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when the wheels come off?

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  • jfoxcpacfp jfoxcpacfp 
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    An example of something I was thinking of would be a 50% drop that takes 10 years to come back to present levels.

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    Can you imagine what it would take for such to occur? For this to happen to a diversified world portfolio, world economies would all have to go to pot for a concurrent 10-yr period. In that event, nothing would be safe, so bonds, cash, gold will not benefit. Think guns and bunkers.

    Will not happen, but you are free to worry about a problem with no solution. Unhealthy fear is never a good way to approach building your financial plan.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #231653 Reply
    Liked by q-school
    jfoxcpacfp jfoxcpacfp 
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    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.

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    Sorry, I wouldn’t agree. Based upon what metrics? You must look at investing and a portfolio over the long term, not a 7mo ultra-short period. Otherwise, you will never achieve optimal results over your lifetime and will continue to make many guesses (and costly mistakes) rather than sticking to a proven strategy.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #231656 Reply
    Liked by hatton1, Zaphod
    Vagabond MD Vagabond MD 
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    Status: Physician
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    Joined: 01/21/2016

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

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    I agree. When the “wheels fall off”, your stock portfolio will be down 50%, your next door neighbor will have lost his job and will be dumping his house (lowering the value of all of the homes on your street), your brother in law will ask you if you know anyone who can sell him gold, your practice’s bad debt will triple, your practice volume/revenue will decline by 10% or more, and the Hospital will hire 20 new administrators to help try to figure out why elective surgeries and outpatient encounters are down 25% and to flog the physicians into generating more revenue.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

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

    Click to expand…

    Sorry, I wouldn’t agree. Based upon what metrics? You must look at investing and a portfolio over the long term, not a 7mo ultra-short period. Otherwise, you will never achieve optimal results over your lifetime and will continue to make many guesses (and costly mistakes) rather than sticking to a proven strategy.

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    Metrics: PE ratio, Cape ratio, Div yield, Price/book , price/salse, q-ratio

    All are greater than 80% higher than at any point in the past century’s bull market peaks.

    That is my rational for thinking this market is overpriced. What are you looking at that makes me seem so wrong to you? What are your metrics that tell you we are going to have a sustained bull for years and years to come?

    Do I hope it goes up for the next 30 years with no major drop? YES. That would be best case for my 3M which will stay in stocks during thick and thin.

    Do I think it is more likely to have at least one drop of greater than 50% in the next 10 years than it is to go up without a drop of > 20% in the next 10 years, yes.

    I don’t know why you think I am in panic mode or freaking out. Did I say I was worried? I did not even look at the stock market one time this week. I have no control over Mr. Market. I just think he is overpriced and more likely than not to screw  us. I don’t predict the market to drop and stay down. I predict that I cannot tell what it will do but I think a big drop is more likely than a big gain given the fact that it is overpriced by EVERY metric I know.

    https://www.marketwatch.com/story/stock-bulls-are-telling-themselves-a-lot-of-lies-about-this-market-2019-06-04

    #231665 Reply
    Liked by Craigy
    Avatar Tangler 
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    An example of something I was thinking of would be a 50% drop that takes 10 years to come back to present levels. 

    Click to expand…

    Can you imagine what it would take for such to occur? For this to happen to a diversified world portfolio, world economies would all have to go to pot for a concurrent 10-yr period. In that event, nothing would be safe, so bonds, cash, gold will not benefit. Think guns and bunkers.

    Will not happen, but you are free to worry about a problem with no solution. Unhealthy fear is never a good way to approach building your financial plan.

    Click to expand…

    I said an example would be blah blah blah……I don’t know what will happen. I don’t think it will stay down for 10 years but stocks in 2009 were substantially lower than in 1999 and that is a 10 year period. So yes, it can be lower 10 years later and take 10 years to get back to where it once was. It has already done so in the last 20 years.

    #231666 Reply
    jfoxcpacfp jfoxcpacfp 
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    Do I hope it goes up for the next 30 years with no major drop? YES. That would be best case for my 3M which will stay in stocks during thick and thin.

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    Why, pray tell, would anyone not hope for major drops in their accumulating years? You should wish for no major drops after retirement, perhaps, (not that it would matter) but why would you continue to want to invest your hard-earned money at every-increasing prices in your accumulation years? I would embrace a drop, but that also doesn’t make it any more likely.

    I give you the metric of long-term equity returns averaging 10% annually for large-cap stocks and 12% annually for small cap stocks, dividends reinvested, for the last 91 years. And, of course, invested only with a plan in place. If you are about to enter retirement, I would have more to say, as those years do require more careful planning, although the investment philosophy is no different.

    Again, the financial media is not your friend (and is wrong more times than it is right).

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #231671 Reply
    Liked by q-school
    Avatar Tim 
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    Some have been through this. Not once but twice.
    That is the point of AA. Diversification is step 2, that isn’t AA. There was a thread around January that Johanna might find. The tendency is to over estimate risk tolerance (not capacity). A 20% drop in one year, can be followed by sideways and another 20%. When you hit another 10%, your house (neighbors) down and folks that “were ok” are wipes out it can be gut wrenching. Think $4mm shrinks to $1.7 or so and every dollar invested over 3 years has lost ground. I know following your plan will work, Eventually. Not if you change it based on hunches and feel. Dropping $1mm seems to catch your attention. The second time leads to second thought. Dry powder sounds nice, but tends to under perform. If your AA fits you, the force is with you.
    Mr Market will out last you too if one “hopes” rather than plans.

    #231686 Reply
    Liked by Craigy, uptoolate
    Avatar dennis 
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    I’m gonna quote Jane Bryant Quinn again: “The market timer hall of fame is an empty room”. NASDAQ first hit 5,000 in March 2000 and it took till March of 2015 to get back there.

    #231733 Reply
    Avatar Dont_know_mind 
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    Status: Physician
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    I think of any debt on risk assets as part of my AA.
    If I have 5M in assets and 1M in mortgage, my AA is 120%.

    If I have 4M stocks in retirement accounts, 500k in bonds in retirement accounts and a house worth 1M with 500k mortgage, then I would calculate that as AA of 100% in risk assets.

    Your mortgage is like a negative bond as far as AA goes.

    It makes sense to reduce leverage as valuation gets stretched. Is that market timing. Yes. But it is also risk control. Leverage magnifies your risk. Being 200% here is different to being 150% or 100%. Also your leverage compared to your income and cash flows will need to figure into the calculation. I spend a lot of time thinking about leverage and risk vs income and net wealth. It is more nuanced than what most people think. The nuance is in pushing it, but not too much.

    With leverage, it always goes back to “Should I take it easy, or push it to the limit one last time ??”

    #231762 Reply
    Liked by cyrano7
    Zaphod Zaphod 
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    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.

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    This fact of course makes the decision worse, reducing your “profit” as it were.

    #231780 Reply
    q-school q-school 
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    i’ve been contemplating this question a little.

    I think it depends on how close you are to retirement and how many years you expect to live in retirement.

    if you have thirty years, i don’t know why you would change your plan.   the future is too hard to know.    paying off mortgage is great, but you have cheap money and has never really made sense to me.  yes you can sleep well, but a pile of liquid money helps sleep well too.  however, it’s not a bad habit, and this is quibbling over details.   the question is whether that actually is consistent with your long term goal in the sense that it takes your pot of investing money and shrinks it down.  if you are truly trying to be a ‘value’ investor and hit while the sale price is available, you need capital to take advantage.  so you can’t really pay your mortgage down and wholeheartedly pursue this strategy.

    i think we will all have bigger problems if there is a sustained 50% drop for ten years.  we will all be making significant adjustments to our plans.  likely i will be gone since i can’t afford my medications in this scenario.  🙂

    i think it is possible to overthink this and make suboptimal decisions.  this is why a plan is nice to have in place–so you can refer to it when in doubt.

    good luck to everyone.

    #231783 Reply
    Avatar Antares 
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    Status: Physician
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    4 years to go and 65% stocks. I am thinking about going to 50%. But of course no matter what happens, I would never sell in a down market.

    #231818 Reply
    Craigy Craigy 
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    i’ve been contemplating this question a little.

    I think it depends on how close you are to retirement and how many years you expect to live in retirement.

    if you have thirty years, i don’t know why you would change your plan.   the future is too hard to know.    paying off mortgage is great, but you have cheap money and has never really made sense to me.  yes you can sleep well, but a pile of liquid money helps sleep well too.  however, it’s not a bad habit, and this is quibbling over details.   the question is whether that actually is consistent with your long term goal in the sense that it takes your pot of investing money and shrinks it down.  if you are truly trying to be a ‘value’ investor and hit while the sale price is available, you need capital to take advantage.  so you can’t really pay your mortgage down and wholeheartedly pursue this strategy.

    i think we will all have bigger problems if there is a sustained 50% drop for ten years.  we will all be making significant adjustments to our plans.  likely i will be gone since i can’t afford my medications in this scenario.

    i think it is possible to overthink this and make suboptimal decisions.  this is why a plan is nice to have in place–so you can refer to it when in doubt.

    good luck to everyone.

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    IMO if the market is expensive, then the money is cheap, and this is the best time to pay down that debt.  Especially if you fear recession.  You are taking some of your winnings off the table, at a time when your dollars can’t buy that much value anyway (regardless if this from selling investments or new earned income).  And by paying down debt, it’s more or less a permanent cash-out, a position from which you don’t have to market-time yourself back in.

    I can’t speak for Dr. Tangler, but I get the impression he’s not looking to keep “dry powder” or a bunch of idle capital ready-to-go.  He simply wants to put his additional income somewhere else for now, a place he perceives as safe.  Paying off his mortgage instead of rolling more money into the market is arguably timing, but soft-core market timing at best.  Though could argue that by paying down or paying off a liability, he would have far more buying power with his future cash flow, and in that sense would have more capital to take advantage of some sort of forthcoming downturn in the market.

    However again I don’t think that’s what he’s going for, and is comfortable with having less invested money.

    Eventually Dr. Tangler’s strategy will run out, as conceivably he will eventually find himself with no more mortgage to pay.  Then he has to decide what to do with his money again.

    LEVEL 1 WCI FORUM MEMBER.

    #231825 Reply
    Liked by q-school, Tangler
    Avatar Tangler 
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    Status: Physician
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    Joined: 08/23/2018

    Thanks for the input, I always learn from you folks. Sorry I was kinda feisty and pedantic. My goal is to Not to touch much/most of my stocks for 20-30 or so  years but i plan to stop working full time in more like 5-10 years (live off mostly passive income). I am 46.

     

    I want to get to AA of 70:30 by age 50. I want no mortgage by “retirement”. (age 50-55).  With no mortgage i can easily live off 60-80k/year. I think paying down a mortgage is a reasonable way to mitigate some risk.

    I might work part time ( glider path) if needed, but will try to at a minimum, cut back after mortgage dead, or nearly so.  I don’t see an advantage to keeping a big mortgage. thanks for help.

    #231873 Reply
    Liked by q-school
    Avatar Antares 
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    4 years to go and 65% stocks. I am thinking about going to 50%. But of course no matter what happens, I would never sell in a down market.

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    Of course, I checked my IPS, and it says right here in line 35:

    ”35. When worried about the markets, express your fear and what you plan to do on an Internet forum. Wait for people to question your judgment. Then turn it off and do nothing.” 😉

    #231876 Reply

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