It was a few weeks ago when I thought about one of my friends…I hadn’t talked to him in some time.
I messaged him via Facebook to see what was going on.
I asked if we could chat sometime soon and catch up.
He responded that he was swamped at work and really didn’t have any time to talk right now.
Then he sent me the following words:
“Coronavirus is killing me in a different way.”
I immediately knew what he meant…
Panic is in the Air
You see, my friend works for an investment company, handling customer calls.
I knew he had been living through the ups and downs of the stock market (mostly downs) and that things were CRAZY.
I knew this for two reasons:
- I could see how crazy the market had been to my own portfolio (I’ve been down $800k at the worst so far).
- I know the American public’s general financial intelligence (or lack thereof) and thus their tendency to over-react when things get even a bit dicey.
The difference between the two is that I’m a seasoned investor and not prone to panic. In fact, I’m the opposite — trying to see what opportunities there might be in the panic.
That’s not the way the average American rolls, though. I’ve been writing too long not to know he’s currently in full panic mode. The coronavirus and resulting dropping stock market is giving him the right opportunity to do so.
And when he’s panicking, he’s prone to make some terrible investment decisions…like selling at the wrong time and/or for the wrong reasons.
Before we get back to my friend, let’s take a look at what panic-induced selling does to/for an investor…
One of the Worst Investing Mistakes
Wanting to share the wealth of lamenting the average American investor’s habits, I checked in with some top money sites to see what they had to say.
We begin with a couple of the “worst investing decisions” examples cited by CNBC’s panel:
“Individuals who believe ‘this’ stock market correction will be different and try to market time. It’s easy to jump out of the equity market but extremely difficult to have the discipline to get back in.”
“You have clients react emotionally to current market sentiment and make mistakes in terms of getting fearful … or too excited at the wrong times … instead of focusing on what the long-term investment plan for them, their best plan would be. … You counteract [emotion] with facts and history.”
This is exactly what’s happening now. People are forgetting any sort of long-term plan (which is why they would be invested in stocks in the first place) and panic-selling to “protect” themselves from losses.
Good luck trying to pick the exact date when things turn around — which could be at a moment’s notice.
For instance, one little peep from the CDC or WHO that says they think the virus is contained, one announcement that a viable vaccine has been created, or anything close to these examples and we’ll probably see the largest stock market daily gain in history.
And those who pulled out will miss it. There will be no time to get in.
Worse yet, their panic will last for some time since they will be convinced that another drop is right around the corner. So they’ll stay out, all the while the market rises.
Don’t think this could happen? Look back on the 2008/2009 drops and the subsequent run up. Think anyone sold and then stayed out for an extended period, missing much of the run-up? I KNOW they did. I’ve talked to them and even have one I know quite well. More on that later.
Let’s move on. The Motley Fool lists reasons not to sell now including:
Selling after a big drop move has historically been a bad move. It’s hard to weather a big down day in the market, but it happens.
Here’s one consolation: History gives us many examples of nice rebounds that have followed tough days. That happened during the major market crashes in 1929 and 1987, and there were several occasions during the financial crisis in 2008 and 2009 when huge bounces immediately followed massive downward moves.
Panic-selling after the big drop means you’ll miss out on any bounce that comes after, and that can leave you in a very difficult position when trying to decide how to get back into the market.
Here’s how The Simple Dollar addresses it:
In almost every single case, the best thing you can do when the stock market is falling is nothing.
Selling out and waiting until it’s “safe” to get back in is one of the great destroyers of wealth. It may feel like the right decision at the time, but it will almost certainly lead to you having much less money in the end.
And in another post:
If you time things perfectly and hit both the “top” and the “bottom” at the right moment, you might come out ahead – but you won’t come out as ahead as you thought. If you miss either the “top” (for selling) or the “bottom” (for buying), you’re running a healthy risk of losing money on the move.
But the chances of this are very slim:
You’re probably missing the “top” of the market. That’s because you’re not psychic. No one is. If you sell right now, you already missed out on a hefty chunk of the drop.
You’ll probably miss the “bottom” of the market when you buy back in. Again, that’s because you’re not psychic. No one is. Unless you guess perfectly, you’ll probably miss at least some of the rebound from the true bottom.
Next we get the following from Forbes’ list of the seven most common investing mistakes:
Mistake #1: Making Emotional Decisions
It’s true that investing is part science and part art. Because of this, generally speaking, successful investing should contain elements of each. Decisions made purely by emotion can bring disastrous results, just as decisions made only from a computer program can also pose a problem. Emotional decisions are often tainted with biases.
Many of the mistakes made lately are based on an emotion (panic/fear).
Forbes also tells us that investors are often their own worst enemies:
The most recent annual report from DALBAR shows the big, unfortunate trend: We investors collectively tend to buy high and sell low. If that sounds backwards, it is. But it’s reality.
That itchy trigger finger is what gets us in trouble. When markets get shaky, we can’t but help feel the urge to bolt. It’s only natural–literally, our brains are wired this way. But perhaps awareness of this behavior gap phenomenon can inspire discipline.
And a final word from A Wealth of Common Sense:
The Behavior Gap by Carl Richards is one of the best personal finance books I have read. And there is not a single specific investment idea in the entire book. No secret stock picking formula or perfect asset allocation by age and net worth. Instead, this book gives you the proper perspective on your money and financial decisions. What few of us seem to realize is that having the correct perspective on our finances is a prerequisite to being able to implement specific ideas correctly.
When Carl talks about the behavior gap what he is referring to is the difference between investment returns and investor returns. The difference between these two is where our actions and emotions come into play.
In fact, according to Vanguard founder John Bogle, the average equity mutual fund investment gained 173% from 1997 to 2011, but the average equity mutual fund investor earned only 110%. This is because we let our emotions control our investment decisions. This is our behavior gap.
On average, investors shoot themselves in the foot with the moves they make. And the panic-selling caused by the coronavirus is just the latest example of that.
A Real-Life Example
Here’s a painful example from my own family.
I have a close family member who is older than I am. Somewhere in 2011 or so he was “sure” that the market was going to drop again.
He had weathered the drops in 2008 and early 2009 and had seen nice gains since then.
He wanted to “lock in his gains” and told me he was going to sell all his holdings.
I told him I was holding firm and planned to for at least a decade and a half.
Undaunted, he sold them all and went to cash.
Then the market started to rise. This only solidified his belief that it was “getting too high” and now was even more prone to a crash.
Anyone know what the market has done since 2011? He missed out on all that growth.
Today he admits it was a bad mistake and he wishes he’d stayed invested. But he fell into the trap many Americans fall into — they think they know what the market is going to do and they make exactly the wrong move at exactly the wrong time.
Killing My Friend
In case you haven’t guessed it by now, the reason the coronavirus is killing my friend is because he’s spent the past weeks talking to panicked investors and helping them (at their insistence) make bad investment decisions.
Many of the people he’s helping pull out of the market are in their 30’s. So when they should be having a loooooooooong-term investment horizon they are most certainly acting short-term.
My friend is also having to answer non-sensical questions about the possible financial collapse of the stock market, the potential of money being worth nothing, and the like. People are letting their imaginations run wild with what could happen.
I blame Hollywood. They have made disasters seem all too real. After all, shouldn’t we all be concerned that someone like Thanos really exists and half of us will be wiped out? 😉
Come on, people! Pull yourselves together!!!
Maybe This is an Advisor’s Time
When I asked if the cost of a financial advisor was worth it, my answer was generally “no” — at least for the person who educated herself and managed her own finances.
However, for the less-inclined masses, perhaps this is the time when planners are really worth their fees.
In that post I noted how Vanguard had assigned a pretty high value to advisors keeping their clients on the straight path. Their exact words were:
Keeping clients focused on the long term and urging them to stick to a regular investing plan can add up to 1.5%, the report says.
This sort of “stay focused” direction could be especially valuable now when people are panicking. And 1.5% over a long period is pretty substantial.
So perhaps this sort of event is really where advisors are worth more than their cost for those who can’t control themselves.
What We Are Doing
The drop of the stock market has had the opposite effect on me. I’ve been wondering if I should invest more on the dips.
This has caused me to step back and think about what I really want to do from an investing standpoint for the next couple of decades.
After doing that, I’ve come to the following conclusions:
- I already own enough of the market. In fact I might own too much. The vast majority of my wealth is in the market and I don’t see much sense in adding to it. I’m not selling either, but I have more than enough to simply let it ride — which I can afford to do because our income is higher than our expenses even in retirement, so there’s no asset drawdown.
- That said, I have considered a different entry into the market. I generally buy index funds, but lately I’ve been wondering if it’s time to pick up some dividend-focused stocks and start a dividend portfolio. My guess is that with stock values down, dividends are looking pretty good. Anyone have thoughts on this?
- I’d like to invest more in real estate. If only we could see a drop in real estate prices like we’ve seen in the market. Then I’d be ready to pounce.
- Buying a business is a possibility. My son-in-law/daughter and/or my son might be interested in running something and I could participate as the money man. I like the idea of buying/owning a small business like I did with Rockstar Finance, though I don’t want to run it, of course. That would cramp my retirement style.
- Private loans are also an option. I could put more money into them. The ones I have are earning 10%, so why not?
Anyway, those are the reasons we’re not buying more (at least not index funds). However, I did put $10k into my SEP IRA as part of completing my taxes this year, but that’s it.
That said, if the market drops even more, I might reconsider buying more index funds. I just can’t resist a bargain! 😉
What Others Should Do
Your life and your investments are yours. I don’t know your goals or financial situation. And I’m not an investment advisor. So I really can’t tell you what you should do.
But I can tell you what I have done and would do.
When I’ve had a very long horizon, I’ve always invested more, even during a market drop. I might even say especially during a market drop. That’s what I did in 2009 and it’s worked out well. And that’s what I’d do today if I was in my 30s or 40s.
Besides wondering about investments, there are a couple practical things you can do to really protect yourself:
- Wash your hands. It’s funny how something we all should have learned as toddlers can help us in this situation. And yet, we didn’t learn it. This is why the cruise we were recently on had to have the staff serve us — the guest couldn’t be counted on to wash their hands (this has happened on past cruises too). Separately, I can’t tell you the times I’ve been in a rest room, seen someone come out of a stall, and head out the door without washing his hands. And we know that when guys are in stalls, they are doing some serious business. Come on, men, wash those hands.
- Cover your mouth (with something besides your hands). Experts recommend sneezing/coughing into a tissue or your arm/elbow area so you don’t transmit germs touching things. And yet I see people all over (gym, grocery store, church, etc.) coughing and sneezing without any sort of covering at all. People! This is another skill we all should have learned when we were 5. Are you really so inconsiderate of others that you can’t cover your mouth and instead choose to spread whatever disease you have?
For more info on these two suggestions, check out what the CDC recommends.
And while you’re washing your hands and covering your mouth, repeat the line, “I’m in the market for the long-term, I’m in the market for the long-term, I’m in the market for the long-term…” Maybe that will help you resist pulling the plug when you should stand firm.
BTW, before I close I just HAVE to note that incidences like the recent stock market crash are why you need margins of safety in retirement. All those who retired with assets barely meeting expenses and counting on an ever-increasing market are in a world of hurt if they have to make withdrawals for living expenses.
Anyway, that’s my take on the current situation with a unique perspective from a friend in the trenches.
What are you doing investment-wise during these turbulent times?
Dale Roberts says
This will be a good reality check for those on that FIRE plan. And mostly an opportunity to help one discover their risk tolerance level.
If one has the time horizon the way to shorten the portfolio recovery time is to add new monies while the markets are down. History says this is an incredible opportunity.
But you need the time horizon and the risk tolerance level.
Debbie says
Was thinking the same thing about this being the true test of people on FIRE plan. Most have not been through this before. Easy to think you know what you will do but very different when daily you keep seeing it drop. Having been through this several times before, I know that I just keep sticking to my plan. Though was delighted last Friday with the numbers as I automatically invested in my TSP and brokerage accounts. Tempted to get into my Emergency Fund to buy more in my investment account but that is my ego attempting to time the market. Always a bad choice so there the money sits in my savings account doing what it is supposed to do. Being there for an emergency. Turn off the news and stick to your plan and you too will get through this happier on the other side.
Benny Squirrel @ The Wine Squirrels says
Let’s not forget the Fidelity study from 2014 stating that the best investors were either dead or forgot they had accounts! The human factor, when it makes us deviate from a fact-based rational investing plan, almost assuredly causes losses.
I have had the same thoughts about dividend investing as you had above. I haven’t changed anything at this time, but I would be interested to hear more thoughts. For now I continue to plow money into the market (I’m 39), especially since I’ve pretty much been buying stocks at higher and higher prices for two straight years now
Mike H says
I’ve been buying dividend paying stocks steadily. I acknowledge that when the next two quarters of earnings reports come out we could fall far lower. But we won’t know the bottom until from hindsight when enough time has passed, just like in 2009.
And I was a doomer type in 08-09 and didn’t get serious about investing until 2014 but still did alright. Now I’m taking the philosophy of being an investor for life. That means continuing to invest throughout this year. When is the best time to invest? When you have the money. It’s that simple.
That being said I was also down something like $1M at one point. I tried not to think about it too much as it was leading me into some dark places.
-Mike
Mark says
These are the real life examples I enjoy reading about.
Apex says
I think many here might find an exploratory dividend stock post valuable as a means to consider another source of passive income. Comments from the community of people who have been doing this giving details on what they are doing and what kind of criteria they use to select dividend stocks would be very interesting. Things like weighing yield vs company strength vs long term dividend security and growth etc.
ESI says
I have a friend who might be able to help…stay tuned.
JeffB MI20 says
The issue with dividend stocks is when they suspend the dividend like Boeing is doing.
ESI says
That’s why you can’t look at just one or two measures (like dividend yield). You need to look at a handful of metrics.
A look at Boeing’s EPS alone is enough to keep you from buying it…
Ben says
I agree with everything you wrote. Nice article, as always. I’m letting my existing positions ride and have been building a cash reserve for this type of downturn. I think instead of trying to time the market, I’ll buy in small chunks over the next several months in companies that are solid, have a strong leadership team and I want to hold long term. As far as real estate and dividends, I like REITs. They took a big hit which means their yield will be really high as their price recovers.
whiskey says
I don’t remember who wrote this but I have it stuck to my spreadsheet and have reviewed it a LOT over the last few weeks:
A Market Crash On A Card
1-Markets avg one -14% annual decline
2-Daily dips of 2% or more occur about 5x a year
3-Every 5 yrs or so markets decline 30% +
4-Markets rise almost 3 out of 4 yrs
5-Over long periods, markets significantly beat inflation
6-Selling low and buying high never works
7-Turn off the TV, get off the internet, don’t check your accounts
8-NEVER make important decisions based on emotion
I’ve lost a small chunk this go around. Yes it absolutely hurts. I’ll keep reviewing the market and I still have $$ ready to deploy. I’ll probably hold cash at a higher % but spreading it out over the coming days will help when it falls again. Maybe Ill be able to capture some gains. Who knows really…
JeffB MI20 says
Values will come back, and if we only have a 15% decline we will all be fine.
Steveark says
Being banker for one of your kids, or far worse for a kid-in-law, sounds much worse than getting ill with a pernicious virus.
ESI says
Why is that?
Tkbuz says
I made the opposite mistake of selling when the market tanked, I started buying too soon. I was enticed by dropping oil prices so bought a significant stake of an energy etf. Now it is about 40% lower…. as for dividend stocks, my philosophy is to generally not change my investing approach just because the markets changed. Before the drop I was all in on tech growth stocks, and I feel that this an even better strategy now with all of the “social distancing”. I will pick up more strong and disruptive tech names over the coming weeks, and pretty sure it will work out very well over the long haul.
Vigaro says
I’m not 100% sure what he means, but yeah, one can possibly recover from the virus, experiencing moderate symptoms, unless substantially vulnerable on other health fronts. You could die, of course. If you’ve ever loved or trusted a family member, however, then venture into a financial deal . . . should that go south, you will lose a portion of your soul for LIFE. You may WANT to die, or do something worse. Feelings of betrayal, how could you and so on become profound. Especially painful with an older relative, I found out (hard way), but with the young, they’re naturally inclined to just shrug their shoulders over it, not even try to repay, thinking what’s YOUR problem, rich guy! Basically put their own narrow interests before yours or the collective interest. Common sense, old news to most of us, but then it’s family . . . the tendency to bend, think this could be fine, improve all our lives, and you love them. And you make think you know them well, reasonably or even perfectly well. When it comes to money, though, I guarantee you, under duress, the potential toxicity and chaos won’t feel like just another bad investment. If that’s what he means, yeah, stay the hell away. I’d choose a few weeks with the virus over that, any day of the week.
Vigaro says
*MAY (make)
Vigaro says
Then again, I’m prone to resentment and apparently lack ’emotional’ intelligence’ (lol). All those dark feelings have become old news themselves, although our spiritual umbilical cord of sorts remains permanently severed. Don’t really know the investment scenario in this case, whether ponying up 2k, 20k, 200k, or the depth of contract. I’d be inclined to say, sounds cool kids, here’s 15k each, have fun, now go f off (lol). It would sound funny coming from me, but the instincts are rock-solid: no strings, no further promises, just kiss it goodbye and wish them luck. Anyone can gift out 15k to anyone without any IRS paperwork (gift tax). Still, I believe I would never do that. Great chance for their project to succeed, you consulting, but then everyone knows the failure rates, or should.
George says
Man crazy that people still sell like this – especially given how volatile things are, they aren’t going to time it well. The only exception I can see are in fact retirees or day traders, people who really have the time and energy to monitor the market all day.
I’m riding it out and bought the dip (not heavily though, but hey next week is an all new week). I bought index but I also put some ‘play money’ at some individual stocks, just for fun. Some very good bargains.
JayCeezy says
“I blame Hollywood. They have made disasters seem all too real. After all, shouldn’t we all be concerned that someone like Thanos really exists and half of us will be wiped out? 😉”
Am I the only one that gets it, that Thanos is the good guy?😉
Commenter Debbie has the most sensible and actionable advice, “(t)urn off the news and stick to your plan and you too will get through this happier on the other side.”
Debbie in Texas says
I have been sitting on some cash for years waiting for a dip so I could buy some ETF’s. So I did. I bought some on Feb 26, 27, and 28, and Mar 3, 4, 9, and 12. So some of that new money went WAY down, because one never knows where is the final bottom. But I’m OK with it. I didn’t spend all my cash, and I’m still working.
Jeff says
“I’m in the market for the long term. I’m in the market for the long term.” 👍
Great timing for your article. We’ve been down $1.1M recently. While some angst over it, glad we have our cash positions to weather this storm. We likewise live off the income produced from one main account and don’t draw down from the asset base. We stay 1 year ahead (2020 expenses are being covered by income from 2019).
We too have been thinking about a dividend account portfolio. Maybe taking a CD coming due and creating this portfolio. Maybe take $200k and purchase like 8 to 10 key dividend stocks. Would like to hear more from others perspective. We’ve been an index focused family for 30 years and have seen the highs and lows from this roller coaster ride. Stay the course!
Our daughter and son in law and our son and daughter in law all ages below 30 are also staying the course. Great buys for their 401k’s the last few weeks. Son is looking to take advantage of lower interest rates and refi their mortgage.
BTW, I recently retired at age 57 (CPA, finance executive in healthcare IT) and my wife recently retired at age 55, registered nurse). We are now taking care of our small grandchildren for a few years for our daughter and son in law while they work during the week. Granddaughter is 3 and grandson is 9 months old. Loving it!!!
Xrayvsn says
Although it seems like the stock market has dropped a lot and everything seems like a fire sale it really has only brought us down to levels seen less than 2 yrs ago. (I know because the majority of my brokerage account was bought prior to may 2017 and I still can’t tax lox harvest any of it).
That being said there are some sectors that are getting hammered (oil and travel) and I do think there could be a long term play here. I went in on the vanguard index sector fund for energy (VDE) which is at a historic low (this is the lowest price ever since it was first introduced in 2004). The dividend yield is over 7%. I feel oil will eventually rebound and this might look really nice in a few years. I know of colleagues who are buying cruise line stock (I personally haven’t because these companies appear to be highly leveraged and who knows what a disruption in revenue that could go on for quite some time will do). Airlines are probably less risky as people will return to flying faster than cruising given all the negative press of the latter.
Marco says
Spot on post given the emotions running rampant for many right now. No matter how disciplined an investor believes they are, times like these are the true proving grounds.
Also enjoyed going back and reading your 2017 post on margins of safety. Multiple layers of protection and income streams, while can be seen as being overly conservative by some, is key to security and more importantly peace of mind, in my opinion. See many in the FIRE community skipping the 6-12 month emergency fund for life’s curveballs and times such as these…will be interesting to see how they react through the first major market downturn they may have been faced with.
Paper Tiger (aka MI-27) says
OK, (deep breath), I guess I am going to be the guinea pig for the guy who got a healthy amount out of the market (for the first time in 35+ years of investing) and now has to create a plan of what to invest in and when to invest some of that money back into the market.
I have closely followed this site for 3 years and have commented frequently. I was the Millionaire 27 interview conducted in November 2017. I am now 62 and my portfolio has tilted heavily toward equity index funds. Until recently, it was about 85% in equity funds. I am retired, (2015) and my wife still works. I am a partner in a healthcare startup that has survived for 5 years and making strides to become a successful business. My main activity has been raising money and keeping the company capitalized as it developed so my personal involvement has only been part-time for now.
After the run-up in stocks in 2019 and a 30% gain in the S&P, I have felt a strong pull to reset my asset allocation to something more appropriate for my age and risk tolerance. The words, “when you have won the game, stop playing” kept rolling around in my head and I’ve just felt it was time to put more bonds in the portfolio. The market peaked on 2/19/20 and my investible assets had swelled to over 8M and our net worth hit 9.9M (didn’t quite make deca-millionaire). On Friday, February 21 I attended a free retirement seminar at my local public library. It wasn’t anything special but the speaker was very good. For some reason, call it divine intervention, I woke up the next morning and moved 3M from 3- 401Ks from equity to index bond funds. On Monday, February 24, the big slide in the markets began and you know where we are today.
I did not mean to intentionally time the market. I meant to re-balance my portfolio to something I felt was a bit more in line with where I am in my life. As of March, 7 (I haven’t looked since) we were 55% in Cash/CDs, 14% in Bonds, REITs, and Angel, (my company mostly) and 31% in Equities.
I certainly did not foresee the magnitude of the drop in the market due to Corona and Oil, but now that we are where we are, I find myself needing to develop a plan to invest some of the bond funds back into the market because prices have just become too attractive. I don’t believe we are at the bottom because there are still too many unknowns. I think we need to see the extent of the Coronavirus in the US and we need to see more earnings estimates for the next two quarters and total year projections. This gives me a little time to get more data and get my plan together to leg back into the market and catch some of the future upside.
Since I have always been a “buy and hold” investor, this is completely new territory for me. We will see how well I do with getting the money back into the market and how that ultimately impacts our portfolio. Maybe in a year or so, I can write a guest post on how well we did?
ESI says
I’d love to hear how it turns out…
Paper Tiger (aka MI-27) says
Sorry, I messed up the asset allocation I mentioned as of 3/7/20. It should read:
Bonds 42%
Cash/CDs 13%
PE, REITS, Angel 14%
Equities 31%
Marco says
Given your stage of life and great net worth (congratulations by the way!), any consideration to just maintaining your current allocation?
Paper Tiger (aka MI-27) says
Marco, you make a great point and absolutely something to seriously consider. If my wife didn’t plan to work another 6 years and would join me in retirement now, I think we would stand pat on the current allocation. However, I keep thinking there is some money to be made without taking on too much risk, once we form a bottom.
For example, I just came back from the grocery store this morning. It was absolutely nuts. Not only was toilet paper sold out but so were soups, pasta, rice cakes, hand sanitizer, etc. People were incredibly rude and really are panicked and that tells me the market still has a ways to go before we find the bottom. You can tell everyone just wants to hunker down and so the consumer is going to grind to a halt for a while which is definitely going to affect growth and earnings in the short term.
With that being said, I think we could reach levels akin to 2008 before this is all over and drop 35-40% from the highs we made just a couple of weeks ago. This obviously creates some opportunities to leg back in and catch some of the upside and I want to continue to grow our portfolio and hopefully, create some generational wealth to help our family in the future.
My current thinking is to eventually put back half of what I moved to bonds back into equities, or ~1.5M. This would only take the equities portion of our portfolio back to ~50% with cash and bonds making up about 35% and the rest in PE funds and REITs. It would still be a fairly conservative allocation but allow us to buy some funds or stocks at significantly reduced values that should do very well over the long term without taking on too much unnecessary risk.
We will see how it all plays out but this is my current thinking.
Marco says
Thank you for your reply, Paper Tiger. Always interested in hearing others’ thoughts on asset allocation at various stages of their journey – appreciate you sharing your thoughts and look forward to hearing the future follow-up.
getagrip says
I did something similar at the beginning of this year based on my current plan and time horizon. The quote going through my head was “Hogs go to market, but pigs get slaughtered” and I was feeling a bit like a greedy pig. So I went from an 80/20 mix to a 65/35 mix in late January, picking the 35% because that amount guarantees my current plan plus some buffer just in case. While I figured the market would eventually have a downturn, I did the adjustment more to support my goals, which means I’ve somewhat won in that for my situation unless something serious happens personally, I won’t ever “have” to touch the 65% equity side. Had the markets continued to rise I would have just kept skimming to maintain my ratio creating an increasing buffer. But now, I’m also feeling that I could use this as a buying opportunity with the buffer I included provided I don’t drop below the amount I planned. It’s a tough call, I don’t like having money in the market I want to be spending in five to ten years, but it’s hard not to want to get in on the gains when you’ve got some buffer to play with.
MI173 says
This this this! Maybe it was a bit of luck, but I kind of felt like the markets were a bit overheated in Jan/Feb, so I moved allocation form 80-20 down to about 65% stocks like you.
Over the last 3-5 days, I’ve been bringing that allocation back the other way, buying all high quality blue chips with strong dividends and balance sheets. The companies that’ll bounce back the easiest from all this. So as of today I’ve gone to about 90-10 allocation.
Maybe it’s a little too aggressive, sure, but I have a cash reserve, I make more than I spend every month, and I’m not touching the money for at least 6 years at the earliest. Plus those companies should help me with the retirement income – reinvest those dividends the next 5-7 years, then flip it to income upon retirement.
Greedy when others are fearful – it’s really hard to do that in this market…
Desertman says
Having retired in December, 2007, I couldn’t have picked a worse time to be maxing out my 403(b). I was 62 at the time and only worked for a CPA firm during tax season. Along with Social Security that covered our living expenses. In about 2014 I happened upon Seeking Alpha and their dividend growth investing philosophy. I am totally sold on investing with dividends the main focus. Besides investing in solid companies they must pay at minimum an annual dividend of 6-8%. As long as the dividend continues at that rate I (almost) don’t worry about the price of the stock. If the company fundamentals deteriorate or the dividend is cut I sell it and move on. The added bonus to dividend focused companies is their habit of raising their dividends. And, as the return grows it tends to drag the stock price along upward.
MI-169 says
What a ride! My investment portfolio is 99% equities, 1% cash. I was down over $1.6M from peak to low on 3/12/20. The only thing I’ve done is some tax loss harvesting to rebalance my slice-and-dice allocation.
I am not too keen on dividend focused stocks. I don’t really need the cash flow, a pension and dividends my index funds generate cover my expenses. I would rather have capital gains, realized at my time table, than annual dividends to postpone taxation. I’m also not too keen on picking individual stocks, although there are some dividend based funds.
Desertman says
Fortunately a number of my dividend stocks have returned a very nice capital gain. Unlike you I need the dividends. BTW, what is this “pension” you speak of? Is that something you get for doing nothing? Never lucky enough to work for an employer that had such a thing.
MI-169 says
Desertman, I suppose that if the company where I worked for 34 years didn’t have a pension plan, my compensation would have been larger to offset that benefit. Later on the pension was replaced with extra company contributions to the 401k plan, since I was grandfathered into the old plan, I didn’t get the extra contributions, although most of my pension was frozen the last few years of my employment. So I wouldn’t exactly characterise my pension as “something you get for doing nothing”.
Many government agencies still have pension plans and known for paying their employees less than industry averages. I bet these government employees will take issue with “something you get for doing nothing” also.
Oh, I am also entitled to get Social Security, is this also “something you get for doing nothing?”
Desertman says
I don’t recall ever reading a prospective where the employees seemed underpaid because of their pensions. Also, every study ever done comparing government workers pay with the private sector indicate they are paid anywhere from 20-40% more than an employee in the private sector for a comparable job. Don’t believe you will find many non-government employees agreeing with you that government employees are underpaid. Also, Social Security was paid for by the recipients, not a gift from the government. You’re receiving a nice pension, good for you. You win the game.
Lonelle says
I totally agree. I am a state employee and we have had to ‘go bid’ our positions against non-state/private positions that do the same job, and our salaries are always about 35-40% lower. We receive lower wages but do receive a pension (that we pay into). We stay because we like our jobs and love helping students succeed into meaningful careers. Maybe ‘government’ jobs are different than ‘state’ jobs.
bob r says
Not so that “every study” finds government workers overpaid. Probably just the studies that your news source reports to you, because it suits their point of view. I’m a chemical engineer, and our trade association (AIChE) puts out an “industry wide” salary survey each year (including govt. chemies) and the government ones end up on the low side every time. My own salary (as a govt engineer) is easily 40% to 60% lower that the same-age chemies I graduated with many years ago. (The disparity grows over the years.) Yes I get a pension (about $40k/yr for having done 37 years work), but they got, say 37 x 25% (lowballing it) = 9-ish times more income over our whole careers. I expect they saved enough to more than cover my “pay for doing nothing” and they are in fact ahead of me, moneywise. All I can say is, I did good work, and they did profitable work…
Vigaro says
I’m a little more simple about it. If you’ve got a pension, I’m jealous! Congratulations, honestly. Papa had one, never touched principal, zero drawdowns. I’ve occasionally dreamed about some great state or government job out there and all those benefits, but then you never know, really comes down to your coworkers and boss, plus I don’t really have the resume. My private-sector job has awesome perks and benefits, however; living wages, nice match dollar-for-dollar (up to 5%, pretty good), one good option (index fund), and then they don’t test for THC (lol). Very bad in other ways, but then no situation or other person is perfect, any more than I am. Currently laid off (you know, that virus); pretty spooky, have to file for unemployment, see what happens next. I’ll probably never know what it means to be furloughed, though, but it doesn’t sound any more fun.
Vigaro says
Idiotic me . . . same damn thing, just another euphemism, like perpetrator for scumbag criminal, recidivist for career scumbag criminal that should be shot or electrocuted on general principles, etc. So furloughed = laid off, I get it . . . wasn’t trying to play cute, honestly didn’t know. Thanks for googling THAT finally, jack*ass! {lol–just talking to myself again}
Vigaro says
Okay, ‘unstable’ genius, try your luck again! Voices differ but now it seems to indicate an unusually fancy, pretty name for the occasional difference. Life IS better there, maybe, considering all the usual caveats. Gf cousin’s got in, a career state employee, also a real trainwreck. Little fender bender, opioid prescription, last known to be taking it up the yin yang and elsewhere for heroin, post-divorce, life assets and all the rest. Yes, the American Dream drives fast in reverse as well. Put another way, a bit more optimistically, there’s hope for anybody! And she’s not worrying about healthcare, poor thing. Must have been the resume and interview, one sunny day long forgotten.
Vigaro says
*GF’S cousin . . . sheesh. Drug test! Used to think 12 step programs were for lazy sissies without discipline. Now I’m not so sure, for real. Of course, I still blame the prescribing physician class, the medical and pharmaceutical industries. Cooks and pushers and lowlifes to me in their own way, I’d argue. I mean really, they only manufactured, imported and prescribed them, projecting their faux best medical advice upon patients with pain issues, leading to tens then thousands of reasonably good Americans dying, hopelessly. In this case, yeah, I tend to blame the ‘messengers’ most of all, though I get the cash appeal. Hell, my brothers dealt their way through college the OLD way! I’m the idiot, paying off 20k in loans like a good soldier, 15 years from retirement. What a country, what a life . . . RIP to all those blessed lost souls, it really didn’t have to happen.
JeffB MI20 says
What is the point in having a pension if you never touch it? Was it able to be passed down?
Vigaro says
Sorry, just gaps or abbreviations of information. Father’s pension and SS gambit either terminated at death, weren’t transferred or simply ignored. No further IRAs, a relatively bare bone approach considering, once again, his awesome pension and health coverage. The gorilla in the room was his formerly million dollar brokerage account, reduced to 800k during the earliest phases of the Great Recession–that’s my reference to principal, two actively-managed loaded funds that spit out significant interest through the constant reinvestment, etc. So while he lived 27 years off of his pension and a bit of SS alone, the brokerage just grew and grew as we all know, despite the heavy ‘load’ and slight nonsense. The problem is he kept on talking about it, and my older brothers noticed. The oldest would threaten suicide, crisis after crisis to get substantial written checks out of him, taken out of leftover pension / SS assets, or skimmed off that substantial interest, same as when father purchased another car, heat pump, or something else for himself. Meanwhile, he middle brother was a bit more crafty; he talked his emerging business up and used false kid issues, suggest a substantial loan or something. So instead of 2k, 5k cash gift requests, for the greater haul of 10, 20, or 40k, he’d make elaborate promises of repayment, even a one-time promissory note. So for approximately 90k, so dubiously granted to my middle brother during father’s 27-year retirement, records finally indicated under force of law (six counts against) that my brother made precisely one loan installment for the whopping total of $400, and not one penny more. When the estate process finally entered complete hell, the real war was over simply equal distribution in three parts of the untouched principal and accumulated interest of that brokerage account, then proceeds related to the sale of his home, per his will as writ. A few back taxes related to lots sold in prior years chipped it down a little further. It took me 13k in legal representation to accomplish that simple and fair distribution as a non-executor with significantly more stable moral interests, I daresay. Papa did well, and generally lived well, but created significant nightmares by ever even talking about it, which is why I take stealth wealth quite seriously and constantly advocate for it, including limited or no cash gifts, with no strings attached, only if you must. Victor Frankenstein learned the hard way, and so did father. The damage done to all of us was profound, thankfully 12 years or so removed from my current state of existence.
Vigaro says
*Meanwhile, THE middle brother . . . between Google’s pacing and my own bad self, typos and grammar constantly plague me in a rush for expression. The major points are hopefully very clear. After something like victory in dubious battle, my middle brother wanted to kill me, stalking my high school reunion to which I was invited, for instance, even though I never graduated. Friends on Facebook informed me of that, since I knew better than to show. Despite being quietly badass with misanthropic tendencies, my partner and I spent approximately ten years with a Mossberg usually within arm’s reach, chair propped against the door when home, etc. Beyond that, not too much of a problem. Taught the gf how to hold it, that if you hear breaking glass, leap out the closest window even if you get cut or fear injury, then run like hell as if you’re life depended upon it. He had other interests though, stalking others, leading up to stints in county. Thought he was headed for the big house, but he expired two years ago, technically homeless i.e. marriage, connections, and assets long since gone. Drank himself to death in his car, outside a public library. I still cried; we used to be very close. Some people do change, usually for the worse.
Vigaro says
Rotting apples and their seeds . . . the tree was generally fine. I’m in touch with two of his three offspring on Facebook and elsewhere now; the third, still too young to understand why we stayed the hell away for ten years . . . it’s not like the police weren’t involved, multiple times. There are some ‘tertiary’ issues, mostly emotional. But I can relate. I was blind once, now I can see . . . or at least like to think so. More wisdom and compassion, understanding with them; no hard truths or condescension when I can help it. Let the river flow, it’s moving along anyway, I say. His wife was pretty special, too; no love lost there. We all do what we can. What other choice is there?
Vigaro says
Long story short, there was no surviving spouse (single, divorced for 30 years, no further obligation), then no dependent children (all well into our 30’s or 40’s, able-bodied) to make any sort of qualifying claim, were that even allowed. Still great for him, clearly, through his retirement.
The Wealthy Weasle says
Couple of thoughts…
I like the idea of dividend stocks, in general, at my age (59). I tend to use VNOV for that purpose in my portfolio. I think you can do better with individual stocks, but am too busy to spend the research time required.
Regarding real estate, I am taking a similar approach with VNQ. Probably not as lucrative as picking individual properties and running them, but zero hassle and completely liquid in small increments.
I will admit to some selling last week. I sold $10k in bonds that probably can’t go much higher, in order to create some cash to play in the oil market.
I love the 3x leveraged ETF pair, DWT and UWT. They (mostly) move at 3 x the daily percentage price change of west Texas crude, either up or down, depending which one you pick.
When oil either gets hammered, or bid up to fluffy levels over a supply scare, these funds can produce casino style gains. Just bet the other way, and wait it out. Not really an investing strategy, but better odds than roulette…
John Wedding says
I made the same mistake with my asset allocation a decade ago. Too many “low-risk” investments. I started buying more equities a few years ago. I might get one more stock market boom before I reach retirement age.
CB says
Interesting times and so many people who thought they have enough for retirement will be horrified at their portfolio now. We are in a good place with cash, CDs, mutual funds and individual stocks. I am fortunate that we have been selling securities that weren’t providing dividends during the past 2 years, so cash is king. Not sure about re- investing yet since the market is so unpredictable. My husband did buy 1 individual stock at a “low” and then turned around and sold for a profit same day but I don’t like to do that. Plus after the weekend the same “low” stock plummeted an additional $8.00, then rebounded a bit. Not fun investing and won’t be repeated in our household.
Regarding dividend stocks or EFTS, many companies in 2008 recession drastically reduced or cut their dividends to zero, so we are watching the market for awhile. I’m a big believer of dividends but cautious for awhile. Stay healthy everyone!!
JeffB MI20 says
That is speculating, not investing when you basically day trade.
Reverse The Crush says
Love this article! It’s something that the masses need to hear and what the media should be reporting. Similar to you, this type of market makes me feel the opposite of the market – I see opportunity. And I normally don’t like financial advisers either, because I have worked in the industry, and know most are just product pushers that don’t even practice what they preach. But I do have a friend that is an adviser. He has been telling his clients to stay invested, so maybe there is a benefit. Otherwise, I’m glad we’re finally talking about washing out hands. I am most definitely staying invested. Thanks for sharing.
Financial Samurai says
Good idea on building a dividend stock portfolio and this time. Just know that these companies may be cutting their dividend payout ratio as well to preserve cash.
I don’t think real estate has dipped yet. In fact, I believe real estate has probably stayed flat or appreciated during this time. But if S&P 500 goes down by more than 30% and stays there for more than a couple months, I think real estate is finally going to crack.
I’ve got about 20 to 25% of my net worth in equities and it hurts a lot. Then when I saw my muni bonds start to finally lose money that was when it dawned on me I love this could be really bad.
But I’m keeping the faith and I’m buying and I’m thinking about models for proper entry points.
GL!
Sam
Rick says
I am also looking at dividend stocks, with prices pretty low right now, pushing the relative payout percentage pretty high.
When I retired last year I made sure we had about five years of cash. An advisor suggested it might be too much, but I guess my experience and my gut trumps his youthful goals. Right now it looks like our net worth is moving at about 55% of the equity markets, but the result is still hard to watch sometimes—we are skiing in the “blues” and not in the “black diamonds.” Maybe that’s a bad analogy since out governor just shut down the ski slopes.
JeffB MI20 says
The % of dividend due to the stock price is just an illusion, especially when the company will most likely cut the dividend if sales plummet. They need to pay the employees before they pay a dividend.
117 says
Yeah it’s hard to time the market but heck we’re always looking for ‘deals’ right? Fortunately I have been in a strong cash position for about a year and now I see great opportunities coming. When the market dropped 10% I bought some VOO. 20% down and bought some more. Still Looking for more. That being said I don’t think the market is at a low but I’m bullish for the long term. Damn it’s hard to fight emotions and fear when you buy low only to see the market drop 10% in a day only to come back that much the next day! Gulp. Gotta stick with the program long term! I’m not touching my ‘rainy day funds’.
Millionaire 73 says
Thanks for the article ESI and was looking forward to reading some of the ESI Millionaire authors and other comments about the last few weeks.
Will share my situation but have a lot of investment experience and be VERY careful about very high paying dividend stocks (i.e chasing yield) as they often are the sign of a poor fundamental company. To be honest smart companies will use their cash not on buybacks and dividends and hunkering down and looking to buy companies as my prediction is we have a ways to go on the downside. My take is market pain “could” be over in a few weeks…….but deep recession one would think. No one is spending…..big industry decimated (travel, oil), lots of cheap credit flimsy business will go bankrupt which will crush some banks.
Read somewhere “If you are upset about major stock market losses realize you are extremely lucky and well off to start with” given that that 50% of American are living pay check to pay check and many hourly workers who will have no work to go to this month. My wife and I plan to be very generous with our charitable trust this year as a lot of folks are going to need help.
If anyone is curious my NetWorth is 47% in two true HEDGED funds that have about 15% market exposure (which means if the S&P falls 10% they should fall 1.5% although that can vary), 21% Long Equity (managed by two other hedge funds that are long only so typically will slightly beat the market), 28% cash at 1.7% and 1 year CD’s at 2.45-2.55%, 4% in assets (car/house). So long story short down 6.1% but that is $669K (which is crazy) but looking in another light just brings me back where I was in May 2019 investment wise and Oct 2019 NW wise so all in all been fortune but also would not surprise me to see 20%-25% more downside in the market (which my exposure is about 30%).
At times like this the buy and hold that is easy when the markets are going up will not be easy but most readers of this site are in a good shape financially and hopefully you use some of that to help folks less fortunate as in a few months when/if (hope) things start to get back to what will be the “new normal” there will be a lot of struggling people out there.
M73
https://esimoney.com/millionaire-interview-73/
Justin says
Interested on opinions here. Say you have $5K to either put in the market or pay towards your home mortgage? (Current situation) Home should be paid off in around 3-4 years at current rate. This would get us about 3-4 months closer to being paid off. (This was the original plan)
However, with the current market situation, it’s very tempting to throw that money into an IRA in VTSAX or similar.
Interested in advice from other folks here. 31, married, 3 kids, no debt other than mortgage
Mark says
my 2 cents, Justin
put it in VTSAX – almost 2% dividend or VNQ (real esate) yield almost 5% or O (real estate) yield almost 4%. This way you are getting yield equal to or greater than 3.5% interest charge on your home, so that’s a wash and you have greater long term potential upside with appreciation. Plus, you can always liquidate and get the cash
Your ho with only 3-4 years left is nearly paid off and paying off faster is not going to make a difference. Plus if you are in cash crunch its harder to get that liquidity if you needed it, unless you cash out refi or sell. Thus, will cost you more anyways.
MI173 says
Justin – Sounds like you’re in a great situation to be 3-4 years from paying off your mortgage at such a young age. Congratulations on that!
If I were in your shoes, assuming you have a solid 4-6 month emergency fund still on hand, I’d probably look at investing that. Can you contribute it to an IRA, or even better, a Roth? Love strong dividend companies right now, so I’m another vote for something like VTSAX.
You’re already on track to be debt free in 3-4 years, and I think the likelihood of good returns over a 4 year horizon in the market is very high.
JeffB MI20 says
Max out all retirement options before paying down the mortgage, but have the 4-6 months EF and pay off debt first. Life is uncertain, why have the debt.
MI173 says
Also, there are a number of ways to be opportunistic in a bear market, especially if you have some cash on the sidelines. Yesterday, I converted my entire IRA to a Roth. It was down 35% from its peak a month ago. I viewed this as an indirect way to invest in the dip. I”ll pay a $70k tax bill this year on the conversion, sure. But now, every dollar of growth from now on is tax free. Plus, I can now do backdoor Roth contributions each year, by contributing to an IRA and converting to a Roth each year.
So while many are panicking, I just massively reduced my tax bill in retirement, at a time when I’m still in my prime earning years.
So your advice is sound – if you have a long horizon, now is the time to really look at what things you can do to take advantage of the bear market. I think I’ve done just that.
JeffB MI20 says
I don’t care what my IRA has dropped to, we are still in a pretty high income bracket. I have time to convert once the wife retires and before her pension kicks in. Better to convert with zero earned income than being in a high bracket IMO.
Vigaro says
I’m DCA all the way, babe, happy to keep the usual pace, even happier when the DJIA was 18,900, confident in future rallies. If the whole county bankrupts or an asteroid strikes, who cares about investments or life anyway. Nevertheless, the earth HAS shifted under my feet. For instance, I’m pumping 7k annually into a Traditional IRA (catch-up rate), usually via $500 a month then two ‘bonus’ checks. By my lights or call, those bonuses . . . I set my budget by two checks a month, one for all essentials, the other mostly investments, but with 52 weeks in a year, 26 paychecks come in, not 24 (budget basis). So every six months or so, depending on the calendar, I declare a bonus, to fill in the IRA then some fun money. A little candy always, if you know what I mean, meanwhile taking care of business. And then a holiday bonus on top of all that, usually just for saving, buffering, with a little more screwing around, and of course holiday expenses. Anyway, my crappy employer just laid everyone off till this virus business clears. They’ll probably reopen soon, but I’m pissed they broke their promises before the ink was even dry. It’s all that federal and state money floating around, the stimulus. What a pigfest, always more than necessary, but I get why everyone, and I mean EVERYONE, is at least a little scared. Me too. Where I work, if this goes on and on, they could fail, turning this downturn into another nightmare similar to 2008, or worse. They make plenty of money off our backs, millions annually, but admin and mgmt are kind of shaky, always. So with a couple thousand parked in savings, some of it for the next IRA deposit, I currently plan to leave it there, for now, just a few more weeks. In case things get worse, then much worse, the unemployment money doesn’t come, fed check never appears, a lay off turns to firing or their own bankruptcy. The master plan remains, of course, just a little more hesitant, in short. The IRA can be filled in at the last minute should the rest go well, so yeah, could miss a good portion of some great action, purchasing cheaper shares, waiting. The real problem is having just four months’ worth of emergency funds. Some are happy with 3-6, 8 months, or 12. I remember an article regarding this financial planning chick, lost her job during the Great Recession; it took her 13 months. She was a professional, very sound, so a picky, difficult guy like me could really use about two years’ worth (lol). High-yield savings, probably the best way to hold that, but I definitely feel short at 4 months and D-Day feels like now, or possibly soon forthcoming, so sleep has gotten a little sketchy.