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I notice that there are many commenters here offering opinions on the future price of equities. Note that nobody has any idea where equity prices will be in one

by ttul 7y ago

I notice that there are many commenters here offering opinions on the future price of equities. Note that nobody has any idea where equity prices will be in one day, never mind one year or ten years' time. As a retail investor (i.e. not extremely rich), you can't gain any advantage over the market that overcomes your transaction costs. So relax. There's nothing to do here. If you're contributing to a retirement fund, keep buying. As the market falls, you're getting a discount. If you need to retire in the next five years, you should already have started moving out of equities. It's too late to change that now.

bytematic 7y ago
Most people don't seem to understand that you don't pull all your retirement out at once, so the market going up or down doesn't really affect that
- DevKoala 7y ago
  But it is wonderful for headlines: "The man who retired on the week the DOW plunged" https://www.barrons.com/articles/he-retired-the-week-the-dow-slid-13-consider-it-a-wake-up-call-to-check-your-portfolio-51583520161 https://www.barrons.com/articles/he-retired-the-week-the-dow...
- brazzy 7y ago
  But whether you start your retirement at a time the market is down a lot or up a lot can make a surprisingly big difference on how long your money lasts, if you don't adjust your spending.
  - perl4ever 7y ago
    Doc, it hurts when I do this! So...
    - t-writescode 7y ago
      Every medical expense, every food expense has the result of costing more of a percentage of your remaining funds. Many costs can’t be put off.
      - perl4ever 7y ago
        All costs are on a spectrum of urgency. Food can be put off longer than water. A small plumbing problem can be put off longer than a large plumbing problem. A furnace problem can be put off longer if it's not cold. Replacing a car can be put off longer than fixing the brakes. There is no such thing as having all your costs due immediately with equal urgency.
        solveit 7y ago
        On the one hand, you're absolutely right. On the other hand, if I'm putting off food or even general house/vehicle maintenance because of market conditions, my retirement has already failed from my point of view.
        bluGill 7y ago
        If you are that badly off you couldn't afford to retire. For most of the US you have a big spending problem because SS is enough to provide food and basic house/vehicle maintenance. (I know a few people who opted out of SS and then did bad retirement planning - but most people didn't even had the option to opt out of SS) SS isn't much I'll grant. However it is enough to provide the basics.
        perl4ever 7y ago
        I am counting on social security, and I think all the talk about it "running out" is stupid. It runs year by year on the income from that year, so it's completely up to the political will to pay, and whether the people who are working are willing to keep the retired from starving. I assume they will be, because if not, who gives a shit about anything anyway?
  - thekyle 7y ago
    Ideally, shouldn't someone planning to retire have already moved more of their money to bonds? Then they could just withdrawal from the bonds portion of the portfolio (which is likely up right now) while the stock market recovers.
    - OJFord 7y ago
      However you frame it, there's always a time you start withdrawals. And if when you planned to do that coincides with a dip, of course you'll have second thoughts.
      - throwaway743 7y ago
        Did so about a year ago based on SMAs and momentum. Only wish there was a cash option to put have them move everything to for the time being, but only had bonds as an option. Best thing is to watch out for the SMA support levels. Just got through a major death cross and looks to be heading further down
      - bluGill 7y ago
        Though you should have options. Don't retire in a down year. Start moving things to safer investments several years before you retire. Don't spend as much that first year. Still the numbers given are good examples and something to keep in mind.
    - typeformer 7y ago
      Bonds yields are the lowest they have been since the great recession.
      - mactrey 7y ago
        Yields are low because bond prices are high. It's not a bad time to be selling down your bond portfolio right now.
- madengr 7y ago
  Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing. She quit near market peak last year (and began re-investing this week), but say she quit this week? It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time.
  - froindt 7y ago
    >Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing. What type of a company did your wife work for? I actively learn about personal finance and retirement plans and have never heard of a lockout from a 401k. > It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time. Short of working for a privately traded company, or being a very well compensated executive, the shares owned by an individual employee are almost always negligible compared to daily traded volumes. "Selling at a low to boost their stock" wouldn't even move the needle. Edit: One possibility came to mind after posting. Was your wife's 401k balance under $5,000? If so, the company can force liquidation. And to say doing so would help the stock price would only be meaningfully true on a penny stock.
    - csnover 7y ago
      I’m not the OP, but when I left a company where I had a 401(k) and transferred the balance to my preferred brokerage, the source account was frozen for about that long during the approval and transfer process.
      - madengr 7y ago
        Yes, and I assume they cut a check to your IRA?
        csnover 7y ago
- dntbnmpls 7y ago
  The problem is that nothing says markets will go up forever. Take japan's nikkei index. Dropped in the early 90s and is still down 50% 30 years later. Choose the "all" to see the entire chart. https://tradingeconomics.com/japan/stock-market https://tradingeconomics.com/japan/stock-market It isn't a law of nature that the S&P or Dow has to regain its losses in X number of years. S&P can drop and stay down for decades which can absolutely affect retirees.
  - semi-extrinsic 7y ago
    This is a key point. Especially if we actually start doing something about CO2 emissions, which will mean reducing energy consumption for the next couple of decades. Stock market growth has historically been tightly linked with energy consumption growth.
    - xvilka 7y ago
      While the point of probability of staying low holds, I don't think there is a tight coupling with the energy consumption. Surely, nature (business ecosystem) will find a way for growth driver even without energy density increase.
      - 205guy 7y ago
        I think nature's growth will be like 1% or less, certainly not the stock market growth people are used to. To me, it is obvious there is a tight coupling: energy does work instead of humans/animals, thus allowing more productivity. When you look at a construction site it's just human directed diesel-energy (with some chemical energy in the concrete). Much of the developed world is transitioning to a service economy that relies less on the fossil fuels, but it still relies on the inputs that do (agriculture, electronics, offshore manufacturing). And we've set up the economy around fuel consumption: long commutes from suburbia, inefficient houses, processed and packaged foods, etc. And what about the travel industry: burning fossil fuels for no productivity (just realized it acts as a mop for the excess capital). If we're lucky, we can use the fossil energy to bootstrap the renewable energy, then we can eat farmed foods, drive electric cars, and work on computers remotely. But there just won't be the energy to drive the economy the way cheap energy does.
- MR4D 7y ago
  Actually it does, and in a big way. Let me give a simple example using some round numbers just to show the concept. Plug and play any numbers you want to see how the outcome changes... Let’s say you have a million dollars in March of 2000, you just retired, and you need to pull out $100,000 to live on. So, in April, you take out $100,000 and now you have $900,000. So you ended up taking out 10% of your principal. However, the market is falling, and will drop 10% over the next year. So you now have $810,000, and you take out this year’s $100,000 which leaves you with $710,000. Effectively, you took out over 12% of your principal. 2002 is no better, and the market falls a further 13%, and is now down to $618,000. You take out $100,000 for this year’s expenses, leaving you with $518,000. The next year is even worse in the market, and your nest egg falls 23%, which means you now only have $399,000 left. You still take out your $100,000 and are left with only $299,000. Thankfully, the next year the market rises 26%. Hallelujah, your nest egg grew to $376,000. However, you still need to take out your $100,000, leaving you with only $276,000. You think your luck has turned around... The next year the market rises, but only 9%, so your nest egg grows, but only to $301,000. You take out your $100,000, leaving you with only $201,000. Hmmmmm... The next year the market rises again, but barely - only 3%, so your nest egg is now $207,000. You take out your $100,000 again, and only have $107,000 left. Uhhhh... Thankfully, the market moves up 14%, and your $107,000 grows to $122,000. You take out your $100,000, leaving you with only $22,000 left. Finally, in the last year, the market rises 4%, so your nest egg grows to $23,000. You withdraw all of it, and are now broke. This effect is based on real numbers (rounded) from [0], and represent the S&P 500 market returns starting in the year 2000 (aka, the dot com bust). What happened to this poor retiree is called “sequence of returns”, and it is something that any good financial planner uses to test the durability of his or her projections. [0] - https://www.macrotrends.net/2526/sp-500-historical-annual-returns https://www.macrotrends.net/2526/sp-500-historical-annual-re...
  - DarmokJalad1701 7y ago
    10% is not really a safe withdrawal rate though.
    - RhodesianHunter 7y ago
      Did you black out during their second sentence?
kaycebasques 7y ago
> Note that nobody has any idea where equity prices will be in one day, never mind one year or ten years' time. > So relax... keep buying lol
- jfengel 7y ago
  The error, actually, is in the first part rather than the second. We don't know where it will be in a day or a year, but there's good reason to think we know where it will be in ten years: about twice where it is now. It might be only 1.5x or it might be 3x, but it's not very likely to fall very far outside of that range. Given that, if you have ten years to wait before you need your money, it's as good a place as any to put your surplus earnings today. Not to sell your car or borrow money, but as a reasonably safe long-term thing to do with money that you will use for your retirement. And then forget about it. Buy a broad index and don't worry what it does on a daily basis, even days like today. Perhaps especially days like today.
  - phreeza 7y ago
    The counterexamples that have been brought up elsewhere on this post are Gold (still below 40 year high) and the Nikkei (still below 30 year high).
    - jjoonathan 7y ago
      Also, the fact that the Nikkei's behavior is typically attributed, at least in part, to a demographic trend that's likely to hit the US within our lifetimes.
    - jfengel 7y ago
      The Nikkei high was wildly artificial; its price-to-earnings ratio indicated that there was an enormous bubble. The US stock market is (probably) currently inflated, but by a factor closer to 2 (or less) than 10. (I've looked less into the price of gold, which has a weird place in people's minds and would require a lot more research than I've put into it.) It's entirely possible, of course, that the US is entering a long-term economic disaster of a kind it has been courting for decades: government borrowing, student loans, Baby Boomer retirement, etc. But US companies have been earning money, and in general that does justify the belief that they merit a stock price that's roughly where it is now; somewhat lower, but not radically different.
totalZero 7y ago
> As a retail investor (i.e. not extremely rich), you can't gain any advantage over the market that overcomes your transaction costs. Sure you can. You develop a system, learn how to find information, and make good predictions of future human behavior. You should learn the ins and outs of the product you're trading.
- IAmEveryone 7y ago
  The efficient market hypothesis would like a word with you.
  - totalZero 7y ago
    The efficient market hypothesis is that markets are efficient to present public information. If markets were efficient to the present value of the future price at all times, then there would be no such thing as insider trading and hedge funds would all lose money. You can make money by making inferences about present facts, or taking views on future occurrences.
    - martinpw 7y ago
      I'm not clear why you mention insider trading here? Insiders have access to information that is not present public information, and so is not priced into the current value of the stock.
      - thoughtstheseus 7y ago
        The the strong form of the EMH includes inside info, all info in existence.
        kpommerenke 7y ago
        Yes, but no one claims that the market is strong form efficient. The question is rather whether the U.S. stock and bond markets are weak form (prices include all past trading data) or semi-strong form efficient (prices include all publicly available information).
tyingq 7y ago
"There's nothing to do here." Maybe. I imagine it's a trigger for some people to review their investment mix. Not saying panic sell at this particularly bad moment, but downturns are an obvious heads up for people that assumed everything would constantly rise. Changing your mix for future deposits might not be a bad idea if your current mix is higher risk than it should be for your age.
- Aeolun 7y ago
  Probably want to change the mix in a few months, not right now.
  - edraferi 7y ago
    Assuming you're over-concentrated in equities, yeah. But if you're under-invested in equities, this would be a decent time to start getting more. No telling when the market will bottom out though, so as always be careful.
  - downerending 7y ago
    If you can predict that the market will go down, yes. But you cannot--that's the whole point. You could transition more slowly to get the "dollar cost averaging" effect, but that has its own risks. If your mix is wrong, it's best to fix it pretty quickly.
- deleted 7y ago
  [deleted]
- neogodless 7y ago
  Ideally you set yourself up with an Investment Policy Statement which includes your ideal asset allocation (based in risk tolerance and goal-setting), as well as rules for rebalancing, such as 5% drift outside that asset allocation you want. So if equities are down 20% but bonds are stable (or better!) you end up selling bonds high and buying equities while they are cheaper. If you didn't plan ahead, you shouldn't be making plans now. If you have cash or other assets with less growth potential, it may be a good idea to sell some to buy equities. But before you do that, zoom out and look at 5 years of index fund prices. This 20% correction reaches back to about December 2018. But has not appreciably negated the growth between 2009 and then!
Der_Einzige 7y ago
Than why do I keep getting richer on my puts? Maybe it's because there are actually ways to make money during a crisis...
- neuland 7y ago
  If you're trading options, you are not an average retail investor. Discussing puts isn't relevant for GP's situation.
  - SilasX 7y ago
    So? If you want to buy options, it's relatively easy to transform yourself into such an investor, so that should be fair game for evaluating HNers' potential search space.
    - downerending 7y ago
      It's not appropriate unless you're a multi-millionaire, and it's not that easy to transform yourself into one.
      - SilasX 7y ago
        You don't need to be a multi-millionare to make money on options, I just recently cited someone who put a small amount (relative to a multi-millionare) to disproportionately profit from the market declines that weren't priced in. https://news.ycombinator.com/item?id=22526246 https://news.ycombinator.com/item?id=22526246
      - Der_Einzige 7y ago
        I put 1000 in, but I could have put on 200$ in. Options are even MORE appropriate for the non super rich, because if you put a small amount of money in, you either win big or you lose it all. I'm fine with losing 200$ occasionally.
- FabHK 7y ago
  Buying lottery tickets totally works, someone can claim every week. https://xkcd.com/1827/ https://xkcd.com/1827/
leakybit 7y ago
Unless you use robinhood which has no transactions fees.
- skellera 7y ago
  Not just Robinhood. Charles Schwab and some others have moved this direction too.
  - perl4ever 7y ago
    Virtually everybody went to zero commissions, more or less.
- swsieber 7y ago
  > robinhood It's easy to have no fees if your customers can't make transactions. To be less snarky, I'd avoid them if you're trying to time the markets.
  - missosoup 7y ago
    For those not in the loop: it's been impossible to make transactions on a number of platforms including Robinhood due to the overwhelmingly high load causing those platforms to fail. A lot of people were basically locked out from trading.
    - chrisjc 7y ago
      Or you know... Feb 29th, every four years.
      - alasdair_ 7y ago
        They completely failed three different times in the past couple of weeks. The Feb 29th thing was a red herring.
    - walshemj 7y ago
      I got a warning when I logged into Interactive Investor (UK) this morning and its still there now. "Please be aware that due to exceptional market volatility, there may be situations in which it is difficult to obtain a price for your trade." Will be interesting to see what effect the Budget statement on Wednesday
dnprock 7y ago
I used to subscribe to these investment talking points and believed in the US equity market. I adopted these attitudes from reading Warren Buffett, index fund, financial advice. These are sound principles. I occasionally revisit value investing, dollar-cost averaging. But times are changing. The US equity market will unlikely to deliver exceptional returns. Buffett may have a strong bias since he started his investing career post WW2. Buffett may experience only the correlation between the US equity market growth and global growth. Investment return is likely non-ergodic. We're entering new terrority where exceptional returns may come from other assets.
- dnadler 7y ago
  What led you to the conclusion that the market will not behave as it has historically over the long-term?
  - dnprock 7y ago
    I think the dynamic of the US equity market has changed. In the old days, you can balance your portfolio between stock and bond. This is portfolio advice from Benjamin Graham's The Intelligent Investor. We can no longer do this because interest rates are heading to 0. Bond investors don't make money from interest rates. Bond traders benefit from rate drop. Bond was an investment. It's now destroyed. We end up with cash and equity. There's a lot of money pumping into the market by central banks. Markets are no longer free. Central banks manipulate their markets. With these kinds of manipulations, we get diminishing returns. Let's say the economy gets back on its feet. Where does it get the leverage to invest? We're overloaded with debt. The interest rate is probably 0 or negative at that point.
    - aeternum 7y ago
      The counter-argument to this is that even with the money being pumped into the market by the central banks, we are not seeing significant inflation in consumer goods. This implies that the money is being put to work efficiently and resulting in productivity and QoL improvements for society as a whole.
mempko 7y ago
What do you say to someone starting to save now when the climate crises is now happening? Humanities ultimate cosmic event is happening. How can you reasonably save for something like that?
Reedx 7y ago
To help adopt a sober approach, it's worth watching this interview with Warren Buffett who shares his thinking re: market and Coronavirus. https://www.youtube.com/watch?v=JvEas_zZ4fM&t=21s https://www.youtube.com/watch?v=JvEas_zZ4fM&t=21s One of the points he makes is that you should think about stocks as businesses. Instead of "I bought a stock" think "I bought a business". That puts you in a better frame of mind and perspective for the long term. i.e., You don't buy or sell a farm based on today's headlines. The real question is whether things have changed on a 5, 10 or 20 year time frame for the businesses you hold.
- ganeshkrishnan 7y ago
  This makes sense if you have huge quantity of cash where leverage is not an issue. With limited cash, you have to think very different from Warren.
  - chenster 7y ago
    I don't disagree. If you are in it for the long term, there's really nothing to worry about. The market eventually will bounce back. It always does.
    - AgentOrange1234 7y ago
      Well, so far...
      - scottlegrand2 7y ago
        And if it doesn't hopefully you stocked up on toilet paper and purell to trade in the new hellscape economy...
        throwaway743 7y ago
        Banking on bottlecaps
        7y ago
bumby 7y ago
>you can’t gain any advantage over the market that overcome your transaction costs I know this is the predominant efficient market adage but is there a case to be made for low volatility portfolios outperforming the market over long periods? [1] I’m curious especially now that most online brokers have significantly reduced trade costs on ETFs [1] https://archivefda.dlib.nyu.edu/jspui/bitstream/2451/29593/2/Benchmarks15.pdf https://archivefda.dlib.nyu.edu/jspui/bitstream/2451/29593/2...
chenster 7y ago
> If you need to retire in the next five years, you should already have started moving out of equities. Exactly. People are selling off and further worsen the crash.
skybrian 7y ago
Even if you are a value investor and in it for the long haul, you may have some opinion about what's a good price versus a bad price. You don't know tomorrow's price but on rare occasions it may be that a solid company's stock looks particularly cheap for a reason you know. Should you ignore bargains entirely? Also, for many retail investors, transaction costs are now zero. Maybe the conventional advice needs an update?
Ericson2314 7y ago
As Matt Levine wrote > It’s a little weird for a mutual-fund or hedge-fund manager to have a lot of uninvested assets (why are you charging fees on a big cash position?), while it’s perfectly normal for private-equity managers to invest a bit of their fund at a time and call capital later as it is needed. So how much of a bias is there in behavior is there in practice and rhetoric against cutting your losses, pulling out, and waiting for things to be less volatile/risky-seeming?
anm89 7y ago
>Note that nobody has any idea where equity prices will be in one day, never mind one year or ten years' time This is more or less true. > As a retail investor (i.e. not extremely rich), you can't gain any advantage over the market that overcomes your transaction costs. This is patently absurd. It's an easily falsifiable statement which is a rare feat in economics. On average, the the average retail investor will not beat the market. That does not mean they can't. All you need to have is literally any correct thesis and the ability to execute on it and you will have an advantage over "the market". I'm not trivializing this, it's not an easy feat, but markets are absolutely full of inefficiencies, and it's obviously not impossible to do better than the average case. This is a complete misunderstanding of the efficient markets hypothesis. BTW, I'm not recommending that anyone try to time markets.
- hoten 7y ago
  What does it mean for a market to have inefficiencies?
  - coolspot 7y ago
    Seriousness of wuhan virus was known since end of January, but stock market ignored it completely, raging into all-time highs till February 20th. Regular person could absolutely see it and be prepared. Even today market still doesn’t price in Italy-style or China-style lockdowns.
    - zeroonetwothree 7y ago
      This is called hindsight bias
      - anm89 7y ago
        Claiming this after the fact could represent hindsight bias. It does not change the fact that the market had an inefficiency in pricing this information into many assets two weeks ago. If someone bought or sold assets based on a strategy based on this belief (and certainly at least some people did), then they exploited that perceived inefficiency correctly without hindsight.
mmhsieh 7y ago
Buying a low cost index will already cause you to beat most retail and most professional money managers. Knowing that fact will gain you an advantage over almost everyone that moves stock for a living. Also, not too late. Getting out now is like getting out too early in Jan 2018.
nimblegorilla 7y ago
> If you need to retire in the next five years, you should already have started moving out of equities. It's too late to change that now. This is still a great time to reallocate your money. The SPDR fund that I invest in is still about where it was 1 year ago.
dcftoapv 7y ago
I don't agree. There are three things that normal investors should be doing right now: 1 - Assess how you feel. Are you upset by the loss of value? Then you make be more risk averse than you thought. It might be wise to reconsider your asset allocation after this emergency is over. However, it's not wise to redo your allocation while the VIX is above 20ish. 2 - Check in with a financial adviser. This is a good reminder that your financial portfolio matters, and it is smart to use this as a prompt to check in on your financial health. 3 - This is the most important one, but you can't do it if you're not good on #1 and #2. REBALANCE YOUR PORTFOLIO. If you are allocated to risky and riskless assets then it is time to make sure that your allocation is still where you want it to be. It probably isn't. If your allocation to riskless assets is higher than you normally would like then you should sell riskless and buy risky. Why is #3 so important? Because it allows you to collect a liquidity provider premium. Purchasing risky assets in volatile markets a) stabilizes the markets b) takes the advantaged side of the transaction. A lot of research stands behind this idea. Rebalancing in volatile environments is an easy and reliable way to outperform your peers over the long run.

by ttul 7y ago

bytematic 7y ago

Most people don't seem to understand that you don't pull all your retirement out at once, so the market going up or down doesn't really affect that

DevKoala 7y ago
But it is wonderful for headlines: "The man who retired on the week the DOW plunged" https://www.barrons.com/articles/he-retired-the-week-the-dow-slid-13-consider-it-a-wake-up-call-to-check-your-portfolio-51583520161 https://www.barrons.com/articles/he-retired-the-week-the-dow...
brazzy 7y ago
But whether you start your retirement at a time the market is down a lot or up a lot can make a surprisingly big difference on how long your money lasts, if you don't adjust your spending.
- perl4ever 7y ago
  Doc, it hurts when I do this! So...
  - t-writescode 7y ago
    Every medical expense, every food expense has the result of costing more of a percentage of your remaining funds. Many costs can’t be put off.
    - perl4ever 7y ago
      All costs are on a spectrum of urgency. Food can be put off longer than water. A small plumbing problem can be put off longer than a large plumbing problem. A furnace problem can be put off longer if it's not cold. Replacing a car can be put off longer than fixing the brakes. There is no such thing as having all your costs due immediately with equal urgency.
      - solveit 7y ago
        On the one hand, you're absolutely right. On the other hand, if I'm putting off food or even general house/vehicle maintenance because of market conditions, my retirement has already failed from my point of view.
        bluGill 7y ago
        If you are that badly off you couldn't afford to retire. For most of the US you have a big spending problem because SS is enough to provide food and basic house/vehicle maintenance. (I know a few people who opted out of SS and then did bad retirement planning - but most people didn't even had the option to opt out of SS) SS isn't much I'll grant. However it is enough to provide the basics.
        perl4ever 7y ago
        I am counting on social security, and I think all the talk about it "running out" is stupid. It runs year by year on the income from that year, so it's completely up to the political will to pay, and whether the people who are working are willing to keep the retired from starving. I assume they will be, because if not, who gives a shit about anything anyway?
- thekyle 7y ago
  Ideally, shouldn't someone planning to retire have already moved more of their money to bonds? Then they could just withdrawal from the bonds portion of the portfolio (which is likely up right now) while the stock market recovers.
  - OJFord 7y ago
    However you frame it, there's always a time you start withdrawals. And if when you planned to do that coincides with a dip, of course you'll have second thoughts.
    - throwaway743 7y ago
      Did so about a year ago based on SMAs and momentum. Only wish there was a cash option to put have them move everything to for the time being, but only had bonds as an option. Best thing is to watch out for the SMA support levels. Just got through a major death cross and looks to be heading further down
    - bluGill 7y ago
      Though you should have options. Don't retire in a down year. Start moving things to safer investments several years before you retire. Don't spend as much that first year. Still the numbers given are good examples and something to keep in mind.
  - typeformer 7y ago
    Bonds yields are the lowest they have been since the great recession.
    - mactrey 7y ago
      Yields are low because bond prices are high. It's not a bad time to be selling down your bond portfolio right now.
madengr 7y ago
Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing. She quit near market peak last year (and began re-investing this week), but say she quit this week? It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time.
- froindt 7y ago
  >Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing. What type of a company did your wife work for? I actively learn about personal finance and retirement plans and have never heard of a lockout from a 401k. > It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time. Short of working for a privately traded company, or being a very well compensated executive, the shares owned by an individual employee are almost always negligible compared to daily traded volumes. "Selling at a low to boost their stock" wouldn't even move the needle. Edit: One possibility came to mind after posting. Was your wife's 401k balance under $5,000? If so, the company can force liquidation. And to say doing so would help the stock price would only be meaningfully true on a penny stock.
  - csnover 7y ago
    I’m not the OP, but when I left a company where I had a 401(k) and transferred the balance to my preferred brokerage, the source account was frozen for about that long during the approval and transfer process.
    - madengr 7y ago
      Yes, and I assume they cut a check to your IRA?
      - csnover 7y ago
dntbnmpls 7y ago
The problem is that nothing says markets will go up forever. Take japan's nikkei index. Dropped in the early 90s and is still down 50% 30 years later. Choose the "all" to see the entire chart. https://tradingeconomics.com/japan/stock-market https://tradingeconomics.com/japan/stock-market It isn't a law of nature that the S&P or Dow has to regain its losses in X number of years. S&P can drop and stay down for decades which can absolutely affect retirees.
- semi-extrinsic 7y ago
  This is a key point. Especially if we actually start doing something about CO2 emissions, which will mean reducing energy consumption for the next couple of decades. Stock market growth has historically been tightly linked with energy consumption growth.
  - xvilka 7y ago
    While the point of probability of staying low holds, I don't think there is a tight coupling with the energy consumption. Surely, nature (business ecosystem) will find a way for growth driver even without energy density increase.
    - 205guy 7y ago
      I think nature's growth will be like 1% or less, certainly not the stock market growth people are used to. To me, it is obvious there is a tight coupling: energy does work instead of humans/animals, thus allowing more productivity. When you look at a construction site it's just human directed diesel-energy (with some chemical energy in the concrete). Much of the developed world is transitioning to a service economy that relies less on the fossil fuels, but it still relies on the inputs that do (agriculture, electronics, offshore manufacturing). And we've set up the economy around fuel consumption: long commutes from suburbia, inefficient houses, processed and packaged foods, etc. And what about the travel industry: burning fossil fuels for no productivity (just realized it acts as a mop for the excess capital). If we're lucky, we can use the fossil energy to bootstrap the renewable energy, then we can eat farmed foods, drive electric cars, and work on computers remotely. But there just won't be the energy to drive the economy the way cheap energy does.
MR4D 7y ago
Actually it does, and in a big way. Let me give a simple example using some round numbers just to show the concept. Plug and play any numbers you want to see how the outcome changes... Let’s say you have a million dollars in March of 2000, you just retired, and you need to pull out $100,000 to live on. So, in April, you take out $100,000 and now you have $900,000. So you ended up taking out 10% of your principal. However, the market is falling, and will drop 10% over the next year. So you now have $810,000, and you take out this year’s $100,000 which leaves you with $710,000. Effectively, you took out over 12% of your principal. 2002 is no better, and the market falls a further 13%, and is now down to $618,000. You take out $100,000 for this year’s expenses, leaving you with $518,000. The next year is even worse in the market, and your nest egg falls 23%, which means you now only have $399,000 left. You still take out your $100,000 and are left with only $299,000. Thankfully, the next year the market rises 26%. Hallelujah, your nest egg grew to $376,000. However, you still need to take out your $100,000, leaving you with only $276,000. You think your luck has turned around... The next year the market rises, but only 9%, so your nest egg grows, but only to $301,000. You take out your $100,000, leaving you with only $201,000. Hmmmmm... The next year the market rises again, but barely - only 3%, so your nest egg is now $207,000. You take out your $100,000 again, and only have $107,000 left. Uhhhh... Thankfully, the market moves up 14%, and your $107,000 grows to $122,000. You take out your $100,000, leaving you with only $22,000 left. Finally, in the last year, the market rises 4%, so your nest egg grows to $23,000. You withdraw all of it, and are now broke. This effect is based on real numbers (rounded) from [0], and represent the S&P 500 market returns starting in the year 2000 (aka, the dot com bust). What happened to this poor retiree is called “sequence of returns”, and it is something that any good financial planner uses to test the durability of his or her projections. [0] - https://www.macrotrends.net/2526/sp-500-historical-annual-returns https://www.macrotrends.net/2526/sp-500-historical-annual-re...
- DarmokJalad1701 7y ago
  10% is not really a safe withdrawal rate though.
  - RhodesianHunter 7y ago
    Did you black out during their second sentence?

kaycebasques 7y ago

> Note that nobody has any idea where equity prices will be in one day, never mind one year or ten years' time. > So relax... keep buying lol

jfengel 7y ago
The error, actually, is in the first part rather than the second. We don't know where it will be in a day or a year, but there's good reason to think we know where it will be in ten years: about twice where it is now. It might be only 1.5x or it might be 3x, but it's not very likely to fall very far outside of that range. Given that, if you have ten years to wait before you need your money, it's as good a place as any to put your surplus earnings today. Not to sell your car or borrow money, but as a reasonably safe long-term thing to do with money that you will use for your retirement. And then forget about it. Buy a broad index and don't worry what it does on a daily basis, even days like today. Perhaps especially days like today.
- phreeza 7y ago
  The counterexamples that have been brought up elsewhere on this post are Gold (still below 40 year high) and the Nikkei (still below 30 year high).
  - jjoonathan 7y ago
    Also, the fact that the Nikkei's behavior is typically attributed, at least in part, to a demographic trend that's likely to hit the US within our lifetimes.
  - jfengel 7y ago
    The Nikkei high was wildly artificial; its price-to-earnings ratio indicated that there was an enormous bubble. The US stock market is (probably) currently inflated, but by a factor closer to 2 (or less) than 10. (I've looked less into the price of gold, which has a weird place in people's minds and would require a lot more research than I've put into it.) It's entirely possible, of course, that the US is entering a long-term economic disaster of a kind it has been courting for decades: government borrowing, student loans, Baby Boomer retirement, etc. But US companies have been earning money, and in general that does justify the belief that they merit a stock price that's roughly where it is now; somewhat lower, but not radically different.

totalZero 7y ago

> As a retail investor (i.e. not extremely rich), you can't gain any advantage over the market that overcomes your transaction costs. Sure you can. You develop a system, learn how to find information, and make good predictions of future human behavior. You should learn the ins and outs of the product you're trading.

IAmEveryone 7y ago
The efficient market hypothesis would like a word with you.
- totalZero 7y ago
  The efficient market hypothesis is that markets are efficient to present public information. If markets were efficient to the present value of the future price at all times, then there would be no such thing as insider trading and hedge funds would all lose money. You can make money by making inferences about present facts, or taking views on future occurrences.
  - martinpw 7y ago
    I'm not clear why you mention insider trading here? Insiders have access to information that is not present public information, and so is not priced into the current value of the stock.
    - thoughtstheseus 7y ago
      The the strong form of the EMH includes inside info, all info in existence.
      - kpommerenke 7y ago
        Yes, but no one claims that the market is strong form efficient. The question is rather whether the U.S. stock and bond markets are weak form (prices include all past trading data) or semi-strong form efficient (prices include all publicly available information).

tyingq 7y ago

"There's nothing to do here." Maybe. I imagine it's a trigger for some people to review their investment mix. Not saying panic sell at this particularly bad moment, but downturns are an obvious heads up for people that assumed everything would constantly rise. Changing your mix for future deposits might not be a bad idea if your current mix is higher risk than it should be for your age.

Aeolun 7y ago
Probably want to change the mix in a few months, not right now.
- edraferi 7y ago
  Assuming you're over-concentrated in equities, yeah. But if you're under-invested in equities, this would be a decent time to start getting more. No telling when the market will bottom out though, so as always be careful.
- downerending 7y ago
  If you can predict that the market will go down, yes. But you cannot--that's the whole point. You could transition more slowly to get the "dollar cost averaging" effect, but that has its own risks. If your mix is wrong, it's best to fix it pretty quickly.
deleted 7y ago
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neogodless 7y ago
Ideally you set yourself up with an Investment Policy Statement which includes your ideal asset allocation (based in risk tolerance and goal-setting), as well as rules for rebalancing, such as 5% drift outside that asset allocation you want. So if equities are down 20% but bonds are stable (or better!) you end up selling bonds high and buying equities while they are cheaper. If you didn't plan ahead, you shouldn't be making plans now. If you have cash or other assets with less growth potential, it may be a good idea to sell some to buy equities. But before you do that, zoom out and look at 5 years of index fund prices. This 20% correction reaches back to about December 2018. But has not appreciably negated the growth between 2009 and then!

Der_Einzige 7y ago

Than why do I keep getting richer on my puts? Maybe it's because there are actually ways to make money during a crisis...

neuland 7y ago
If you're trading options, you are not an average retail investor. Discussing puts isn't relevant for GP's situation.
- SilasX 7y ago
  So? If you want to buy options, it's relatively easy to transform yourself into such an investor, so that should be fair game for evaluating HNers' potential search space.
  - downerending 7y ago
    It's not appropriate unless you're a multi-millionaire, and it's not that easy to transform yourself into one.
    - SilasX 7y ago
      You don't need to be a multi-millionare to make money on options, I just recently cited someone who put a small amount (relative to a multi-millionare) to disproportionately profit from the market declines that weren't priced in. https://news.ycombinator.com/item?id=22526246 https://news.ycombinator.com/item?id=22526246
    - Der_Einzige 7y ago
      I put 1000 in, but I could have put on 200$ in. Options are even MORE appropriate for the non super rich, because if you put a small amount of money in, you either win big or you lose it all. I'm fine with losing 200$ occasionally.
FabHK 7y ago
Buying lottery tickets totally works, someone can claim every week. https://xkcd.com/1827/ https://xkcd.com/1827/

leakybit 7y ago

Unless you use robinhood which has no transactions fees.

skellera 7y ago
Not just Robinhood. Charles Schwab and some others have moved this direction too.
- perl4ever 7y ago
  Virtually everybody went to zero commissions, more or less.
swsieber 7y ago
> robinhood It's easy to have no fees if your customers can't make transactions. To be less snarky, I'd avoid them if you're trying to time the markets.
- missosoup 7y ago
  For those not in the loop: it's been impossible to make transactions on a number of platforms including Robinhood due to the overwhelmingly high load causing those platforms to fail. A lot of people were basically locked out from trading.
  - chrisjc 7y ago
    Or you know... Feb 29th, every four years.
    - alasdair_ 7y ago
      They completely failed three different times in the past couple of weeks. The Feb 29th thing was a red herring.
  - walshemj 7y ago
    I got a warning when I logged into Interactive Investor (UK) this morning and its still there now. "Please be aware that due to exceptional market volatility, there may be situations in which it is difficult to obtain a price for your trade." Will be interesting to see what effect the Budget statement on Wednesday

dnprock 7y ago

I used to subscribe to these investment talking points and believed in the US equity market. I adopted these attitudes from reading Warren Buffett, index fund, financial advice. These are sound principles. I occasionally revisit value investing, dollar-cost averaging. But times are changing. The US equity market will unlikely to deliver exceptional returns. Buffett may have a strong bias since he started his investing career post WW2. Buffett may experience only the correlation between the US equity market growth and global growth. Investment return is likely non-ergodic. We're entering new terrority where exceptional returns may come from other assets.

dnadler 7y ago
What led you to the conclusion that the market will not behave as it has historically over the long-term?
- dnprock 7y ago
  I think the dynamic of the US equity market has changed. In the old days, you can balance your portfolio between stock and bond. This is portfolio advice from Benjamin Graham's The Intelligent Investor. We can no longer do this because interest rates are heading to 0. Bond investors don't make money from interest rates. Bond traders benefit from rate drop. Bond was an investment. It's now destroyed. We end up with cash and equity. There's a lot of money pumping into the market by central banks. Markets are no longer free. Central banks manipulate their markets. With these kinds of manipulations, we get diminishing returns. Let's say the economy gets back on its feet. Where does it get the leverage to invest? We're overloaded with debt. The interest rate is probably 0 or negative at that point.
  - aeternum 7y ago
    The counter-argument to this is that even with the money being pumped into the market by the central banks, we are not seeing significant inflation in consumer goods. This implies that the money is being put to work efficiently and resulting in productivity and QoL improvements for society as a whole.

mempko 7y ago

What do you say to someone starting to save now when the climate crises is now happening? Humanities ultimate cosmic event is happening. How can you reasonably save for something like that?

Reedx 7y ago

To help adopt a sober approach, it's worth watching this interview with Warren Buffett who shares his thinking re: market and Coronavirus. https://www.youtube.com/watch?v=JvEas_zZ4fM&t=21s https://www.youtube.com/watch?v=JvEas_zZ4fM&t=21s One of the points he makes is that you should think about stocks as businesses. Instead of "I bought a stock" think "I bought a business". That puts you in a better frame of mind and perspective for the long term. i.e., You don't buy or sell a farm based on today's headlines. The real question is whether things have changed on a 5, 10 or 20 year time frame for the businesses you hold.

ganeshkrishnan 7y ago
This makes sense if you have huge quantity of cash where leverage is not an issue. With limited cash, you have to think very different from Warren.
- chenster 7y ago
  I don't disagree. If you are in it for the long term, there's really nothing to worry about. The market eventually will bounce back. It always does.
  - AgentOrange1234 7y ago
    Well, so far...
    - scottlegrand2 7y ago
      And if it doesn't hopefully you stocked up on toilet paper and purell to trade in the new hellscape economy...
      - throwaway743 7y ago
        Banking on bottlecaps
      - 7y ago

bumby 7y ago

>you can’t gain any advantage over the market that overcome your transaction costs I know this is the predominant efficient market adage but is there a case to be made for low volatility portfolios outperforming the market over long periods? [1] I’m curious especially now that most online brokers have significantly reduced trade costs on ETFs [1] https://archivefda.dlib.nyu.edu/jspui/bitstream/2451/29593/2/Benchmarks15.pdf https://archivefda.dlib.nyu.edu/jspui/bitstream/2451/29593/2...

chenster 7y ago

> If you need to retire in the next five years, you should already have started moving out of equities. Exactly. People are selling off and further worsen the crash.

skybrian 7y ago

Even if you are a value investor and in it for the long haul, you may have some opinion about what's a good price versus a bad price. You don't know tomorrow's price but on rare occasions it may be that a solid company's stock looks particularly cheap for a reason you know. Should you ignore bargains entirely? Also, for many retail investors, transaction costs are now zero. Maybe the conventional advice needs an update?

Ericson2314 7y ago

As Matt Levine wrote > It’s a little weird for a mutual-fund or hedge-fund manager to have a lot of uninvested assets (why are you charging fees on a big cash position?), while it’s perfectly normal for private-equity managers to invest a bit of their fund at a time and call capital later as it is needed. So how much of a bias is there in behavior is there in practice and rhetoric against cutting your losses, pulling out, and waiting for things to be less volatile/risky-seeming?

anm89 7y ago

>Note that nobody has any idea where equity prices will be in one day, never mind one year or ten years' time This is more or less true. > As a retail investor (i.e. not extremely rich), you can't gain any advantage over the market that overcomes your transaction costs. This is patently absurd. It's an easily falsifiable statement which is a rare feat in economics. On average, the the average retail investor will not beat the market. That does not mean they can't. All you need to have is literally any correct thesis and the ability to execute on it and you will have an advantage over "the market". I'm not trivializing this, it's not an easy feat, but markets are absolutely full of inefficiencies, and it's obviously not impossible to do better than the average case. This is a complete misunderstanding of the efficient markets hypothesis. BTW, I'm not recommending that anyone try to time markets.

hoten 7y ago
What does it mean for a market to have inefficiencies?
- coolspot 7y ago
  Seriousness of wuhan virus was known since end of January, but stock market ignored it completely, raging into all-time highs till February 20th. Regular person could absolutely see it and be prepared. Even today market still doesn’t price in Italy-style or China-style lockdowns.
  - zeroonetwothree 7y ago
    This is called hindsight bias
    - anm89 7y ago
      Claiming this after the fact could represent hindsight bias. It does not change the fact that the market had an inefficiency in pricing this information into many assets two weeks ago. If someone bought or sold assets based on a strategy based on this belief (and certainly at least some people did), then they exploited that perceived inefficiency correctly without hindsight.

mmhsieh 7y ago

Buying a low cost index will already cause you to beat most retail and most professional money managers. Knowing that fact will gain you an advantage over almost everyone that moves stock for a living. Also, not too late. Getting out now is like getting out too early in Jan 2018.

nimblegorilla 7y ago

> If you need to retire in the next five years, you should already have started moving out of equities. It's too late to change that now. This is still a great time to reallocate your money. The SPDR fund that I invest in is still about where it was 1 year ago.

dcftoapv 7y ago

I don't agree. There are three things that normal investors should be doing right now: 1 - Assess how you feel. Are you upset by the loss of value? Then you make be more risk averse than you thought. It might be wise to reconsider your asset allocation after this emergency is over. However, it's not wise to redo your allocation while the VIX is above 20ish. 2 - Check in with a financial adviser. This is a good reminder that your financial portfolio matters, and it is smart to use this as a prompt to check in on your financial health. 3 - This is the most important one, but you can't do it if you're not good on #1 and #2. REBALANCE YOUR PORTFOLIO. If you are allocated to risky and riskless assets then it is time to make sure that your allocation is still where you want it to be. It probably isn't. If your allocation to riskless assets is higher than you normally would like then you should sell riskless and buy risky. Why is #3 so important? Because it allows you to collect a liquidity provider premium. Purchasing risky assets in volatile markets a) stabilizes the markets b) takes the advantaged side of the transaction. A lot of research stands behind this idea. Rebalancing in volatile environments is an easy and reliable way to outperform your peers over the long run.