How are people feeling about the stock market? Is it starting to affect your thinking about future plans or is everyone still too distracted by COVID? I thought this made for an interesting read:
4 Likes
Iâm monitoring the markets and just reduced my 401(k) contributions and will be backloading my annual investments (bulk at the end of the year up to the annual max).
2 Likes
Interesting. With the markets down wouldnât this be the time to increase the 401k contributions. Buy low!
4 Likes
Risk of trying to time the market. Worst part about doing that for many people is they end up panic selling on drops and buy when things are hot. Buying high and selling low.
1 Like
Nope. I never ârebalancedâ my 401(k) - that is what chasing the markets is about. There is only $27k I can invest in 401(k) throughout the year (1-100% of my paycheck). Iâm investing, dollar cost averaging, just saving a chunk of that money for the big bloodfest to invest bigger % - just like I did in 2020 when the market tanked big time.
2 Likes
I was nervous at the beginning of 2021. Not nervous now. Last year had 15.2% return on 401k. However we are very diversified with other assets outside of 401k.
Over last 10 years, only had one negative year on 401k (2018 was -4.22%) but 2017 was 20.47% gain, and 2019 had 34.41% gain, followed by 2020 with 34.85% gain. Had 2 years with under 1% gain (2011, .94%; 2015, .78%); 2014 with 2.77% gain. Other years beating everything else on returns. The market has been fine for us.
Studies have shown pulling out and jumping in - does not beat just staying in.
When your particular overall investments drop, see what investments tolerate a decline (donât go down as much as other investments). We were surprised that two of the four investment options we had chosen did not have the drop the other two had - so by adjusting the investment amounts in these four fund groups we were able to realize better returns.
1 Like
Why? Because you had a good return last year? Or macro factors like you believe inflation will get better, employment is booming, etc? To me the biggest sign of being in a bubble is when investors arenât nervousâŠ
3 Likes
Rebalancing is not chasing the market. Rebalancing is making sure your overall portfolio is still invested the way you want it to be. If, for example, you want to be 60/40 in stocks/bonds, and the market rises considerably, your overall portfolio may have risen to 63/37. So you sell some stocks and invest that $$ in bonds, and youâre back to 60/40. Itâs a disciplined approach that keeps you on target.
With my advisors at Schwab, I rebalance every quarter. Otherwise I ignore it.
5 Likes
@twoin18 a combination of things made me nervous. Presidential change and all the reverse policies that were driving chaos - the border situation for example. The continuing Covid strains and unknowns with that. I was still working another 9 months before retirement - working in skilled care/rehab facility - so the workplace hazard of Covid. All the forecasting about a bear market way overdue. Then add the layer of personal - DH had retired Nov 2020 ahead of our âplanâ (primary breadwinner - where he was at peak income and earned twice the salary at half the effort as my sunset career job); DHâs dad died Dec 2020 and his mother was declining and then died March 2021 (both in WI) -mom was long overdue to going to skilled care. DH was out of state with the parental situation almost continually for 4 months (850 miles drive each way - airports not close and he needed a vehicle there) so his earlier retirement decision fit the overall scenario that developed. Another deer incident with DH in WI (first one was months earlier, two deer rammed into the side of his car on the highway; this one a deer came out in the road in between the car in front of him and DHâs vehicle - thankfully he was going slow enough and the softer hit just missed the sensor for the air bag to go off so we did an out of pocket repair to avoid higher insurance premiums) - we had to replaced DHâs vehicle in 2019 (with significant out of pocket costs) after his vehicle got totaled by a careless fast driver turning left in front of DH w/o left green arrow. The silver lining was no injuries on all these vehicle situations (although DH was quite stunned and a little bit of shock by his face hitting airbag with the careless driver accident - I was at the scene in minutes as that accident occurred about 5 miles from our home).
The workplace hazard with Covid are real â heard from PCP about a physician specialist in major medical center near us (100 miles away) had the original Covid strain, had the two vaccinations, then got the Omicron Covid. Who knows what long term havoc Covid put on her health.
Something that had me less nervous was purchasing another annuity with the right situation for us - which took money out of the dynamic stock situation.
Once we had the full year of DHâs retirement, my own retirement, shifting onto SS for me and Medicare/supplement/drug plan for both of us - lots of transitions/changes. Relief when DHâs Medicare B finally came through (SSA/MC processed almost 4 full months after it was supposed to start and then they backdated from process date of 12/29/2021 for effective 9-1-2021) â we had to hold off on medical for DH after 10-1-2021 private insurance coverage ending â including his cardiac evaluation. SSA/MC is very difficult when they have oneâs electronic file so messed up that it was in their terms âtoo complicatedâ â I learned in hindsight to how to push it through after the delay âin processâ status. The Medicare snafued situation tied up way too much time and angst dogging the system.
So the nervousness was with a whole slew of factors.
2022 will continue with transitions with DD1/SIL/Gkids - they added 3rd healthy child in August 2021. Although weighed down with responsibilities, DD is handling well. They may be heading for out of state move in 2023. DD2, all is good.
2 Likes
Same with me. Monte Carlo analysis says in 100% of cases we are accumulating even if I stopped working last year, but I fear things that arenât modeled: market drops 50%; civil war, cyberterrorist attacks on US infrastructure.
9 Likes
The point of the Monte Carlo simulations is in fact to model every scenario. Ask whoever created that program how drastic it gets.
1 Like
No. It highly depends on how likely an event is. All Monte Carlo simulations are limited by time. If a scenario is highly unlikely (in the tails of a distribution), the probability that the scenario will be generated in a simulation is low.
More importantly it depends on whether the tails of the distribution are estimated correctly. If the modeling assumes a normal distribution then it will hugely underestimate the probability of âblack swanâ events.
As the article I posted above notes, it shouldnât be possible to have 3 âthree sigmaâ superbubbles in 20 years (2000, 2007 and now). But the market doesnât behave as a normal distribution.
1 Like
I assume the model itself is sophisticated enough to incorporate a âcorrectâ distribution with long tails. Even with that assumption, the events in those tails arenât likely to be generated in a simulation limited by time. If, on the other hand, the model assumes a normal distribution, Iâd consider it useless.
1 Like
Some of the worst case scenarios may well involve serious questions about worth of a dollar (or an other investment in fiat currency or one that depends on rule of law to be recognized/realizable â which is pretty much all of them). At that point, all bets are off.
Often times people I talk with who worry about those types of situations and keep working as a result, really just donât want to retire. And nothing is wrong with that. I may fall into that camp myself. Not sure yet. But if you enjoy what you do and can keep doing it, nothing wrong with continuing to do that if its what you want. Guess that makes some people feel bad though because they come up with other reasons for saying they continue to work.
@Twoin18, that is a great, and alarming, article. I am not a finance person, and there is some technical stuff in there that I catch only the gist of, but very compelling stuff, and people should read it.
1 Like
Curious-for managed funds, like Vanguardâs target retirement funds, do the managers read the apocalyptic analysis and offload equities? Or are they more buy and hold? I would think it depends on the time horizon to retirement, and how much risk is built in. But if the models are showing a huge, steep market correction coming, what do target funds do, with say a 5-10 year retirement horizon?
Vanguard has its own forecasts for the next 10 years with different asset classes.
https://advisors.vanguard.com/insights/article/marketperspectivesdecember2021
Problem with any such forecast is no one knows for sure how the market will perform. Can look at the past but there is nothing to say that will continue. And even if you say a correction is on the horizon (there always is) the question is when it will happen (and how long it will last). No one knows the answer to that. There are a number of people who predict one pretty much all the time and when it eventually happens say, see I was right.
1 Like
That, and no one knows for sure or can predict what sort of a crazy investment âcabbage patch kidsâ scheme of the day some guy would come up with next (doggie money, NFTs, meta, etc.)
1 Like
My financial advisor has always told us that no one can predict the future. He and his team have been updating clients on where they think things may be headed, and they let us know what adjustments they are making in our investments/why. H & I did our own financial management in the late 2000âs, and we didnât like the outcome. I feel better having someone I trust helping me navigate things.
5 Likes