Managing investments in a downturn - No politics!

My advice is to ignore the advise of anyone that says that the stock market is a casino. It would be like getting piano lessons from someone who doesn't know how to play the piano. "Just bang on these keys and make noise, anyone can do it." 
 

Casinos pay out MOST of what they take in. Slot machines are specifically set up that way. If you play long term, you will lose. I don't Remember off the top of my head, but they pay around 95-98% back. The rest builds those Casinos. The stock market is the opposite. It pays out over time. 8% on average? 
 

So I guess investing is more like owning a casino instead of gambling in one. 
 

Of course that's on averages, and choosing the right investments are about much more than luck. It's right in the name.  

In reply to Streetwiseguy :

I'm not too worried.  Once the source of the downturn either gets his peepee slapped, or has driven the market down far enough to buy a bunch of bargains, it will come back better than before.  
 

The "source" of this downturn believes that we have been sacrificing long term stability for short turn gains for far too long, believes this is the path to put things right, and has said so publicly for 40 years. That doesn't mean it's right, and it's really way too nuanced an issue to label as right or wrong at this time. But I can tell you there is no peepee slapping scenario that will change anything, it's a core belief. 

In reply to Boost_Crazy :

Actually there is a small chance, it might get struck down as illegal (or whatever the term is).  My suspicion is this is one of the reasons things aren't worse then they are now.  (But I think you are correct of the likely motivation).

My 401K from the employer that I left 3.5 yrs ago is basically at the same level as it was when I left. It has gone up and down a few times and had just gotten back to it's previous high a few days ago but now is down 5% in the last couple days, right back to what it was. Interestingly, it's split roughly 60% into one slightly more risk-averse fund that I selected for my contributions and about 40% into the default setting for my employers contributions. The 60% is only down 3% YTD while the 40% is down 10% YTD. I've got at least 25yrs until I retire though, so I'm not too worried.

In reply to 90BuickCentury :

I believe the historical statistics show that the aggressive investment paths generally pay off better in the long run FYI.  I think it's generally because they both loose in downturns (the riskier a bit more of course) but the aggressive makes disproportionately more in the upturns.

FWIW, the short version of my investment philosphy:  (not that anyone should follow my misdeeds)

• Low cost funds held long and not messed with save for some occasional rebalancing.  (mostly Vanguard)
• When something is UNPRECEDENTED!, it probably isn't.
• When you see a real train coming - Get off the tracks!

I'm sad to say I got hit by the train in 2000 and 2008, but moved mostly out of equities before the big hits in 2020 and this one.  This one does look like it just might be unprecedented if you discount the crashes that happened a very long time ago.  Even so, If I were younger I'd be looking for a sign that the market was at least stable and start averaging in, figuring I was buying at a discount to what the funds were before.  But now that I'm in retirement drawdown mode I'm being a little more careful.

aircooled said:

In reply to Boost_Crazy :

Actually there is a small chance, it might get struck down as illegal (or whatever the term is).  My suspicion is this is one of the reasons things aren't worse then they are now.  (But I think you are correct of the likely motivation).

Illegal or unconstitutional.

Without wading into partisan value judgments...

The power of the purse is given to congress in the constitution. That includes the power to levy taxes, duties, and to regulate commerce. Tariffs fall under that umbrella.

There are laws that grant the president the limited power to impose tariffs in *emergencies*. That some foreign events happen rapidly enough that the Executive branch should be able to use tariffs as a leverage tool to respond quickly. Like if Russia invades Ukraine, instead of waiting for Congress to do its full song and dance, the President has the power to respond immediately with economic sanctions that include tariffs.

Arguably, the reasoning behind these latest tariffs are not the response of sudden, acute changes in international affairs that require the immediate action of the Executive office. Balancing long term tariffs really is supposed to still be the job of Congress.

I requested rollover of my previous employer 401(k) last week, which entails them mailing me a check made out to my main financial advisors.

I'm really hoping they tagged me out at the time of the request and now I'll get to buy back in at a low point.

In reply to Beer Baron 🍺 :

Except congress has previously granted the President the power to enact tariffs...

Section 232 of the Trade Expansion Act of 1962; Sections 122, 201, and 301 of the Trade Act of 1974; Section 338 of the Tariff Act of 1930; and the International Emergency Economic Powers Act of 1977. 
 

They would have to prove the tariffs violate the above granted powers, which have withstood previous legal challenges. Possible, but not probable. Most likely would be delays in the tariffs due to legal challenges. 

In reply to Boost_Crazy :

Yes. Those are what I was referring to. They grant the president power to impose tariffs, but they have riders, limitations, and guidelines. Congress might do something. They might not. And/or this will almost certainly go to the courts.

My understanding is limited. Pretty much the only consensus I'm seeing is, "It's complicated."

One thing that I find interesting. A lot of the same people (not talking about this thread, just people in general, many in the media) who decry that the stock market is a rigged game intended to make the rich richer with short term gains at the expense of the average person's long term well being- are now railing about the short term losses taken with the intention to enhance the average person's long term well being. 

In reply to Boost_Crazy :

Talking heads gonna talk 🦜 

In reply to Boost_Crazy :

This topic is very politically charged. We should probably just stick to politically neutral and/or objective comments. The opinions of pundits, and the rationale of political decisions are definitely topics that can start arguments colored by partisan leanings.

These tariffs are not just about what stock prices are doing. Personally, I am not too worried about my IRA or investment accounts taking short term dips.

I am very concerned about the cost of raw materials and equipment for my brewery. I source a lot of raw materials internationally. This is primarily done for quality, not price. Same with equipment. Even if I shift to more U.S. domestic supply, those prices are going to go up as well, because demand is going to increase when supply is already constrained by physical production limits. The Willamette valley that grows U.S. hops is not going to get any bigger.

I'm going to stop before I get to a point where this becomes a partisan issue. There are non-partisan reasons why many industries are legitimately concerned about what is going to happen to their costs if these tariffs go into effect. Like... would our customers accept a sudden ~15% increase in the cost of our products? Or will we have to figure out how to get by on smaller profit margins?

In reply to Beer Baron 🍺 :

I agree. I just found it interesting, not trying to make it political. Tariffs drastically complicate my job too. I bid construction projects. I'm getting lists of manufacturers pages long that show projected price increases. One semi good note- most tariff percentages are overstated as it relates to the consumer. A 20% tariff doesn't mean a 20% increase in your price. It's 20% on the wholesale price, and often only on a portion of the components or raw materials. For example, my manufacturers are getting hit with 20% increases, but I'm "only" seeing 5-8%. So if your suppliers are hitting you with 20%, you need to have a talk with them. 
 

Edit: Definitely add it to your customer's cost, and let them know now. Put wording in your quotes that covers you for any future increases. They won't like it but they will understand. That is what your competitors will be doing. 

I'm a "set it and forget it" guy, but now I'm 1 1/2 years from retirement and it feels MUCH different.

I watched $110,000 vanish in 2 days this week. That was uncomfortable. 
 

I'm just holding on for the ride. 

I haven't posted anything on the retirement thread yet but yep, I called it a career at the end of February.

I factored sequencing risk (50% of people retire at a poorer than average time) into my calculations but it is unfortunate burning some of that reserve up right out of the gate.

I received what I consider to be a generous package so I'll continue to get paid until early January and I'll have cash reserves that should cover me until at least June of 2026.

Fun fact...the average time to recover from a 10% correction is 40 days.

Having said that, I completely agree with Beer Baron (this looks like a systemic issue driven by a shift in priorities) and personally, I was going to buy a new Mazda CX-30 and give one of my daughter's my CX-3.

That's now off the table because:

I'm not going to get ground up in the supply chain distortions (even domestic vehicles will be heavily impacted due to their import content and more importantly, they will only be able to absorb a small percent of the increase in demand coming from the reduction in import sales).

I'll want to sit on cash to postpone drawing on my investments as long as possible.

My confidence just got significantly reduced...as go I, so goes the country.

SV reX said:

I'm a "set it and forget it" guy, but now I'm 1 1/2 years from retirement and it feels MUCH different.

I watched $110,000 vanish in 2 days this week. That was uncomfortable. 
 

I'm just holding on for the ride. 

I lost almost three times that in the last two days and as per my post right after yours, I just retired...berrrrrk me!

For you guys recently retired or close to retiring, what is your strategy? Are you/ have you moved your investments to more stable options and plan to draw down your nest egg? Or are you staying heavily invested in stocks, just collecting the gains and leaving the bulk alone? I'm still a ways off of retirement, about 15 years (hopefully less.) I was planning on the stable/draw down approach, but I'm now leaning to the higher risk/ draw off average returns approach. Things like this make me rethink that, but I'd guess that early into your retirement is the best time for a drop. You have time for it to come back. 
 

My current 401k (until this week) had an average return of 9.95% over the 13 years of this plan (rolled over from a previous plan.) That's great, I can live very comfortably off 8 percent or so by the time I retire. But I  think that percentage is inflated- because the downturns helped me, I bought more stock with the same money. When the market returned, I had more than I started with. But that won't be the case in retirement, I'm not buying more (discounted) stock. So I'd expect long term average returns to be lower than if I was continually investing. That means my 9.95% would be lower and I need to plan accordingly, or have a larger balance than targeted. What do you guys think? 

Don't forget that the pot grows so you don't need as much % gain over time to stay ahead. Only time it gets interesting is near the end of the draw down, assuming you get that far. 

My plan is 4% rule, never touch the principal.  Leave it invested in total market 

Boost_Crazy said:

I'd guess that early into your retirement is the best time for a drop. You have time for it to come back. 
 

Historically, the opposite is true. You want to avoid Sequence of Returns Risk. When you start to draw down your nest egg in retirement, while also experiencing loss due to market downturn, your principal can see losses that cannot be recovered. Everybody should have a plan to mitigate SORR.

The following investors retire with the same nest egg, spend the same amount each year, and see the same average rate of return over the 15 year period. The only difference is the timing of their positive or negative returns.

In reply to Boost_Crazy :

I understand the cost implications. My labor is the largest single cost in producing our beer. But raw materials is a close second.

My point is: I think you were straw-manning the arguments people actually make. Making a "side" look more silly or hypocritical than it actually is.

These tariffs are a big deal. People have very legitimate reasons to oppose them. It is entirely reasonable to doubt that they will be effective at achieving the stated goals. This forum is not the place to malign or mock the people who oppose or support these tariffs.

RX Reven' said:

SV reX said:

I'm a "set it and forget it" guy, but now I'm 1 1/2 years from retirement and it feels MUCH different.

I watched $110,000 vanish in 2 days this week. That was uncomfortable. 
 

I'm just holding on for the ride. 

I lost almost three times that in the last two days and as per my post right after yours, I just retired...berrrrrk me!

It is certainly jarring.  

BUT, it's also not all of it.  The only part that is down is the part you have to sell to live on.  So if you live off of $100,000 a year (for easy math), the downturn means the value was previously something like $110,000.  

Not that it's a good thing, but it's also not the whole thing.  The key is to not sell it all when the market is down, like a poster who isn't here anymore repeatedly posted they did.

And the concept of dollar cost averaging matters, too.  So depending on the market trends, that $110k could be more like $105k or $106k.  

In terms of specific 401k goals, in theory, by the time you retire, a significant part of the portfolio should be stable investments, like fixed income funds.  So while the volatility is going on, you are taking money out of parts of the funds that are actually going up.  This change in funds needed to happen a LONG time ago- part of the shifting of investments as you get to retirement age- which is done to protect for instances like now.

Call me stupid, but I have cash and just keep buying as the market drops. It's going to go up to the old trend line again. If it drops another 3% tomorrow what I bought today will be a 'daily' loss, but certainly a future gain.

alfadriver said:

in theory, by the time you retire, a significant part of the portfolio should be stable investments, like fixed income funds.  So while the volatility is going on, you are taking money out of parts of the funds that are actually going up.  This change in funds needed to happen a LONG time ago- part of the shifting of investments as you get to retirement age- which is done to protect for instances like now.

Typical guidance is to be 100% stocks until about ten years prior to retirement and then start building a bond position so that you arrive at a 60 stock/40 bond asset allocation upon retirement.

"Don't try this at home kids"

I've always been and continue to be 100% stocks which has given me about an 11.6% increase over what the typical guidance above would have produced.

I've been completely debt free for several years and I've built up a portfolio that's about 50% bigger than the high end of typical guidance range.

Go big or go home; right?

"Don't try this at home kids"