The Long View, Ignoring the noise, and staying the course

[Tangler]

I think it makes sense to try to invest everything you can when valuations have dropped, but I am still trying to adjust to the reality that it is suboptimal to spend money when everything is so ridiculously expensive. I wish I had a crystal ball 2 years ago when I sold my house and thought about replacing my car but held on to it. Now I wonder if I should keep living like a resident past age 40 in hopes that I can make my nest egg stretch farther if I defer that gratification longer.

Yes, i find myself with a much lower desire to spend.
I have no mortgage or other debt and that feels good.
I think when I fully retire i will feel better with a big cash bucket to combat SORR and if/when this market recovers I will be building that cash bucket rather than spending.

[Tim]

Yes, i find myself with a much lower desire to spend.
I have no mortgage or other debt and that feels good.
I think when I fully retire i will feel better with a big cash bucket to combat SORR and if/when this market recovers I will be building that cash bucket rather than spending.

"Originally posted by Lithium View Post

I think it makes sense to try to invest everything you can when valuations have dropped, but I am still trying to adjust to the reality that it is suboptimal to spend money when everything is so ridiculously expensive. I wish I had a crystal ball 2 years ago when I sold my house and thought about replacing my car but held on to it. Now I wonder if I should keep living like a resident past age 40 in hopes that I can make my nest egg stretch farther if I defer that gratification longer."

This +1000
https://www.amazon.com/Passages-Pred.../dp/0553271067

I don't know how to do this. There are very common stages in ones life relating to Behavioral Finance reactions as we all age. Some try to refer to it as boomer and millennial. There are distinct phases one goes through in life relating to emotional reactions to finances. Too conservative, too cheap, spend too much etc.
I think it has to do with the end of the line for personal capital and relying on financial capital. The only ones that have been through it can't or won't write about it.
The only thing we find is anecdotal evidence. Those that have zero worries that are only are concerned about how to structure the estate and those that worry about stretching the nest egg farther. The Behavioral Finance reactions at a passage everyone will go through.
It would be nice if there was a Rule of Thumb of how to deal with the emotions.
Why is "This time is different" is different?
Maybe WCI will work his magic and someday blog about the common emotional stages that everyone will go through. In his retirement.

Lithium, buy a new car. You deserve it.
Tangler, remember one thing. You have followed your plan ignoring the market. Just set a number for that cash bucket. Your heirs will probably spend it on the first class tickets anyway. Probably better to take the heirs on a fishing trip or take more of them.

Regardless, you can't control the market so why change your life? You both will be fine. I think it is a common behavioral finance issue about an unavoidable stage in life. Too bad its not as simple as a Rule of Thumb. Most have the same phase.

[StateOfMyHead]

I keep reading stocks are on sale. Are they? Or are they just lower than they have been in the recent past which also happens to have been a highly unusual global situation? IDK and I’m continuing to DCA but I’m not convinced this is a sale. I suspect more likely a cooling period and I would not be surprised if things ended up in the pre-pandemic range when it’s all said and done.

[Tangler]

I keep reading stocks are on sale. Are they? Or are they just lower than they have been in the recent past which also happens to have been a highly unusual global situation? IDK and I’m continuing to DCA but I’m not convinced this is a sale. I suspect more likely a cooling period and I would not be surprised if things ended up in the pre-pandemic range when it’s all said and done.

I would not be astonished if you are correct.

I think i tell myself they are “ on sale” to feel better about the situation.

Buying after the drop is better than before, even if you feel ill.

I feel a bit apprehensive, with the feeling that this is going to get much worse.

Mr Market: I think in 20 years stocks will be higher, therefore i invest.

Still feels sad.

Not a lot a good economic news.

Might be a long recovery.

Hang in there.

[TheDangerZone]

Haven't been checking my balances more than once a month lately just to update my spreadsheets. When the market is on the up and up, I usually find myself looking every few days. Contributions have kept my NW from taking too big a hit. I prefer to think of it as accumulating shares even if the accounts are not making much progress. Things always seem bleak when the market is correcting or crashing or in a bear market. Not the first time, won't be the last. With a long horizon ahead, I am not too concerned. I had a milestone that I was "on track" to hit a couple months ago, who knows now when it might be.

[Larry Ragman]

Haven't been checking my balances more than once a month lately just to update my spreadsheets. When the market is on the up and up, I usually find myself looking every few days. Contributions have kept my NW from taking too big a hit. I prefer to think of it as accumulating shares even if the accounts are not making much progress. Things always seem bleak when the market is correcting or crashing or in a bear market. Not the first time, won't be the last. With a long horizon ahead, I am not too concerned. I had a milestone that I was "on track" to hit a couple months ago, who knows now when it might be.

Most of us who are still accumulating should be pleased at the opportunity currently presented to buy more shares at reduced cost. Certainly I am continuing my long term contribution plan to gain the advantages of dollar cost averaging. But those recently retired might feel differently. SORR could be problematic if the downturn lasts a year or more. A bucket strategy can help there. Just had a note from a friend who retired in January. He was grateful for having built up a cash reserve equal to three years of expenses. As a result, he is riding out this modest downturn without any real concerns.

[Tangler]

Most of us who are still accumulating should be pleased at the opportunity currently presented to buy more shares at reduced cost. Certainly I am continuing my long term contribution plan to gain the advantages of dollar cost averaging. But those recently retired might feel differently. SORR could be problematic if the downturn lasts a year or more. A bucket strategy can help there. Just had a note from a friend who retired in January. He was grateful for having built up a cash reserve equal to three years of expenses. As a result, he is riding out this modest downturn without any real concerns.

The large cash bucket for the newly retired strikes me as simple, effective and brilliant.

It is not fancy, and it does not beat inflation but it works.

I am reading a good book on alternative investing (not my thing, own 90% stock index funds) but the book is well written and informative.

He discusses cash in taxable early in the book as an “alternative investment “ (as opposed to stocks:bonds) and the arguments for some taxable cash are solid.

Cash bucket means you can take more risks elsewhere and still sleep when the wheels fall off the good ole USA (as they are now).

[Zaphod]

I keep reading stocks are on sale. Are they? Or are they just lower than they have been in the recent past which also happens to have been a highly unusual global situation? IDK and I’m continuing to DCA but I’m not convinced this is a sale. I suspect more likely a cooling period and I would not be surprised if things ended up in the pre-pandemic range when it’s all said and done.

agree, the covid dip and odd 'recession' basically just led to 2021 being the speculative blow off top of the 2009-2021 bull market.

With rates up and inflation biting, easy to see stocks lower sooner. Tricky bit is where it becomes fair to great value.

[Auric goldfinger]

So you guys know I’m long since retired, age 66. I’m down about 9% vs 13% for the S&P. Paper loss in the low 7 figures. But I’ve seen this scenario so many times before, that I’m completely, entirely, unaffected. I’m using the sell off to average out of some very long individual stock positions and into the S&P. History doesn’t guarantee future performance, but it’s all we can analyze to form practice, just as in medicine.

[xraygoggles]

The large cash bucket for the newly retired strikes me as simple, effective and brilliant.

It is not fancy, and it does not beat inflation but it works.

I am reading a good book on alternative investing (not my thing, own 90% stock index funds) but the book is well written and informative.

He discusses cash in taxable early in the book as an “alternative investment “ (as opposed to stocks:bonds) and the arguments for some taxable cash are solid.

Cash bucket means you can take more risks elsewhere and still sleep when the wheels fall off the good ole USA (as they are now).

What are the arguments in favor of holding cash in a taxable account? What % (if 5%, okay sure, if 10%+ kinda dumb imo)?

[Tim]

What are the arguments in favor of holding cash in a taxable account? What % (if 5%, okay sure, if 10%+ kinda dumb imo)?

Dumb depends on the the total nest egg, the denominator.
Say in round numbers, $100k/per year. 3 to 5 years is $300k to $500k. Can you do the math for me? How much have I got to have as a percentage?

Do it for me and Tangler and Hatton. I really want to know how to plan percentages. Sarcastic of course. For most cash will be an amount that results in a percentage. It might not even be in the brokerage account.

[Tangler]

What are the arguments in favor of holding cash in a taxable account? What % (if 5%, okay sure, if 10%+ kinda dumb imo)?

For a young person, with years until retirement you are correct; cash in taxable is not needed and cash in taxable is limited to an EF.

For an old person who is newly retired cash = king.

This article discusses the arguments for cash bucket:
https://www.morningstar.com/articles...ent-allocation

When is the cash bucket needed? Early in retirement.

Why cash? For SORR antidote.

How much cash is important? 3-5 years of expenses.

I do not know think of it as a percentage of AA.

5% of AA vs 10% of AA? That is not how i would really consider it.

For me at retirement I want 300-500k in cash.

That is 3-5 years of living expenses, and it makes me SORR bulletproof, or as close to it as I can get IMPO.

https://www.morningstar.com/articles...ent-allocation

[Tangler]

So you guys know I’m long since retired, age 66. I’m down about 9% vs 13% for the S&P. Paper loss in the low 7 figures. But I’ve seen this scenario so many times before, that I’m completely, entirely, unaffected. I’m using the sell off to average out of some very long individual stock positions and into the S&P. History doesn’t guarantee future performance, but it’s all we can analyze to form practice, just as in medicine.

This is a serious question. Not sarcasm.
As a wise investor who has seen badness, what do you think of the state of our economy and our country?

End of an empire? Inflation?

[Auric goldfinger]

This is a serious question. Not sarcasm.
As a wise investor who has seen badness, what do you think of the state of our economy and our country?

End of an empire? Inflation?

I don’t regard myself as being especially wise, nor as blindly nationalistic or patriotic. But, I can tell you that my impression of America in late 60’s and early 70’s was much more worrisome than today. Don’t bet against the continued future and success of the U.S.

[GasFIRE]

I don’t regard myself as being especially wise, nor as blindly nationalistic or patriotic. But, I can tell you that my impression of America in late 60’s and early 70’s was much more worrisome than today. Don’t bet against the continued future and success of the U.S.

I agree. The 70's had both high inflation and unemployment, near 20% and 10% respectively at it's worst. The Fed jacked up the interest rates to reverse course at the price of a severe recession in the early 80's. Everybody was unhappy and worried. Things may not be great now but back then was worse.