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Saturday, March 25, 2017

The Sky Isn’t Falling…Yet

Posted by Tim Stobbs on August 10, 2011

As this latest slide  in the markets I keep reminding myself of what happened in 2008.  I got nervous and I was really pushing the limits of my comfort zone with the losses in my equity part of my portfolio.  Yet I still recall the one real benefit of 2008: I bought all the way down and made a nice profit in 2009 from it.

So this time around I significantly more at ease with the entire ‘panic selloff’ that recently occured.  I ask myself the following questions:

  • Has the fundamentals of any of the companies I own changed that much from last week? No.
  • Has the debt downgrade of the US really going to gut all growth around the world for the next decade? Likely not.
  • Is the market then likely reacting more out of emotion rather than real issues? Almost certainty.

So I have changed my plans a little bit for this year.  It was looking like I might exceed my mortgage goal by a bit, but I decided to instead leverage the amount of money and borrow some money from my line of credit to invest.  So I’m just waiting to finish moving  $5000 over to our TFSA accounts and pick up some more shares of companies that we already own.  Yes I know this means I can’t write off the interest as a tax expense.  I’m ok with that as I can easily make more than the 4% that I can borrow the money at.

While I’m not ignoring the risks to the global economy, I do think people are significantly over reacting.  Yes there is debt issues with many countries and I do expect a lot of volatility over the next few years from it.  So while this sucks to live through you should consider the fact that drops like this might get a bit more common over the next decade.

Perhaps the only advice I have for anyone who is near retirement is…don’t keep so much in equities if you are now thinking about pushing off your retirement now.  I keep saying it, but perhaps it will sink in this time.  You don’t need 50% or more of equities when you are within five years of retirement.  In fact you should consider keeping the number closer to 25%. I know it goes again the advice of a lot of people, but I keep saying people grossly over estimate what they need for returns and keep way to much risk of losing their capital when entering retirement when you have no means of replacing it.

So how have you handled the last week or so on the markets?

Comments

7 Responses to “The Sky Isn’t Falling…Yet”
  1. deegee says:

    I had just done some mild rebalancing in my IRA a few weeks earlier, selling some stock fund shares in my IRA when the Dow was in the 12.7k-12.8k range. Once things settle down I will look at another round of similar rebalancing in the other direction to take advantage of lower stock fund prices.

    Like you, Tim, the big drop in late 2008 was a big boon for me. I did my early retirement at the end of October that year, and I was able to buy 25%-30% more shares of the bond fund at greatly depressed prices. This has helped my monthly retirement income from its dividends.

    I had to ride out further declines in the stock market into early 2009, making me wonder a little if my whole ER thing was going to work. But I did some tinkering to my original plan and I am doing fine. I will ride this out, too.

  2. Tara C says:

    No changes for me – I am still 100% equities and plan to be for the next 5 years or so. When I get within 10 years of retirement I will start reducing equities, but not yet.

  3. Funkight says:

    Wise advice.. I keep telling myself I have a 25 year event horizon.. Ride it out..

  4. Dilbert says:

    I’m also 100% equities at this point, however I’m starting to think that if we keep this roller coaster of a market, that a like 80/20 split would be a better idea. Then at times like this on drops you could swap that 20 over to the 80 side. Once the market has recovered from the drop, balance back out to 80/20. At that point bonds should have settled back down.

  5. George says:

    There was definitely a market “overreaction”, but that is often due to margin calls… since I’m experimenting with a margin account (2.5% interest) invested in high-yield stocks (6%-9% yields), I’m acutely aware of how a market decline can snowball.

    None of the companies have cut dividends, yet some of my picks dropped 30-40% inside of a week.

    Overall market concerns: yes, lots of them. Basically the question is whether we’re slowing to a temporary slump or whether we’re heading into a recession (some say we are still in a recession when looking at inflation-adjusted GDP, but that’s working outside the definition of recession). Oil prices have declined, gold prices climbed, and gov’t bonds are yielding very little… investors are spooked!

  6. chad says:

    I bought more WMT good multinational company paying not a bad dividend.Nice buy back there currently having.
    buying 0 oil companies my view on oil is $60 before end of the year which should benifit retailers.

    gl to everyone

  7. Retiredat44 says:

    I am retired but I still keep about 50% of my investment in equity. I see this recent drop as a long needed correction and as such a (or close to) buying opportunity. The ‘recovery’ from the crisis thus far was only engined by QE so I won’t be surprised if the market goes all the way back to its level at 2008. Having said that though, I have learnt all these years not to be greedy and not to even try to catch the trough or crest.

    Take it easy and yes good luck to everybody!

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