Back to the First Day of My Retirement

I just noticed that with little fanfare, last Friday, January 14^th, the S&P 500 Index closed at 1,293.  That’s pretty significant to me.  On March 3, 2008, the first trading day of my official retirement, the S&P also closed at 1,293.  Under normal circumstances this wouldn’t be all that noteworthy, except that we saw the S&P drop to a low of 683 on March 2, 2009, almost one year to the day after I retired. 

What a ride:

            Retiring in a Down Market—Part II  (July 14, 2008)

            Retiring in a Down Market:  It’s Not as Bad as I Thought (November 3, 2008)

            Retiring in a Recession:  Really the Smartest Decision?  (October 7, 2009)

            The Stock Market:  What a Difference a Year Makes  (November 20, 2009)

            A Note About “Losing” Money in the Stock Market  (July 6, 2010)

I read an article recently about how now is finally the time to get back into the market.  It made me laugh--the experts are saying now is a good time?  Sure, it feels better to get in now, after the market has risen 89 percent from that March 2009 low, but wouldn’t it have been a lot better to have invested back then, when stocks were really on sale?

The problem is it was too scary to invest back then.  It feels better to invest when the market is going up, and it feels impossible to invest when the market is tanking.   Which is exactly the point of sticking to your target asset allocation, to take the emotion out of your investing.

Keeping my assets in line with my target asset allocation over these last three years has forced me to shift a little away from cash and bonds into mutual funds, the exact opposite of what I felt like doing.  But I was rewarded for sticking to my planned allocations.  As I said in September, 2008, it’s not because I was a cool-headed investor, it’s just the only way I could make retirement work:

“If I sold everything right now and put it all into cash, I would have a ZERO percent chance of making enough on that money to get me through 50 years of retirement.  It simply could not generate enough income to keep up with inflation and my living expenses for that length of time.

The worst-case scenario of the market never ever recovering would also mean that I could not meet my retirement needs either.  But at this point, the only hope I have, is to hope that the market will indeed recover at some point.  And since that possibility has odds of greater than ZERO percent, I have to go with that approach.

The other alternative, of course, is to sell everything and wait for the exact bottom and buy it all back up again at bargain-basement prices.  But I also know with 100% certainty that I'm not smart enough to know what day that is, so I'm not even going to try.”

I don’t have the expertise (or luck) to try and time the market.  Actually, the odds are stacked against anyone being successful in that endeavor:

“Over the last 40 years, a surprisingly small number of trading days have accounted for the majority of investor returns.  If you miss those, you stand to permanently damage your long-term results:  "Less than 1 percent of the trading days accounted for 96% of the market gains."  So, if you sell everything and then miss these days getting back in, you are much worse off than if you just rode it out.”

All those working people that continued to sock away money into their 401(k)’s dollar cost averaging over the last 3 years, received some nice rewards as well. 

What’s going to happen from here?  Who knows but I’m feeling a lot more relaxed about it since it looks like I made it through the worst market of my lifetime without making any sudden moves. 

This is a post from Retirement:  A Full-Time Job

 

Comments

[fred doe]

you always hear that one should have a diverse investment portfolio. now that i'm retired i like to have a diverse life portfolio. when the market crashed i had fat cash to buy. of the money i invested i made 150% return not big money but more then i had. i made mistakes (like i'll lay on my death bed saying, "i should'a bought Ford at a dollar a share") but it's a learning experience about my own prejudice. i thought everyone would stop buying those latte's, boy was i wrong Starbucks has been rocking and rolling since it was $7.00 a share. i never would have invested in single stocks if the market had not crashed. i don't bet the "farm" but i make what a part time job would give me. and i have a part time job too.

[deegee]

When I left my job in late October, 2008, the market was on the decline. And it was not just the stock market but the bond market, too.

Because my company's stock (ESOP) was at the time evaluated only once every quarter, it had not yet experienced a big drop as of its 9/30/08 evaluation. However, the corporate bond fund I was using its proceeds to invest in had taken a big dive by the end of October, very close to its bottom. So I was able to sell the ESOP while it was still pretty high and buy into the bond fund at bargain basement prices, getting the best of both worlds.

With the 401(k), I rolled it into an IRA using the same asset allocation I had with the 401(k) although I later bought some of the stock fund when the price took a further dive in the next few months. I have since done some small rebalancing when the bond fund's price was near its peak around last September.

[Jan]

Hey Fred- We bought Ford for a dollar and some change. We bought it again at seven. Whew!
We have been lucky so far.
Not real thrilled that Congress may play chicken with the national debt. We are seriously thinking of getting out before March 15th.

[Online Senior]

Great post. We're also in a state of "what next" when it comes to the market. We actually haven't been in the market for about a year now because of all the flux and turmoil. Got in on the cheap on a few things here and there, but nothing substantial. Our confidence in the market has waned and now we're looking to other opportunities to balance our portfolio. Good luck.