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when the wheels come off?

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  • Avatar Tangler 
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    Status: Physician
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    Joined: 08/23/2018

    I find it funny you guys think that a 20% drop is the wheels falling off….

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    Greater than 20%, sustained (lasting greater than a year) I was thinking a drop of 50-70%. That would put some vomit in the back of my mouth.

    #231620 Reply
    Avatar Tangler 
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    I know you cannot specifically time it, but

     

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    “but” – such an innocuous 3-letter – yet dangerous – word following an intelligent statement.

    Where is Sir John Templeton when you need him?

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    True.

    #231621 Reply
    Avatar Tangler 
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    what does sustained mean in this context?

    stays 20 or more% under for more than 3 years?

     

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    Yep, something like that would pretty much suck. An example of something I was thinking of would be a 50% drop that takes 10 years to come back to present levels. I have no freaking clue what will happen, and plan on keeping my stocks for 30 more years. I don’t plan to sell when the poo arrives, but I just would rather put my cashflow = savings into my mortgage right now rather than put extra into stocks, as stocks “seem” expensive.

    #231622 Reply
    Avatar Tangler 
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    Stay the course.

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    Sounds like Bogle! I know. I have no plans to sell the stocks. I also plan to max out IRAs (so I will be buying some) but I have a pretty good amount of savings coming in and instead of pounding that into the market, I will pay down a huge mortgage to tolerable levels of mortgage debt. (want to get new mortgage down to 500k) I know, FLP just vomited. I know, I know, HCOL area.

    #231624 Reply
    Avatar Tangler 
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    @tangler,
    You mean like in December? Geeez, sure hope you didn’t sellout then! Of course you didn’t.

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    Yep, I bought like crazy and was lucky in Dec, early Jan (I know timing is luck) but I would rather put new cash toward mortgage rather than new stocks in taxable. I will NOT SELL for 30 years. I just don’t know that now is the time to go on a buying bonanza. I think stocks are overpriced.

    #231626 Reply
    Avatar Tangler 
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    what does sustained mean in this context?

    stays 20 or more% under for more than 3 years?

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    ”Sustained” in this context typically means for long enough for the drop to be referred to as an identifiable bear market, although admittedly the term “bear market” is rather amorphous.

    @tangler, please understand that the raison d’être of financial journalism is not to help you be a better investor. It is to sell copy and advertising, preferably while eliciting fear and excitement in the process.

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    True. I try to ignore the media but would you not agree that the market is a little over-priced now? If the market had continued to drop after Dec 24, 2018 and was at 50% of sept values then I would be buying like crazy but this is extra cash I have and money is fungible. I have options: 1. buy stock or bonds in taxable, 2. pay down mortgage 3. keep as cash 4. spend 5. invest in something else.

    I like option 2

    #231627 Reply
    Avatar Tangler 
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    I don’t think the danger is the “wheels coming off”.
    Paying off your mortgage isn’t exactly a fatal financial mistake.
    Spin this one, what the heck you gonna do when the mortgage is gone? You can see the flaw in letting emotions drive financial decisions. The “end is near for my mortgage “ isn’t a problem. Now you are really screwed.

    Wheels go back and run better too.

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    Not really an emotional decision. Seems pretty logical. Selling at a bottom say Dec 24, 2018, that would be a dumb emotional decision.

    My logic is as follows: Stocks are expensive now (or seem expensive to me) I have a big freaking mortgage and a ton in stocks already. So, I am going to take a break from investing in my taxable mutual funds and put more toward stocks.

    What will I do when the mortgage is gone? Well, I will probably retire from medicine and live off passive income. I will probably do some tax gain harvesting to increase the basis of my taxable after my income levels drops below 78k for married filing jointly. I will probably travel, fish and fart around. Sound like a lot of panic boss? Sound like emotional irrational decision making? If so, so what.

    #231629 Reply
    Liked by Craigy
    Avatar Tangler 
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    I had the same concern a few years back, unfortunately I had this discussion with a “financial advisor” who very easily sold me a Whole Life Policy based on my fear and stupidity. I still have concerns about the market, too a much lesser extent after becoming more educated. I continue to fully fund all retirement accounts and then split what remains after all bills are paid between taxable brokerage accounts and debt reduction.

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    Sorry you made that mistake. I’m not exactly considering whole life here. This is a slightly different thought process. I have 3M in stocks right now in my taxable. Instead of adding to that I am going to pay down a sizable mortgage. This is in addition to fully funding all IRAs.

    #231631 Reply
    Avatar Tangler 
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    When the wheels come off, Fatlittlepig will drive faster.

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    FLP I thought you had wings?

    #231634 Reply
    Liked by Craigy
    Lithium Lithium 
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    Joined: 02/15/2016

    I don’t think the danger is the “wheels coming off”.
    Paying off your mortgage isn’t exactly a fatal financial mistake.
    Spin this one, what the heck you gonna do when the mortgage is gone? You can see the flaw in letting emotions drive financial decisions. The “end is near for my mortgage “ isn’t a problem. Now you are really screwed.

    Wheels go back and run better too.

    Click to expand…

    Not really an emotional decision. Seems pretty logical. Selling at a bottom say Dec 24, 2018, that would be a dumb emotional decision.

    My logic is as follows: Stocks are expensive now (or seem expensive to me) I have a big freaking mortgage and a ton in stocks already. So, I am going to take a break from investing in my taxable mutual funds and put more toward stocks.

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    This is pretty much exactly the way I felt in 2017, when I paid my mortgage off.  Fast forward to now when the market is up 25% and it is hard not to cringe.  I’d like to think I would have been more disciplined now.  The real estate market where I live has skyrocketed too so while the outcome hasn’t been that bad, it was clearly a behavioral finance error.

    If you change your investment plan based on valuations, just be honest and accept that you’re a market timer.

    #231636 Reply
    Liked by Lordosis, Tangler
    Avatar Tangler 
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    Status: Physician
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    William Bernstein MD, discusses his 4 pillars, and when he describes history he often mentions that every 10-15 years the “wheels fall completely off the stock market” .
    I know you cannot specifically time it, but it seems like we are due. Instead of adding extra into my taxable index funds i am aggressively paying down my mortgage with new cashflow. I recognize this is timing but i rationalize as increasing my realestate holdings and diversification. I have a lot in the stock market (>3M in index funds) and i don’t plan on trying to move in and out but i feel good about not pouring more into my taxable.
    My question for you smart folks: do you think we will have a sustained drop of greater than 20% in the nest 5 years? Are wheels coming off soon? I hear the 4 most dangerous words: “this time it is different “ by some, but others keep predicting doom that has yet to materialize.
    What do you think? Would you fault me for paying down mortgage rather than putting more into taxable vanguard stock mutual funds?

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    My financial intelligence is debatable, but…

    I don’t fault you at all.

    Paying down your mortgage is prudent, gives you a more or less certain result, is low-risk, and is, most of all, safe.  Market forces, barring some tremendous inflation event, don’t change that.

    My wife’s student loans were financed to 3.09% fixed, but I decided to aggressively pay them off.  I would be lying if I said market conditions didn’t play a factor.

    If you were saying “I want to cash out my $3M portfolio before the wheels come off” then it would be a different story.

    Yeah, everything about the market right now feels… strange, to put it mildly.  Yeah we have numerous articles that are saying “this time it’s different.”  All that ‘temporary’ QE across Europe is still in effect.  Low credit rating bonds are now being packaged and resold as “enhanced collateralized loan obligations.”  Loan ratings themselves have generally been on the way down for a few years now.

    The news, literally this morning, is how the market was pulling back because, I quote “The case for interest-rate cuts looks increasingly weak as the economy is turning out to be stronger than expected both from the consumer side and on the part of manufacturers.”  I.e., the market is softening because rates are not likely to be reduced further because the market indicators are too strong.  Whut. This scenario didn’t exactly come up in my economics classes.  😆

    So yeah, I think a reasonably sophisticated and prudent person should be entitled and feel entirely justified to take strategic positions.  Of course, hindsight will be 20/20.  Ask yourself: What is the risk?  The risk is that we have a continued growth and your portfolio gets slightly lower returns than it otherwise could have had you kept your mortgage and stayed the course.  It’s up to you, but it doesn’t look like that outweighs the benefits you’re aiming for, many of which are a reasonable certainty.

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    YES! EXACTLY! You are clearly 100x smarter than I and you said it much more eloquently!

    #231637 Reply
    Liked by Craigy
    Avatar Tangler 
    Participant
    Status: Physician
    Posts: 357
    Joined: 08/23/2018

    I don’t think the danger is the “wheels coming off”.
    Paying off your mortgage isn’t exactly a fatal financial mistake.
    Spin this one, what the heck you gonna do when the mortgage is gone? You can see the flaw in letting emotions drive financial decisions. The “end is near for my mortgage “ isn’t a problem. Now you are really screwed.

    Wheels go back and run better too.

    Click to expand…

    Not really an emotional decision. Seems pretty logical. Selling at a bottom say Dec 24, 2018, that would be a dumb emotional decision.

    My logic is as follows: Stocks are expensive now (or seem expensive to me) I have a big freaking mortgage and a ton in stocks already. So, I am going to take a break from investing in my taxable mutual funds and put more toward stocks.

    Click to expand…

    This is pretty much exactly the way I felt in 2017, when I paid my mortgage off.  Fast forward to now when the market is up 25% and it is hard not to cringe.  I’d like to think I would have been more disciplined now.  The real estate market where I live has skyrocketed too so while the outcome hasn’t been that bad, it was clearly a behavioral finance error.

    If you change your investment plan based on valuations, just be honest and accept that you’re a market timer.

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    True. Fair enough. Ok. I admit it, I am an alcoholic I mean market timer. OK I said it. Fine.

    #231639 Reply
    Avatar Tim 
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    Status: Accountant
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    Joined: 09/18/2018

    Paying down mortgage is not usually market timing. Choosing less leverage is actually more conservative.
    Guilt complex and fake confession DENIED.
    Reducing debt not chasing returns is kinda a backass way of saying your smart. My wife pulls that all the time.

    #231643 Reply
    Liked by Craigy, Zaphod, Tangler
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 92
    Joined: 05/25/2019

    This is not meant to answer OP’s question, but it is what I think about the topic.

    When the wheels are falling off (which they will, but who knows when), there will be 3 types of passengers:

    1) One who is in panic and jumps out of the window.

    2) One who grabs tight on seatbelt and stays course.

    3) One who sees cheap ticket and jumps on board.

    Which type of passenger do you want to be?

    or 4) If you are afraid of the bus (stocks), you can walk.

    #231644 Reply
    Liked by Tim, Tangler, Lordosis
    uptoolate uptoolate 
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    Status: Physician
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    Joined: 01/31/2016

    I did this in the in 2005-2006. First paid off house mortgage then bought a vacation home for cash. Paid off primary because I wanted to have no mortgage on it and the vacation house because I felt I had enough equity exposure at the time.  Turned out I felt really wise through the downturn but with the subsequent run up the move probably made no positive difference even though the real estate has done quite well.  The last time I did anything remotely like trying to time the market with a portion of our portfolio (shortly after retiring – so I can rationalize that I was just moving to a more appropriate asset allocation – lol), I did pretty well on the exit point but missed the re-entry point – twice!  One has to be pretty lucky (or impossibly smart?) to get it right.  At the end of the day, as an MD one can usually afford to make a few missteps but Mr. Bogle’s ‘Stay the course’ and Mr. Siegel’s ‘Stocks for the Long Run’ are very likely the best way to go if one has a long horizon.  Doesn’t mean that one won’t get punched in the gut once in a while and that is when the real test comes.  When one looks at the Andex chart, even the biggest dips look pretty minor though they don’t necessarily feel that way at the time.  It does feel great to be mortgage free and we don’t get the mortgage deduction on primary residence in Canada (we have no capital gains on sale) so maybe an easier call to make.

    #231649 Reply
    Liked by Craigy, Tangler

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