Crash Planning

We planned for this crash and our retirement by increasing our cash postion over the last three years. That includes selling our beach house 3 years ago and putting the proceeds into cash and also putting the cash from the sale of our home into cash two years ago.

Now

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Oops. Hit post when I meant to hit ‘cancel.’

Now the question is, ‘what is my long term strategy for taking advantage of a stock market crash?’

Do I start averaging some of my cash in after a crash of 20%? 30%? 50%?

Do I let the crash happen and wait for a new 99 day high before I deploy that cash?

At what point does cash become ‘too expensive’?

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At what point does cash become ‘too expensive’?

It’s already gotten too expensive for me. That’s why I trimmed my “10 years worth of living expenses in cash and short-term bonds” to 5 years, and cycled the money into BRKB.

I learned my lesson on market timing when I sold everything and went to cash after the 1987 Black Monday stock market crash when the DOW had a one-day decline of 22.6% (equivalent to a about 7,500 point drop today.) Stayed out of the market for about 2 years. I’d be at least 25% wealthier today had I just held and stayed the course.

At least I learned the lesson in my early 30’s, it would do much more damage today.

intercst

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I would wait for a capitulation bottom. Mungofitch has a group of solid indicators,and shares magnamimously. I think he was within 2 days of the bottom in March of 2009. If I remember correctly,you still have 2/3 in the market,so waiting won’t hurt. Most bear markets bottom more like 9 to 18 months in,not 3 or 4.
I would not wait for a new high either,you will miss too much of the recovery.

JK

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Your remember correctly, and I do have my eye on mungo’s posts. I even deployed a small amount of money in brk in December 2018 after having read his posts at the time, but not much. My thinking is often spot on, my courage and conviction less so.

Addendum: I originally planned to take SS at 70 in order to take advantage of the increased entitlement that comes from the delay.

I am now planning to take this summer at FRA, (66y, 4mo.), and then buy shares of brk-b plus vig with the money on the off chance that the long term returns will be better, and the taxes on the RMD’s will be ameliorated.

Waiting for my CPA to run the numbers.

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Do I start averaging some of my cash in after a crash of 20%? 30%? 50%?

It’s rare for the market to correct by 50%, although it has happened. But even after the bubble of the dot-coms it only corrected around 40% over the next year. Most “corrections” are of the 20% variety, and 30% is pretty severe, as these things go.

That said, there have been some truly nutso things going on these last couple years, although I’m not sure I would put them in the same category as Pets.com in 1998 or hookers buying six houses with no-money-down in 2007.

Anyway I’d learn about Mungo’s rule, but as another rule if the market is down 20% I’d start nibbling in unless I thought this was a monster bubble in which case I might wait a bit longer. If you bought at 20% down and the market went to 30% down, well, you’d be out 10%, but that’s hardly a tragedy, is it?

There has been a bunch of wild money floating around, NFTs and crypto to name a couple, (housing prices for another) but I expect the first two to shake out pretty quickly but not thoroughly and for housing to settle. How long? Dunno, there’s still a lot of ‘excess’ money sloshing around so unless we tilt badly I’d expect a recovery sooner rather than later (within the parameters of normal.)

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It’s rare for the market to correct by 50%, although it has happened.

The US 2009 and now? China 2023?

I am now planning to take [Social Security] this summer at FRA, (66y, 4mo.)…
Waiting for my CPA to run the numbers.

Ianpops5,

Good idea. People might also want to have their MD run the numbers after seeing a complete cardiovascular workup and heart scan.

A heart attack, aneurysm, or stroke can happen in a split second during a person’s 50s, 60s, or even at a younger age. If such an event occurs, life expectancy can change very quickly.

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Notehound7 writes,

<<I am now planning to take [Social Security] this summer at FRA, (66y, 4mo.)…
Waiting for my CPA to run the numbers.

Ianpops5>>

Good idea. People might also want to have their MD run the numbers after seeing a complete cardiovascular workup and heart scan.

A heart attack, aneurysm, or stroke can happen in a split second during a person’s 50s, 60s, or even at a younger age. If such an event occurs, life expectancy can change very quickly.

On the other hand, medical care continues to improve for the well-to-do that have access to it.

I had a complete work up in Feb 2021 when I turned age 65, qualified for Medicare, and changed doctors. My new doctor decided to “reinvent the wheel” and test everything. Though I’ve been taking strong immunosuppressant drugs for over 20 years due to an autoimmune disease that was trying to destroy my kidneys, my eGFR (a measure of kidney function) was 91 – crazy good for even a 65-year-old without a kidney problem.

Inputing my data to the “living to 100 calculator” reveals a 97 year life expectancy (about 10 years longer than I was planning).

https://www.livingto100.com/calculator

Still waiting until age 70 to start Social Security.

intercst

iampops5 writes,

Addendum: I originally planned to take SS at 70 in order to take advantage of the increased entitlement that comes from the delay.

I am now planning to take this summer at FRA, (66y, 4mo.), and then buy shares of brk-b plus vig with the money on the off chance that the long term returns will be better, and the taxes on the RMD’s will be ameliorated.

Waiting for my CPA to run the numbers.

It will be interesting to see what your CPA tells you. I think BRKB is superior to the excess money I have laying around in cash and short-term (non-inflation-adjusted) bonds.

But I’m not ready to start paying taxes on my SS benefit while I’m trying to do Roth conversions to trim the size of my IRA (and RMDs). The opportunity to “buy” an inflation-adjusted life annuity for half the price a commercial insurer would charge for the same monthly benefit by waiting until age 70 is just too enticing.

intercst

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It’s rare for the market to correct by 50%, although it has happened.

The US 2009 and now?

Don’t forget the 50% drop that was reached in October 2002, so twice in 20 years. That said, the market is still up several multiples from January 2000.

DB2

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goofy: “It’s rare for the market to correct by 50%, although it has happened. But even after the bubble of the dot-coms it only corrected around 40% over the next year.”

I think you are probably right and I hope you are right. The purpose of accumulating excess cash in the final years leading up to retirement, and early in retirement, was to establish a safety net in the event of a deep and sustained crash early in retirement. Even the meltdown of 2009 and the Covid meltdown turned out not to be deep and sustained crashes of the sort that forced me to resort to such a safety net.

Let us all hope that we do not suffer the kind of deep and sustained crash (on the order of 50% with no recovery to old highs for a decade or more) that I was hedged against. Let us all hope that whenever I choose to deploy my excess cash it will not matter much in the scheme of things.

Signed,

RiskAverseJoel

Don’t forget the 50% drop that was reached in October 2002, so twice in 20 years. That said, the market is still up several multiples from January 2000.

The Nas certainly did, maybe more. But the S&P “only” declined about 33%, and the Dow barely noticed.

Don’t forget the 50% drop that was reached in October 2002, so twice in 20 years. That said, the market is still up several multiples from January 2000.

The Nas certainly did, maybe more. But the S&P “only” declined about 33%…

Hmmm. Looking at historical price data here
https://finance.yahoo.com/quote/SPY/history?period1=72826560…
we see that the high price for SPY in March 2000 was $155.75
The low for SPY in October 2002 was $77.07

77.07/155.75 = 0.49

DB2

I apologize for talking about myself so much this past week, but the one thing I think I have learned is that nobody has a Magic 8 ball when it comes to playing the market profitably during major downturns like the ones we experienced in 2000-2, 2008-9, the Covid meltdown, and perhaps now.

IF my last reply to goofy is true, and not just rationalization aimed at justifying my decision to accumulate way more cash than normal over the last few years, then the most rational answer for me at this point is to hold the cash and let the downturn takes its course.

If I fail to deploy my cash this month or even this summer and I miss a bottoming out and subsequent runup in stock prices, so what? My cash will continue to underperform and my stocks will bottom out and start another upward run.

But if this a deeper (or as deep but more sustained - say, 30-40% but a two or more year recovery period), then there is not good reason to be in a hurry to deploy cash. I cannot dollar average my way through crashes with earnings deducted from paychecks like I did when I was in my 40’s and working in 2000-2, but I can be more patient.

I can wait till the market tells me what to do with greater certainty.

Patience is a virtue that I often fail to utilize.

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30 day update. Still overweight cash. Still not buying. Still hedged against deep sustained crash. Still hoping I am wrong.

Inflation is real here at Mammoth Hot Springs at Yellowstone. But sighting black bear, grizzly, elk, moose, billy goats, bison, antelope, fox and one coyote (coyote seen by everybody but me), totally worth it.

Drive over to Lamar Valley and (try to) see the wolves. They’ll make your day even better!