments considering her risk tolerance and how close she is to retirement.
I have been much more lucky. I just opened a Roth last year, and this year I made my contributions toward the bottom of the market, so now my Roth is at $11,800+, with 10K of contributions. Only 40 more years of investing to go! As always, great article, JD!
@hanna,
My 401k always seemed to outperform the S&P 500 during bad times… and underperform it now as things are doing well. My guess is that it is in too conservative a set of funds. And I’m only 30… it should probably be more aggressive.
I didn’t touch a thing through all this, and I’m a little sad. I have a 401k with a partial company match, and I just watched it ride the roller coaster. With the continued contributions, the rise of the market has pretty much erased my losses.
But the several thousand I have in the bank… I really thought in March - this is the bottom. Let’s get in. Sure you can’t time it every time, but I had a feeling and it turns out it was right. But I’ve yet to invest and never took the time to find an affordable “in”. Where do I go? Scottrade? e-trade? Which funds aren’t going to cost me a ton in trade fees and other fees? I just can’t figure it out. With only a few thousand to invest, paying $10 or more for each transaction could take away half of my investment gain! Can I just buy one big set of index funds for a single $7 trade fee? Do I have to pay $20/month just to have an account with one of these companies?
We stayed on track since we have 25+ years until we need the money in our retirement accounts (I’m 34, wife is 28). I’ve enjoyed the nice run-up, but deep down I think it will probably be short lived. I have no reason for this other than my gut feeling. (I had a similar feeling last summer and almost converted much of my 401(k) to cash….almost.)
I just rebalanced our portfolio earlier this week. Now I’m wondering if I should sell a couple individual stocks I’ve made about 20% on in the last couple months or continue to hold them. I’ll probably just hold them since that part of my portfolio is yielding nearly 7%.
My dad turned 60 last July, and he took most of his retirement out around then, and used it to keep the mortgage on the house he built to a minimum. He’s never been one for debt. In fact, other than a mortgage, he’s never had any debt. So he always pays off his mortgage as fast as possible. Since he got out before July, he didn’t lose much at all. (And in my area, home prices stayed pretty steady.)
My step mom, though, has a retirement fund that seems to be a bit on the aggressive side, mostly in stocks, and she lost a whole lot… on paper. I haven’t heard if she decided to stick it out or try to pull all that money out… at the worst possible time.
I CAUTION anybody who is putting new money to work right now with the stock market up 50% from it’s lows. Beware of the double dip and months of September and October.
Eventually, the 10%+ unemploymentt will catch up to you. I actually feel very bad for anybody who is tricked to buy the stock market today. Don’t chase!
Best,
Shogun
Slicing Through Money’s Mysteries
Wow, I just read all the comments, and it looks like EVERYBODY has made a ton of money and did the right thing. Could it be? Yes it can.
So perhaps this is a good example of the entire America where nobody pulled out, and everybody put more money to work in the downturn and came back strong.
If this is the case, then who cares about the 10% who is unemployed, as 90% are making big bucks in the upswing, and the 10% who are unemployed also made wise investment decisions.
I’m being facetious here, but perhaps not. Consumer confidence should ramp, driving consumption growth if GRS is a proper sample set of America.
Ok, I will boast too. I bought about $85,000 worth of specific financial stocks in mid February, and they are currently worth $160,000 now. But, I do admit that my 401k is still down 25% from the peak! Darnit. Still, time to buy a new LCD TV as well as a nice vacation home somewhere in America
Best,
Shogun
Slicing Through Money’s Mysteries
Whereas most people are doing themselves a disservice by worrying too much and paying too much attention, I’m paying too little attention most likely.
I dunno…when that money goes into those accounts…I just assume its gone. I can’t get it back until I’m too old to care. But I believe in the market so I just keep investing. I figure it will all work out in my favor in the end…so I stick to solid prinicples:
Dollar cost averaging
Asset reallocation every 6-12 months
Index funds
Diversification
Its worked for decades, I’m not afraid it will work for me, no matter how the economy goes. I’m too busy having fun and working to be worried about daily/monthly/yearly fluctuations in the market.
We are young so we are buying!!
It was sad to hear someone recently who is about 3 years away from retirement saying how she lost so much and is pulling most of it out. And then when it goes back up she will put it back in. How crazy is that!!??
I guess I don’t understand how someone 5 years from retirement has so much still invested in stocks.
And I’m glad I did!
When the sub-prime crisis came to a head, the S&P came tumbling down. As soon as Jim Cramer said “get out of the stock market!” I started looking to get back in. When a bull like that is panicked and sweaty, you’ve pretty nearly hit rock bottom.
After years of wasting time an energy on mutual funds, I’ve realized the benefits of straight-up index funds, and focused my investments their.
The stock market is a fine place for your nest egg… just as long as you follow the rule: “have your age in bonds.” If your retirement savings got wiped out, you probably didn’t follow this rule. I keep reading about folks in their 60s who had 95% of their retirements in stocks. Of course you’re going to be wiped out! That’s the portfolio of a 5-year old!
Being young, I aggressively entered the market during the downturn, buying stocks in undervalued companies I knew something about. I already had maxed out my 401K, 529, and IRA contributions, and I change no allocations or automatic investments in those.
I saw my portfolio shrink dramatically, but I entered the market. Today, YoY I’m up around 10%. Not bad.
To Tracy: You’re going to have to get over your “the system is rotten” mentality as your propsed retirement route is very, very risky. Just do what nearly all GRS folks do, buy some index funds from Vanguard or Fidelity, and move on with life.
To Shogun: I expect the market to decline or stagnate. That’s a given. But if you’re looking at unemployment as if its a leading indicator, which in pretty much every downturn its a lagging indicator. Unemployment isn’t the variable of interest right now, if you’re wanting to evaluate how the economy is going to be a year from now. Don’t use a lagging indicator to predict the future!
My wife and I had been putting all our savings into an ING savings account the last 18 months. That was until late November when the market hit its lowest point (at the time), and I decided to finally get off the side line (all our investing at this point had been in our employer sponsored 401k’s).
I put a “chunk” of money (for two 27 yr olds) into two Vanguard index funds (Total Stock Market and 500 Index) and have been automatically investing ever since. Wish I had a taken another chunk out of our ING savings in March, but I was “hoping” the DOW would get below 6,000. Oh well, I’ve seen a 22% return on the whole portfolio since November.
In June of 2009 I rebalanced to a more conservative allocation (20% more in “G” fund). At that time I also reduced by 2% by contributions, simply because my focus for the next year or two is to build my emergency fund to the appropriate level. After that I plan to increase by contribution to their original level.
Around November, I increased the amount I’m saving in my 401(k) from 15% to 20% and then (this was the key part) I totally stopped looking at statements and tracking my investments. While some might say that this was dumb, I knew my money was in good investments but if I’d kept watching my accounts take a nose-dive, I’d have been really, really tempted to make changes. I finally looked at them the other day and, well, I’m happy I did what I did. I’m obviously not where I’d be if there’d been no recession, but for someone who is 30+ years from retirement, I’m sitting fairly pretty.
It was just this year that I really started putting money into my Roth IRA on a regular basis. It had nothing to do with the market, I just suddenly realized that I needed to put more away for retirement.
Well, I started investing in April. I’m in my early 20s and saw that the stock market was going to turn. I put in $10,000 into a Roth IRA for my 2008 and 2009 contributions before April 15th. I still wanted to be conservative so I wrote covered calls on all my stocks for a month out. I invested about 70% each month and kept 30% in cash. I shot to improve my balance each month by 6%. (6% each month!!!) Instead I got around 4%. Last month I picked some dogs and only made 1%…but annualized that’s 12% a year. Well I’m up 20% since April. (4 months) And I did this by being a lot more conservative than just putting it in stocks. Using covered calls reduces volatility by a lot and also allows you to realize gains each month instead of guessing when to sell.
Just a thought!
While I appreciate their concern, I don’t share their skepticism. I’m not convinced the market is broken.
The market is absolutely broken. We need to tear down the investing model that has become dominant (Passive Investing) and start the rebuilding process from scratch.
I put a post to the Motley Fool boards on May 13, 2002 showing that the retirement studies that 90 percent of financial planners use to tell us how to prepare for retirement get the numbers wildly wrong (they fail to account for the effect of valuations, the single biggest factor affecting whether a retirement plans succeeds or falls). Numerous big-name experts have in the time since acknowledged that I was right. Yet not one of the studies has been corrected. And none of the “experts” who are aware that the retirement studies are in error has been willing to help me publicize the problem and thereby help the millions of middle-class people who will be suffering busted retirements in days to come if they are not promptly informed of the realities.
The problem is that the academics once believed in something called the Efficient Market Theory. The entire Passive Investing model is built on a belief in this theory. The academic research has been showing since 1981 that the theory is in error. But The Stock-Selling Industry has spent hundreds of millions promoting Passive Investing and now does not want to acknowledge that the entire thing has been revealed to be a huge mistake.
We need serious people to step forward and take serious steps before the U.S. economy goes over a cliff. We have imposed on middle-class workers the responsibility to finance their own retirements. We now need to provide them a means of obtaining accurate information about what the historical stock-return data says about what works. It ain’t Passive Investing.
Rob
Great post. I didn’t panic when it came to my 401K - as I continue to invest in the ups and downs. However, I did have a similar “oh no” feeling when consolidating all my old 401K’s into an IRA. I probably did it at the wrong time and I have never bothered to go back and calculate any gains / losses for doing so. I sleep well knowing that I only need the money in 30 years. But I did have that feeling that I was transfering the money at the wrong time. Emotions vs. facts…something that us regular folks struggle with when investing!
My reasoning for this is that ever since the dollar has been taken off the gold standard, the dollar doesn’t have any real value. So just as a precaution with extra money, I bought some gold pieces. I’m also putting together an emergency pack too. I know this sounds crazy and I’m not a conspiracy theorist, but I believe (as other economists), that the economy almost had a huge meltdown. So, it is possible. We’ve had it good for too long. Societies and governments do collapse. Never in history has one not. It’s just a matter of when.
I know that it probably won’t happen in my lifetime or the lifetime of my children or grandchildren. I just want to be prepared if something does. I visited Argentina after December 2001 twice. That just goes to show you that it is possible. Always be prepared, but live life first.
I started investing in late October of last year. Not because I thought the market was at its low and it was a good time to start investing but because that was when I had enough money to open a brokerage account. I’d like to say it was my investing skill that caused me to invest almost right at the bottom of the market but it was just luck.
We kept our investments where they were and increased our contributions starting in January.
I’m one who wished I had any money to put into the markets this past year!
I’m still paying down debt.
I did switch jobs in February, and I got a little raise over my last job, so at that time I decided to put part of the raise toward mutual funds and part toward debt reduction, instead of throwing it all against my debt.
I know it’s technically “wrong” to try investing when you’re still in debt, but it makes me feel better; like I’m doing “something” more than “nothing”. Silly I guess, but it works for me, especially since I’m still putting extra toward paying off all of my debt.
My parents are in their late 70s and my dad manages their investments actively, spending time on it every single day. Besides reading Investors Business Daily, I think he also reads some online investment newsletters and business news and just follows what’s happening with the companies they own stock in. Last summer, whatever he was seeing caused him to sell their investments so that they had everything in cash. They didn’t lose a cent. I have a friend whose husband is a stock broker. She wanted to know, “how did he know to do that?” By paying attention and being conservative in safe guarding their money. Something the professionals should do, but we all know that no one will care as much about your money as you do. In January of this year, my dad started buying a few stocks and funds again. (BTW, my dad retired at age 53 with a pension and my mom at age 62.)
Compare that with my sister-in-law and her husband who have their retirement funds managed by their son-in-law who’s a financial planner/fund salesman. Under his careful management, they lost about $200,000. What that means is that her husband, who just turned 69, has to keep working full-time. He says he won’t be able to retire until he physically can’t work anymore. My sister-in-law, who just retired at age 66, rolled over her 401(k) and gave it to their son-in-law to invest. I said, “So he lost you $200,000 and you’re giving him more to invest for you? You might want him to be a bit more conservative at your age. Or diversify your money and not just have it all with the same manager.”
With retirement 10 years away for DH and me, we plan to be more conservative with where we invest future money.
I found myself with too much cash in my retirement portfolio in February. This was out of sheer laziness more than anything else. I plowed all this cash into mutual funds. At first, I was worried about the market crashing and buying too high as the market fell from 8600 to about 7800. Well, five months later, I’m still concerned about the recession, but glad to be fully invested.
I am in no way advocating timing the market. I feel really fortunate to “cash-in” an opportunity to invest in a down market, when I simply wasn’t fully vested for about 5 years. I am in my mid-40s, and other being slightly more conservative, I feel staying in the market is best for me.
I will say that without the employer match, I’ve stopped contributing into our 401k. The costs are way too high, and I felt better served by investing myself into my Schwab IRAs. If the employer match is reinstated, then of course I will switch back to my 401k.
the opposite of a bubble is a panic. people panicked and the equity market was trading at low prices. i increased my semi-monthly contributions and bought a lot of stock funds. i bought so much on the way down, that with the current rally, my portfolio is already in the black again. and while i don’t think the current rallies may last, it’s good to know i’m not that far off from recovery.
If you have money in the stock market, pull it out and put it in cash or SHORT TERM treasuries. Anything else is financial suicide. All assets (stocks included) are at least 50% overvalued right now. Do some research if you are skeptical. Look at what happened in Japan (80%+ drop in equities and 20 years of flat line) and the U.S. during the Great Depression (it took 2 years, but 80%+ fall and 10 years of flat line). All the economic data still supports this as the outcome over the next year. We are in a temporary run up and it is great if you took advantage of it, but our economy is toast. Open your eyes and look at the actual raw data, not the MSM interpretation of it. Countless articles are being printed talking about an “improvement” in a particular economic indicator when really what happened is the rate of decline was slightly less bad than the previous month. That is not a sign of improvement.
I increased my 401k contribution in Jan when I got a small raise. My husband bought a few shares in some stocks he’d been eyeing. I also opened a Roth IRA. I haven’t touched my traditional IRA.
I did increase my diversification slightly. Our company 401k advisor actually came in and told everyone to get out of stocks!! I was rather offended, given that most of us are under 40 and quite a few are under 30. Fortunately I don’t think anyone listened. I called my IRA broker to confirm my suspicions.
My husband rails a bit at the stock market; his parents are retired and took a hit this year. I don’t know their circumstances but I’m not sure why anyone in their 80’s would have a significant chunk in stocks. In any case they’re still very well off; they are remodelling their home so they can sell it when things improve, and though his mother has to live in a care facility, it’s a very very nice one.
I am 35 and intend to continue investing aggressively for at least 10 more years. In the meantime, I don’t look at my accounts.
Take the dot com era. This was the time when I first started paying attention to the markets. My first thought was why is everyone investing a lot of money in these companies that have never made a profit nor do they have any physical products. But people reassured me that this is the “new” economy and it will be different. Well we all know what happened.
Another example is the housing boom. I was living in California (Bay Area) working as an engineer. My wife is also an engineer so we where making good money and didn’t have kids. Everyone was telling me that I had to buy a house and I should just get in the market. Well starter houses were about 600K and I didn’t think we could afford it. Oh but house prices will always go up and if you don’t get in now then you might never get in was the comment I would always get. I thought to myself that if we couldn’t afford to buy a starter house how is everyone else able to afford it? Well it turns out they could not afford a house. I would have thought that people in the Bay Area would have been wise to the housing crash since they just went through the dot com bust a few years ago. I guess I was wrong.
I guess my point is that many people seem to think that this time it will be different. Any change, good or bad, seems to bring on the greed or fear. I feel that this attitude comes from the comment that everyone is special so whatever happens to me must be special and different. I think that everyone is different but not very much. We are one species and we think and act very similar.
There is the history saying that we learn from our past mistakes but I don’t really think that is true in the stock market. We go through these market bubbles and crashes but when the next big thing comes we get greedy and forget about the bubble because we think it will be different this time.
I am not much of an investment expert, but since I am still in my 20’s I figured it can’t hurt to leave my money as is. My losses seemed to be following the S&P 500, so I figured I have plenty of time to hold out and recover. I continued to invest and hope for a turn around.
Last week I was crunching the numbers from my Vanguard Roth IRA. (Vanguard gives the most comprehensive information of any of my accounts, the rest are a bit harder to track.) At the end of 2008 I was down approximately 30%, and now it’s only about 14%. I was calculating when this turn came around and determined that I have recovered about 60% of my losses, 79% of those losses were recovered in the last 6 months. Had I pulled my money out, I’m sure I would have been down a lot more.
This is a response to Rob Bennett:
As an economist, I disagree with your characterizations and passive investing and Efficient Market Theory. The classic work done by Hall was a theoretical model. Subsequent papers showed that life is not exactly a random walk. That’s well known. Most evidence we have points in the general direction of weakly Efficient Markets (ie, some actors are irrational or have imperfect information). It’s not enough to Parrot Lowenstein here.
However, to say that Index investing is based on EMT is wholly incorrect. For most folks, they do not have the time to process the necessary mounds of information to actively invest. The choice then is to passively invest or let someone else actively invest for you. And the historical evidence shows that active mutual fund managers can’t regularly, predictably, beat the market. That was the whole point against the active managers that the Stock-Selling Industry didn’t want to admit. Maybe you weren’t around when the Fool and Vanguard sounded the attack on letting others manage your money and charge you high fees, but that is what happened in the 1990s.
The best part about the Fool is that they are great at gathering information. I am hesitant that their mutual fund will turn out any better than all the rest. Not everyone can spend 2 hours a day reading about stocks/bonds/commodities. Not everyone enjoys it.
So, really, its about doing what works best for you, as JD would say
To Eden:
You need to cite figures about market over-valuation rather than scary words. You claim the market is 50% over-valued currently. Really? How do you know that? What is your evidence? You are further claiming that reports noting that some indicators are seeing their rates of decline slow down are not being truthful. These rates of decline must slow down first before they turn positive! I’m not saying its all peaches and cream, but clearly, there is no evidence for what you suggest, and further, putting money into straight cash means inflation just has its way with your money.
@Dan K - If the entire government collapses, do you really think people will want gold in exchange for goods and services? In that level of chaos, I would think that bottled water and food would be in higher demand. Maybe it would be wiser to stock up on water and MREs if you believe there is the possibility of a collapse. Gold is like any other product, it is only worth what someone will pay for it. It does not have intrinsic value.
J.D. How much of you retirement is in this one index fund?
Warren Buffet has between 25% -> 75% in BONDS.
During the Great Crash, there where several 50% BEAR MARKET RALLIES.
I’ve been contributing 100% of my 401K to Cash (Yeah just savings, it’s retirement nest egg money, Loss prevention is more important then gains.)
In my Roth: High Quality Bonds & Silver (Hedge against inflation.)
OPTIMISM IS NOW HIGHER then the PEAK in 2007…..
People are really greedy now… and if you listen to Warren…
I did change my investment strategy… that is, I started investing for the first time ever in January.
It’s considerably less money than the amounts you were moving around, but I’m still encouraged by this post.
We continued saving as usual, and I increased the amount of 401(k) contributions a little each month, starting last August. I rebalanced on my normal schedule. Continuing to contribute has paid off, as we’ve made fantastic gains this year. We’ve been lucky that we did not experience loss of income to derail contributing, and we have a good 25-30 years until retirement. I can’t imagine pulling money out if my time horizon is long and I am confident in my asset allocation.
J.D., what made you decide to do lump sum transactions of FFNOX instead of dollar cost averaging in?
There’s a few doom and gloomers out today, claiming to be able to predict the future. Funny that they all didn’t make a killing in this current upswing, with their magic future-predicting powers.
I also think it’s hilarious that people are worried about the collapse of western society and think that a couple ounces of gold is going to be the thing that saves them. If such a thing were to happen, no one’s going to want gold, either. It’s a mostly-useless metal. If you think the apocalypse is just around the corner you’d be better off investing in guns, desalination equipment, and farmland. No one’s going to trade his last loaf of bread for shiny metal trinkets.
I made no changes based on current market conditions. I haven’t gone hungry nor been forced to sleep on the street yet, so things seem to have worked out OK for me.
I put more money into the market when it went down. However, because the economy was so bad, I did not have very much money to put in!
I’ve had a DCA order set up for 403(b) investing for years. In recent years, I’ve increased my contribution whenever possible (raise, debt paid off, whatever).
I paid off my credit card in January, so I upped my contributions to max it out. I paid off my car in May, so I was setting aside other funds for liquid savings. SO I’ve actually increased my investing since January.
Now I’ve been hit with an 8% furlough, so I’ve decreased the contribution by $200 per month. But I only had 10 months for investing this year, as I was on leave for Jan/Feb this year. So with a regular schedule in 2010, the same rate I’m contributing now will max me out in 12 months.
I did rebalance the portfolio in April, to a “lazy investor” setup for Fidelity funds. The portfolio is up 26% since March.
My mother, on the other hand, had way too much in stocks (she’s 72). She lost nearly 50% of her IRA value (ad, apparently, did my in-laws). She started day trading to try and make specific buy and sell decisions. So she bought Citi and BofA at $1 or so, and sold at $2.50. She was able to increase her portfolio by 50% in a few months…and I’ve been cautioning her to not think she’s smarter than everyone else - but that a rising tide floats all boats.
We’ve talked about how she shouldn’t have more than 40% of her investments in stocks, but the trouble is - stocks are the only thing with any likelihood to grow enough to give her some profit over the next few years. It’s an awful situation, and I’m pissed at her adviser for not counseling her harder about her asset allocation as a widow, with no pension, and only SS plus investments in her 70’s.
Frankly, if she didn’t have medical coverage from my step-dad’s military pension, she’d be totally screwed.
Thanks to faithfully reading this website, I entered the market cautiously for the first time last September, putting about $100/mo into ETFs. All my friends/colleagues were pulling out as I was getting in, and they all thought I was nuts. I’m so glad I did. I only wish I’d had more money to put in. I’ve only been able to buy about $1200 in ETFs over the past year, but I’m already seeing an encouraging return.
Most importantly, it has started a very healthy habit of investing.
For most folks, they do not have the time to process the necessary mounds of information to actively invest.
I am grateful to you for sharing your thoughts, JericoHill.
We do not agree on this point. All that you need to know to know when to change your stock allocation is the P/E10 (price over the average of the last 10 years of earnings) of the index you invest in. Stocks were at insanely dangerous price levels for the entire time-period from 1996 through late 2008. The average price drop we have seen on the four occasions when we have gone to such insane price levels is 68 percent. Had the “experts” merely informed people how dangerous stocks were to long-term investors, we all could have protected our retirement portfolios. It is no more complicated to tell people when stocks are inanely overpriced than it is to tell people when cars or comic books or bananas are overpriced.
The trouble is that The Stock-Selling Industry has been pushing hard on Passive Investing for 30 years now and is highly reluctant to acknowledge that this “theory” has been disproven by the academic research of the past 28 years. I would like to see that change. I think it is fair to say that the future of the U.S. economy (and possibly even the future of the U.S. political system) is at stake. Middle-class investors cannot take too many more crashes of the size of the one we saw last year and yet the historical data indicates that we have more bad stuff ahead of us unless we begin to alert middle-class investors to the realities and thereby restore their confidence in the markets and in our economic and political system.
Rob
So much optimism. And just like that, it’s rock and roll only one way to go but up. Amazing. Secret is to just hold on during the down swing for the inevitable rocket ride up.
Congrats all!
Best,
Shogun
Does anyone even know what a BOND is ?
Everyone here is heavily invested in the equities market?
J.D. You’ve read “The intelligent investor” What does it say about bonds?
Are you ignoring this advice and doing your own methodology?
Roscoe
There is no need to be condescending. We are aware of bonds. The reason to invest in bonds is that they tend to have negative covariance with stock assets. It’s good risk management.
Buffett, as an investor, is in a class all by himself. Of course he is in bonds. Most very wealthy people we call DARAS in economics. (Decreasing Absolute Risk Aversion). He is wealth preserving because he has lots of wealth to preserve.
Further, I don’t know where you’re getting the notion that cash is a great place. It’s not. Cash doesn’t preserve wealth.
To Rob,
Thanks for the nice reply. Yes, we are going to disagree here, and here’s why. How is the average layperson going to differentiate between say, Rob Bennett, conscientious financial advisor, and say, Jim Cramer? The noise-to-signal ratio is too high, there are too many quacks out there. You’re claiming a rule of a P/E to know when to sell, but sell what, indexes or stocks? And is that really true? I’ve made killings with high P/E ratio stocks, but I’m an interested, actively investing by doing my own research kinda guy (hell, I am an economist…) But I’m definitely not the life of a party if I talk about the stock market.
I just don’t know what this “stock-selling industry” industry you’re referring to is. Vanguard, which has stock index funds, also has bond and commodity index funds (those I actually own). If you were specific instead of having a nebulous bad guy, that might help.
Further, lots of economists sounded the alarm over the last few years. We weren’t listened to. I wrote a brief about overvalued asset prices in RE back in 2005 that’s collecting dust in some government archive now. I received a lot of criticism for my take back then from higher ups. Oh well.
If you were specific instead of having a nebulous bad guy, that might help.
If there is one person who I would point to as being responsible for the promotion of Passive Investing, it would be John Bogle. But you know what? Bogle is one of the best out there. There are few from whom I have learned more about investing than John Bogle. So, no, I am not going to paint him (or anyone else) as the bad guy. It wouldn’t be honest for me to do so.
The bad guy is the Get Rich Quick impulse that resides within us all. The Stock-Selling Industry is not telling us that there is no need to lower our stock allocations when prices get out of hand because it is filled with evil people. It is doing it because it has to market its product and that means forming an emotional connection and this is what we want to hear. Those who assure us that timing is not required make millions. Those who point out that valuations affect long-term returns lose their jobs. The pressure to promote Passive is intense.
Still, the reality is that we are destroying ourselves with our unwillingness to consider the effect of the price we pay for stocks on the long-term return we obtain from them. That needs to stop. And the logical place for the change to begin is with those who are known as “experts,” the people employed by The Stock-Selling Industry. I don’t blame the industry for promoting its product. I see this as a case where putting too high a priority on marketing is a way to kill the goose that lays the golden eggs. We have placed limits on how hard alcohol or gambling or smoking can be pushed. I think it is time to place limits on how hard stocks can be pushed at times when stock prices go so high that the entire U.S. economy has been placed at risk.
There are no bad guys here. Or it could be said that we are all bad guys. In any event, we all need to begin acting more responsible. To ignore the price at which stocks are selling when we set our stock allocations is gravely irresponsible behavior, in my view. I have hopes that the pain we suffer from letting things get so out of hand this time is going to cause us to work together to take the steps that we need to take to assure that nothing like this ever, ever, ever happens again.
I received a lot of criticism for my take back then from higher ups.
That’s precisely the problem that we need to change. It doesn’t do us any good for you to understand economics well if you do not feel free to state your sincere views. Robert Shiller said recently that he has never felt free to state his sincere views on stock investing because if he did so at a time when prices were insane he would be viewed as “unprofessional.” This is madness. It is when prices are inane that we most need to learn about the realities. We need to stop punishing those who are trying to tell us the straight story. We cannot learn what we need to know if we continue to punish those who try to teach.
Rob
1. I don’t think anyone on this board has called for the end of civilization. Many economies (including the U.S. economy) have lost 90% of their value without causing civil collapse.
2. Gold is a high risk investment right now. As risky as stocks. (nearly) All assets are overvalued, including metals.
There is no economic data to back up the run up in equities. Seriously. Look around. Most major (Fortune 500) companies are reporting declines in revenues and/or profits of 30-50%. Commercial real estate and credit card defaults are just starting. The only reason for the rise in the stock market is the government pumping money into the banks, which has been leveraged many times to support their equity positions.
http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_500/2,3,2,2,0,0,0,0,0,1,11,0,0,0,0,0.html
Take a look at that P/E. 143!!! In post recession/depression economies, you see P/E ratios of around 10.
We are in the tail end of a bear market rally. If you are in equities you will get burned again.
And yes, in a deflationary economy (look at the current CPI report if you doubt this), cash holds and in fact increases in value over all other classes.
I remained 100% in stock mutual funds and did not sell any. I decreased my Roth 401K contribution from 10% to 6%. I began to wonder if I should buy bonds, but then I realized I could get the same “return” by paying off my mortgage, which as even lower risk than bonds. So I began paying off my mortgage very aggressively. I now have a much more personal/emotional understanding of financial risk. My stock market investments dropped 40%, but I never lost a dime paying off mortgage debt.
Looking back with 20/20 hindsight, it would’ve been better to invest the money in the stock market in March rather than pay off debt. BUT, looking forward, I’m still confident debt reduction was/is the best route.
I wish that I had MORE money to invest when the market turned down. Alas, I’m a lowly student. However, on 12/1/08 I bought 21 shares of PBD at 10.285, these shares are now worth 15.66, or a gain of over 50%!
Now, I know that I get eaten up by transaction fees for these ($10 each time), but this is just a little “market money” that I have to play with. I do have a bit more money in a Vanguard mutual fund. I’m not saving for retirement (not while I’m in school), and I have written off the money that I have invested. I’m not planning on using it for anything, but maybe one day I’ll be glad to have the money there.
I would like to think that in the future, when I have a job, I will be smart enough to invest automatically. I will also plan to invest a little more in the times when the market is down.
That’s a long way off for me, so now I just get to sit on the sidelines and think of days when my investment portfolio will have a couple more zeros in it.
@Roscoe
I do have other non-retirement investments, some of which are in bonds. For my tax-advantaged retirement accounts, though, it doesn’t make much sense to be heavily invested in bonds. For my retirement, nearly all of it is in FFNOX, which means that 15% of my retirement is in a bond fund. (FFNOX is a four-in-one amalgam of other Fidelity funds.)
Also, I have not read THE INTELLIGENT INVESTOR. Maybe it’s time to do so. All the same, I’m not convinced that everyone in the comments is heavily invested in equities. From what I see, people are taking calculated risks, and being carful with asset allocation. Although I’m keen on the long-term prospects of the stock market, I will admit that I’ve boosted my personal allocation for bonds.
@Helen (#62)
I don’t have a great reason for investing a lump sum instead of dollar-cost averaging. If I were investing my income as I earned it, I would dollar-cost average. And I’ve had some smart people tell me that’s what I should have done here.
But I remember reading a study (more than one?) that concluded that IF YOU ARE ABLE, a lump sum investment will generally outperform dollar-cost averaging. I should try to find that info so I can refresh my memory. It could be that I have things all wrong.
It’d be interesting to go back and plot what the results would have been if I’d dollar-cost averaged into the market with both of my lump sum transfers…
@Eden (#72)
I know that many people share your concerns about the market being overvalued. And the more this worries you, the less you should be invested in equities. Again, I think it’s important for every investor to know her goals, to understand her risk tolerance, and to invest accordingly.
In my case, I’m happy with my overall asset allocation. If the market takes another nose-dive, I’ll try to find a way to buy more stocks.
To JerichoHill:
Didn’t mean to be condescending, if it was interpreted that way.
Cash is a position and it is a absolute preservation of wealth. (Inflation does erode the value of this long term, but that is why having hedges against it is good.)
In Sept / Aug of 2008, moved everything to cash, and prevented 40% losses. (But my whole retirement is something less then 10K-20K.) I’ll take 40% loss prevention over 40% gains.
I’ve moved back into some non-financial bonds at around 8% yield for 3-5 years.
What scares me is the overwhelming optimism people are showing here. Wishing you had more cash to put into stocks = Greedy.
And seeing lots of passive investors with Greed in their eyes, and optimism approaching and surpassing 2007 highs.
The NASDAQ still hasn’t even recovered its former highs, the Nikki hasn’t either, and the GD suppressed stock prices for over 20 years.
This doesn’t mean your portfolio will be suppressed for 20 years… but it’s hard to get returns from indexes that are suppressed like that.
At the top of the post, “Biggest Rally since 1938″ History may not repeat, but it does rhyme.
J.D. It’s good to know you & others are in other assets =)
I’ve heard lots of stories of burned people, and how they didn’t bother to learn risk management, or understand all their investing options.
And great fortunes are made by buying stocks on the very cheep at bear market bottoms, not by selling short.
I’m a complete ‘newbie’ if you will, and love the site (mostly lurk), but when the stocks come out, i tend to get overly harsh. (Parents lost a lot by not investing wisely, they still aren’t IMNSHO)
My dad died in 2007, and I received my share of the inheritance in July 2008. Having a big chunk of money for the first time made me sit up and pay attention to my investments in a way I hadn’t in a while. I had been ignoring my 401k for years, to the point where my stock allocation was up to 88 percent — way too risky for my age (15 years from retirement).
The first thing I did was reallocate my 401k funds to a more reasonable level, abour 60 percent stocks.
Then I invested 1/5 of my dad’s money in Vanguard index funds (60/40 balanced fund) and put the other 4/5 into four CDs maturing in 2009, 2010, 2011 and 2012.
My 401k did go down, way down, when the market did — but not as bad as it would have if I had not rebalanced.
The CDs, meanwhile, were collecting a nice rate of interest — 4 percent to 5.5 percent — while the market tanked.
This year when the first CD matured, I put it in my Vanguard fund, since I had enough other short-term savings to feel comfortable with that.
All I can say in sum is “Thanks, Dad” for something over which he had no control: The timing of the inheritance is what saved me from losing a whole lot more money.
Having just finished funding my EF (12 months of income) in 2008, I doubled my 403b/457 contribution from 20 to 40%.
Very happy with the results so far.
@Eden
Here’s a chart that helps to visualize what you were saying about high P/E ratios. I agree that it’ll be interesting to see what happens. If stocks are not dropping in response to the high collective P/E ratio (and are there a handful of stocks that are throwing this number out of whack? I don’t know…), then can we assume it’s because investors believe that earnings may be low right now, but they’re only temporarily so? I don’t know. That would be my assumption (that P/E will return to normal as earnings increase), but it may truly be an indicator that prices will drop.
Again, nobody is a prophet. Nobody knows for sure. We each have to make the best choices we can based on our education and information.
When it came to the market crash, I could not have been luckier. I’m young and hadn’t my only stock market investment was about $2000 in a very conservative mutual fund, but had started thinking about getting into the market. When the market tanked last fall I put the research into high gear and by early 2009 I was ready to buy. I did most of my buying between January and March and got some amazing prices on ETFs that are giving me awesome returns.
Also, when the market crapped out the first thing I did was up my bi-monthly contributions to my mutual fund.
That said, as a 25 year old I don’t have anything near the kind of money that you have invested so while my returns are good in terms of percentage they certainly aren’t going to make me rich! I think that it’s easier to think rationally rather than emotionally in my case because 1) I didn’t lose much in the crash, and 2) I am young and don’t have as much to lose.
More than anything though, I think this crash will have served me well if it reminds me to keep a proper asset allocation as I get closer to retirement.
I got lucky… All I did with my 401k for a while was dump it in 25% “company stock” and 75% “Stable Market”. Basically just putting $$ somewhere “stable” and getting my company match so I could go back when I learned more. Last summer I started reading Dave Ramsey and a couple of blogs like this and decided to start adjusting my investment. I was paying attention to the economy and had seen this Housing/Stock crash coming (although I had no idea the speed it would hit us at). So when the market tanked I was watching. I lost everything I put in for a 15 month window (jan08-mar09). So I stayed even on my balance by the end of the 15 mos. Well in March I started seeing the bottom come, and jumped into a good diversified mix. High Cap, Foriegn, Small Cap, Company Stock. I made back all my losses in 6 weeks, and I’m looking at (today) 37% GAIN for 2009 which included the Jan-Mar declines.
Almost 100 posts now, and practically NOBODY has lost money in the market over the past 12 months. Or if they did, it wasn’t so bad, and many bought in the dip and made money.
Does this tell us anything?
Best,
Shogun
I am almost grateful for the crash. It made me wake up and take control (or begin the process of doing so) for the first time. I’m evaluating all of my investments, determining my current asset allocation, devising a new one and will develop the best plan to get me there, probably with the help of an independent financial adviser.
Of course, still lost a good amount of $, but hope to make it up in the long run.
Shogun, I did lose money, but it could have been worse.
@Shogun - Wow, what a measured, quantitative approach to investing. You are a true master.
Has anyone else noticed the tone of the posts here in general? It is nearly 100% cheerleading and greed that I see in these posts.
I hope our economy improves soon and will gratefully invest in solid companies and in the market indexes when that happens. If we were sitting on a year or two of solid improvement in our economy after a correction in equities prices that matched the decline in output, I would think that reasonable (1-10%) year over year growth in the stock market would be possible.
Instead we have seen over a 50% increase in equities prices since January with a significant decline in the health of our economy by any measure.
Once again, Shogun and the other cheerleaders, how do you justify a P/E of 143?
The quote about buying when others are fearful is true. We haven’t seen real fear yet. We saw investors hesitate for a couple of months and then buy, buy, buy right into a bear market rally. This is absolutely the time to sell.
@ Shogun - I think all it tells us is something about the type of people who read this site. Or more specifically, the type of people who felt moved to comment on this post.
I don’t think the GRS readers are representative of the general American population.
I’ve been doing what I’ve done since I first had access to a 401(k) account in 1998: I’m investing 16% of my salary in a range of index funds, holding my breath when I open my statements, and wincing a bit. I’m in my late 30s and don’t think there’s really a viable alternative.
@ Eden - Clearly you aren’t getting the gist of my sarcasm in my earlier posts…….
@ WM - You’re right… it’s human nature that those who make a lot, or had a win have a tendency to highlight their achievements. People aren’t nearly as inclined to post their losses!
Rgds,
Shogun
I have to admit that I did cut back on my investing when the market crashed- instead of putting in $3000 every 3 months, I think I put in $1000 every 3 months. A bit stupid, but I had less money lying around at the time, and at least I didn’t lock in any losses.
My total net worth is now back up to what it was before the crash, although the worth of my mutual funds themselves still has some catching up to do. My retirement is worth more than all the contributions that have been put into it (I’m 28.)
We stayed the course on contributing to our 401ks even as the stock market tanked. In early 2009 we made our $10,000 contribution into our IRAs, while we did not attempt to “time” the market we did pick stocks in good companies that were on super sale (50% off or more).
We are also trying to live by the Buffett plan “greedy when others are scared and scared when others are greedy.”
@Samurai
Whoops, missed your earlier posts and only caught the most recent one, hence my totally missing your tone. I apologize as you are advising caution, which is what I think is needed now.
To address the original blog post, I was overly optimistic all last year and decided to ride things out. I only reversed that decision this summer after recovering a large portion of my losses. Since then I have moved 100% into short term treasuries and cash. I will begin investing in the markets again when the rampant fraud has been addressed and I see signs of real economic recovery. I expect that I may be waiting for another year or two.
I lucked out. I couldn’t start my 401k until I had 3 months on the job–November 2008. Since then, I’ve done my best to max out my Roth 401k. In February, I started earning quite a bit of overtime and this March I opened a taxable account with Vanguard for all of my OT. Since then, I’ve been throwing all the extra money I can find at that account so that I can use it to either supplement a PhD stipend or have a fat down payment for a house (in the fairly distant future).
I’m taking advantage of the other benefits of the down economy–I’m taking a 2 week trip to Europe for about 1/2 of what it would have cost me 2 years ago and paid for a new camry last summer for the same price as 3 year old camrys were selling for on ebay.
We saw it as a sale and put a small chunk in in November. It still dropped considerably from there but now it’s up from where we bought. In the March time frame we upped our 401k to max contribution more for tax reasons than anything else. Now we’ve dropped back down as due to manipulation of bankruptcy law by a tenant (they got five months of no rent and forced us to spend a lot of money working around an illegal filing) our cash savings are depleted so we’re throwing money in that direction.
I’m happy with our portfolio, but I figure there are more ups and downs in the future. Our highest exposure is in a rental property, and second highest in cash, so I am comfortable with heavy equities in our portfolio, especially since DH and I are only in our late 20s.
JD, I have stayed put in the market through its turmoil. I didn’t invest new money in the market, but didn’t pull out either. I take a cursory look at the market performance periodically (as in a week), but don’t zoom in to news specially when there is a blood bath in the market.
What I generally struggle is with the discipline to sell and when to walk out.
Rob and JerichoHill,
Isn’t what Rob is saying about valuation-informed investing similar to Buffett’s maxim quoted above about being greedy when others are scared and scared when others are greedy? As long as one can compute the P/E10, which I have no idea how to do, doesn’t what Rob is advocating make sense? Sure, an investor might miss out on some big jumps when the P/E10 continues to climb even when it is at historical highs. But, I’ve also always heard that great financial advisors become great not by reaping great gains in “good times” but by minimizing lossesin “bad times.”
I saw a short article in Austin Pryor’s Sound Mind investing book that seemed to be advocating a form of valuation-based investing as a good alternative to just putting money in regularly every month. Pryor’s system wasn’t the same as Rob’s, though, as it didn’t mention P/E10. It was based on the progress investments are making in regard to a specific goal. It was a system to buy more when prices are low than when they are high.
I’d dipped my toe in the market through my 401(k), but wasn’t elible for one for most of 2008, so I accumulated a bunch of cash that I used to start a Roth IRA in March ‘09. Good timing!
I’ve bought a bunch of individual stocks and gotten very lucky (beat the S&P by 62%) and since converted mostly to index funds. The recession made me learn more about investing and I’ve been very fortunate!
I’m a blue collar worker but my union does have a retirement program. About a dollar an hour goes into it and upon retirement we can pick from a variety of annuities. I joined this union 3 years ago when I relocated. (Despite being in the same business since 1997) The default account is a low risk T-bill fund. In February I had around 4800 in my account. I called Prudential (They manage our fund options) and split that into 2 separate investment vehicles. One was high risk US companies and the other high risk offshore companies. The value of my account today is over 9300. To be fair, about 300 has come from new work but even counting that, the return has been close to a 75% increase. I just wish I was making enough to have been able to invest other funds back in March. Try buying a house on a 24k a year income while paying a 407. a month car note and you’ll understand why I have saved for closing costs as opposed to investing more.
Thanks for this post. My husband just began investing in stocks a little over a month ago, so we didn’t lose our butts last year. This year, with the stock market in the tank, it has allowed us to invest. Our investment amount is small, but our capital gain (I think I’m calling it the correct term) is averaging about 13% right now.
Warren Buffett and you are both right, but I don’t think it’s being greedy, it’s just taking an opportunity when others are frightened.
I have continued to contribute 20% of every paycheck to my 401(k). I also put $5000 into my Roth IRA in July and by now, I’ve regained everything I lost from the previous 2 years’ contributions. I put $5000 in an index fund in May — my first non-retirement investment (other than CDs) — but I wish I had put in more!