Market Has Doubled Since 2007 Peak

[djohnflatfeecfp]

If you had the patience and stuck around in the S&P 500 since the market peak on October 9, 2007 you have now nearly doubled your investments, assuming you think a 98% return once dividends are included count.  Amazing since this same index was down 55% at one point.  https://www.bloomberg.com/news/articles/2017-09-26/doubling-your-money-in-stocks-by-buying-at-peak-of-a-bull-market

So, how many of us managed to stay in completely?  I know made some stupid decisions back then and didn't enjoy the full ride back up.

[ITEngineer]

My wife had just quit her job to stay at home with our 'then' two little boys. Our income dropped 40% with this shift. We sold a bunch of assets from our Taxable account to pay off our HELOC and beef up our emergency fund before 2007 was over. The future was uncertain but who wants a monthly payment you don't need when your income dropped significantly! At the time we had an ARM and I was expecting rates to go up next year but we had paid it down significantly so even with the rate increase, our required monthly payment would have decreased.

Of course the next 18 months were quite wild. We might never see something like that again for 50 years. I saw it as a buying opportunity. Store wide clearance 40-50% off! My only regret was that with the income drop we had less money to put towards savings (for obvious reasons)

While our net worth dropped, by the end of 2010 we were above where we were in October 2007. And you know what the last 7 years have been like.

And with the interest rate drop our mortgage rate continued to drop each year. Grand Slam (from an interest perspective) so our required monthly payment kept going down but I kept on making the original payment amount. That's my second regret. I should have put the extra in the market. But since I don't hold any bonds, my house is similar to a bond (from my perspective)

I work with Engineers who are good a math but not personal finance. I don't know a single one who stayed in. The standard story goes something like this... they pulled out in 08/09 and started to get back in post 2012-2014. Buy high, sell low. Many I've discovered for at least some point of their careers didn't contribute enough to their 401k to get the full company match to fund spending.

[The White Coat Investor]

I not only stayed in, but bought more all the way down and all the way back up. I agree it has worked out pretty well, but I didn't have all that much invested in 2008 as I was only 2 years out of residency.

[cgossage]

Unfortunately, I wasn't able to invest in 2008.  My wife was a new intern and we had just bought a house in Phoenix.  I thought it was a good deal at the time because housing had already dropped 30% in the area.  A year later our house was worth half of that and we were trying to hold onto cash in the event we needed to sell the house when moving for fellowship.  We used the cash to pay off all our student loans and cars before residency and gifting the house to my in-laws, so it ended up working out in the end.

[Live Free MD]

The White Coat Investor wrote:

I not only stayed in, but bought more all the way down and all the way back up. I agree it has worked out pretty well, but I didn’t have all that much invested in 2008 as I was only 2 years out of residency.

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I think it is easy to stay the course if you have $50,000 invested and watch it go down to $25,000.  It's a completely different situation when you watch your $2 million net worth drop to $1 million.

For this reason, as my net worth increases and valuations increase, I am backing off on the aggressiveness of my asset allocation.  I started out around 90% stocks, and have since backed off to around 70% stocks (not by selling stocks but by adding new money to my bond allocation). When the next bear market hits, I look forward to being able to stay the course.

[Zaphod]

Live Free MD wrote:

The White Coat Investor wrote:

I not only stayed in, but bought more all the way down and all the way back up. I agree it has worked out pretty well, but I didn’t have all that much invested in 2008 as I was only 2 years out of residency.

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I think it is easy to stay the course if you have $50,000 invested and watch it go down to $25,000.  It’s a completely different situation when you watch your $2 million net worth drop to $1 million.

For this reason, as my net worth increases and valuations increase, I am backing off on the aggressiveness of my asset allocation.  I started out around 90% stocks, and have since backed off to around 70% stocks (not by selling stocks but by adding new money to my bond allocation). When the next bear market hits, I look forward to being able to stay the course.

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Obviously this is most likely to result in a gross under accumulation (compared to staying on your path) and no matter what, and a higher exposure in dollar terms to stocks at a worse time near retirement than is best.

I know they talk about leverage so it throws people off but I think "lifecycle" investing (ayers/nalebuff) brings up some very interesting points about dollar exposure over time. Forget the leverage (can be harder, expensive, not necessary), and just think of your target allocation and lets say your number you plan to retire with. Is your dollar value of stocks at the level of whatever final allocation/dollar amount you plan to retire with?

That is lets say you want to retire with 5M in the bank allocated 50/50. Your final stock dollar amount is then 2.5M. You then compare it to today and dont worry about some constant split % until you filled up the traditionally riskiest section first. What it does is expose your dollars to more time in the market and spread out longer than the traditional way. This will actually greatly decrease your risk since youre not concentrating your dollars in any one time period as other ways do.

For example, lets say the above AA is what you want. Yet you started more aggressive at 90/10 for the first 10 years and put 50k/yr. 45 stocks/5 bonds. After a decade (no growth) you have 450k stock/50k bonds. You now think to ramp down to 70/30, well you're still only 25% of the way toward your final AA goal in stocks. It would (and historically has been) be better to be 100% in stocks until you get much closer and then ramp down your exposure in the final years/decade. Helps with SORR as well since you have been ramping down near the end rather than up as most do.

Anyways, its a very interesting idea at its core of 'time diversification' and people should really look at and think about it.

[RocDoc]

I like Zaphod's explanation and it is pretty much the path I followed. I was 100% equities (mostly index funds) until the last two years when I reached a point to have enough in equities at 3% SWR to fund expenses in retirement. I kept the money I already had in equities and continued to contribute some new savings to equities but also started to divert a significant amount of new savings to bonds and cash as well.  I also left the proceeds of a small business I sold in 2016 as cash. Now I have enough in bonds and cash to fund about 6 to 8 years of expenses in case the market crashes when I decide to retire. I'm 54 and husband is 53.

[Hatton]

I have been through 2000 and 2008 so I consider myself tested about panicking.  I have always had some Muni bonds.  In the last 4 years I stopped buying individual stocks. I am indexing primarily.  New money goes to bonds and cash since equities have appreciated so much my asset allocation is equity heavy right now.

[GXA]

Similar to WCI.  I managed to stay in and in fact continued to purchase on the way down and back up.  Given the stability of our income and years of future earning, we were aggressively allocated and it has paid off.

[Zaphod]

This guys blog is amazing and helps to put stuff in perspective. Very probabilistic.

 

http://fat-pitch.blogspot.com/2017/09/weekly-market-summary_30.html#more

[Hatton]

Remember the market climbs a wall of worry.

[adventure]

Zaphod wrote:

This guys blog is amazing and helps to put stuff in perspective. Very probabilistic.

 

http://fat-pitch.blogspot.com/2017/09/weekly-market-summary_30.html#more

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That's a write up. Nice effort by the author. Thanks.

[hightower]

I was in residency until 2011 and unfortunately didn't do a lot of buying back then (because I wasn't saving!).  I can't imagine how well I'd be doing if I had been buying since residency (I started residency in 2008).  Knowing what I know now about how these things work I'm sure that next time there is a market downturn I'll be buying like crazy.  Life has a way of teaching everyone lessons.  I'm glad I learned mine at the age of 34 and not 54 or whatever.