• 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5

Say the market falls 40% - What should we do?

#21
Back in 2008 I had most of my cash allocated to the Fidelity Floating Rate fund.  My bond funds included Fidelity Capital & Income and Fidelity Strategic Income.  They had an incredible return in 2009.  I was pretty much fully invested and just sat tight.  Probably what I would do again.
  Reply
#22
This is posted after you responded and after a number of other responses.
 
You said you have a mix of taxable and IRA assets totaling $1 million and the scenario you posited is that the 50% of assets in equities would fall 40% (to $300,000) while the bonds would remain stable at $500,000.
 
I'd take tax losses in taxable account, of course.  I'd sell some bonds and buy equities.
 
But I'd also withdraw funds from beaten down IRA's and buy the exact same securities in taxable accounts (if appropriate).  As the market falls the tax bill to extract X shares drops.  The advantages are (1) you will face capital gains tax rates when you sell those equities, not regular income taxes and (2) you'll reduce the RMD issue.  In short you can withdraw funds on your schedule, not the IRS's requirements.
  Reply
#23
I'm on the side of those who keep their powder dry, anticipating such events. I'm pretty consistently 65% equities, selling off winners (like MasterCard, BooHoo!) to keep a good cash balance to give me flexibility - and being retired- ensure a few years' living expenses.  While I don't think a 40% drop in equities is likely, it is possible. I keep enough in cash to stock up on good, beaten-down stocks in whatever case. Now, about 10 %. No one knows what the next down-turn will look like, but based on the last 20  years, I'm pretty confident that a market rollback would present a lot of sweet opportunities. Think Ford at $2.50 a share, VISA at $40-something, etc. And reliable dividend-payers.
  Reply
#24
(11-29-2018, 12:13 PM)Maco Wrote: This is posted after you responded and after a number of other responses.
 
You said you have a mix of taxable and IRA assets totaling $1 million and the scenario you posited is that the 50% of assets in equities would fall 40% (to $300,000) while the bonds would remain stable at $500,000.
 
I'd take tax losses in taxable account, of course.  I'd sell some bonds and buy equities.
 
But I'd also withdraw funds from beaten down IRA's and buy the exact same securities in taxable accounts (if appropriate).  As the market falls the tax bill to extract X shares drops.  The advantages are (1) you will face capital gains tax rates when you sell those equities, not regular income taxes and (2) you'll reduce the RMD issue.  In short you can withdraw funds on your schedule, not the IRS's requirements.

Thanks! Good possible strategy (IRA withdraw; taxable buy), depending on circumstances (ability to withdraw; current/future expected tax rate, etc.)
  Reply
#25
You have to be careful with the wash sale rules because for tax purposes you can not switch investment between taxable and taxed deferred accounts to avoid paying taxes. Same applies when trading to take losses on stock and replacing those with options o the same securities.
  Reply
#26
Consider tax loss harvesting in a taxable account. Re-balance.
  Reply
#27
We should do what we all know to do (if we don't get emotional about it and freak out).  Everyone has heard the saying "BUY LOW, sell high".  Crashes and dips should be looked at as buying opportunities.  That's the best way to buy low, IMHO.    Don't let a crash in the stock market shake you out.  If you're properly diversified you'll be fine in the long run. 

 

It's only a paper loss when the crash happens.  Don't turn it into a real loss by panicking and selling low.


Come on, everyone... say it with me.... BUY LOW... SELL HIGH!!!   Big Grin
  Reply
#28
I agree with many other respondents with regards to not selling after a significant drop and holding on to prevent creating an actual loss.  If you have a portfolio that you are monitoring and are content with your holdings, a 40% drop should not be a reason for panic.  If you have a 3 to 5 year cushion of funds to pay the bills, then you are in a good position to wait it out.  I have been investing in the market for over 50 years and have never experienced a time that after losses, the market did not come back stronger than before.  Time is the major unknown variable.   I believe that the key to long term investing in the stock market involves having a quality,  balanced portfolio, that you can sleep well at night, come what may.
 
I agree with doodah's comment of buying low and selling high.  There are times however, that I have done better by buying high and selling higher.
  Reply
#29
I'd re-balance by selling $200K fixed and buy more equities since you'd be buying low (while not necessarily at the very bottom which is hard to predict.) My view of buying at the absolute bottom is "who cares if I hit the absolute bottom or not?  It's not a contest to see who hits it. lol  Just as long as I'm buying low I'm good). 
 
Speaking of "if it was me"...  I wouldn't be 50/50.  In fact, I'm closer to 85/15 (I'm 57 and 1 year from retirement and there's longevity in my family (late 90s)).  I've never liked bonds, don't agree with the adage "you should own more bonds/fixed closer to retirement age" (I disagree with that  because who cares WHEN you retire... the important part of the equation is "how many years do you think you'll live once you retire".  If it's a LOT (retiring early with longevity like me) I think you're better off having a stronger presence in the stock market.), and lastly, my thinking is more geared toward a new asset allocation model....Including your house. social security and pension.  Since I'm going this route I have plenty of fixed.  Too much since I actually removed SS from my equation since it put me at 43/57 and that was bothering me since there was nothing I could do to make the stock number bigger so I removed it.  lol 
 
My 85/15 split is made up of NO bonds (as I said, I don't like them).  The new asset allocation model is definitely something to think about in regards to your portfolios.
 
  Reply
#30
Most likely do nothing. I have been using a bucket strategy for awhile now which gives me 7 years of relatively safe money. 7 more years of slightly at risk money and the balance in equities. Since I have 14 years worth of money in safe accounts I don't care much

about the equity account going down because I have 14 years till I need it. I might scrape some money out of bucket two to buy more equities at the fire sale prices, or choose different equities while valuable companies have been hit hard but I don't need to.
  Reply


Forum Jump:


Users browsing this thread: 32 Guest(s)