Stock Market is the bottom in?

[SwampCat]

As a nine year retiree - my experience has been dismal at best as far as investing. I was fearful of a stock market downturn taking my savings - so I invested in less risky stocks and mutual funds - and generally with less risk, comes less reward - which is truly what I have experienced. But that said - I could have retired two years before I did but kept working to increase my retirement income. I would have gladly taken less retirement income to gain two more years of retirement.

 

[yoderjac]

As a nine year retiree - my experience has been dismal at best as far as investing. I was fearful of a stock market downturn taking my savings - so I invested in less risky stocks and mutual funds - and generally with less risk, comes less reward - which is truly what I have experienced. But that said - I could have retired two years before I did but kept working to increase my retirement income. I would have gladly taken less retirement income to gain two more years of retirement.

Yep, it is really personal factors that drive your decision. They say find something you love and you'll never work a day in your life. That was pretty much me except for the commute. I was itching to retire in my mid 50's. I got out of the critical path and move into move a grey-beard consulting role. I started loving the work again and I was able to off-shift hours a bit to ease the commute. When COVID hit the commute disappeared. I have a lot of flexibility now. At this point, Dec 2021 is possible, but Dec 2022 is more likely.

 

[Telemark]

Nope. The land and real estate I own does not produce enough income to consider it as part of my portfolio. It certainly has long term value. but short of an emergency, I never plan to liquidate it. For most of my career I was fully invested in stocks except for emergency funds. That changed last winter as I began to look to retirement when I moved significant money into cash equivalents. When COVID hit and the markets reacted, I went back to 100% stocks. Since the market recovered, I moved significant amounts back into cash. I though we over-corrected when COVID hit and I think we have over-recovered. The next few years looks bleak to me from a market perspective. Even If the most optimistic COVID recovery scenario occurs, the damage done to small business and the economy will take a long time to repair. The money spent to keep the economy from crashing either will increase long-term debt or, with the Dems in office, be dealt with through tax increases. The wealth gap has significantly widened as a result of COVID.

I don't plan to hold any bonds. I can't see any case where they are needed in my portfolio. I outlined my strategy in a previous post, broad market stocks and cash only from an investment perspective.

Real estate is a great investment now. Interest is extremely low. Farmland seems like a good investment if you aren't interested in rentals. Cash always goes down in value, probably even more now than before the stimulus checks.

 

[SD51555]

Real estate is a great investment now. Interest is extremely low. Farmland seems like a good investment if you aren't interested in rentals. Cash always goes down in value, probably even more now than before the stimulus checks.

I worry about real estate values. They've surged on a near constant decline in interest rates over 40 years that I think only served to inflate prices. With rates now at practical zero, can real estate keep rising? I think that'd require an increase in external real wealth (not funny money) or productivity. I'd argue neither of those are happening. Yields are on the rise, but the income doesn't seem to make it to the bottom line for most of the producers.

 

[yoderjac]

I worry about real estate values. They've surged on a near constant decline in interest rates over 40 years that I think only served to inflate prices. With rates now at practical zero, can real estate keep rising? I think that'd require an increase in external real wealth (not funny money) or productivity. I'd argue neither of those are happening. Yields are on the rise, but the income doesn't seem to make it to the bottom line for most of the producers.

Completely agree. On top of that, when the govt finally has to pay for COVID and starts raising taxes, how will they increase them? Who knows, but with the big base for the Dems being urban voters, I could see a case being made that the home interest deduction is unfair to renters. Sprawl has also been driving land prices for years. Just think what impact something like that could have on the single family home market that then ripples through the real estate market in general.

Don't get me wrong. I own real estate, but I don't consider it a financial investment. My home is (currently) worth much more than I paid for it, but I why did I buy it. I wanted to live in it rather than a rental first. Second, the homeowner interest deduction let me afford about 30% more in mortgage payment than I was paying in rent. And finally, because it seemed the market was in a slump and the value would increase over time. It turned out that (so far) my home was a good financial investment, but that was not the primary reason I bought it. When we bought the pine farm, I thought there was a chance for it to be a long-term real estate play because of the location, I also knew we could get some level of income from the sale of pines over time, but the primary reason we bought into the pine farm LLC was to have recreational land where we can hunt. When I bought it, I did so never expecting to sell it.

The pine farm has been a terrific personal investment. It has kept me sane and let me learn a huge amount. I get great enjoyment out of the habitat work as well as hunting. From a financial perspective, we bought at the top of the market and the land is worth about 60% of what we paid. On tope of that, the capital investment each year from the LLC is about $10K or so. We have only received back a fraction of that in income from timber sales so far. The LLC does not own most of the equipment. We own that personally, so I personally put in much more than my share of the capital call each year. It turned out to be a terrible financial investment (so far).

So, while I do own real estate, I don't consider it part of my retirement investment portfolio. We also purchased a couple lots where we plan to retire. We just built a barn with about 540 sq ft of living space were we plan to live while building our retirement home. (There is another thread on that). But again, we did not buy this as a financial investment (although we always hope our assets will increase in value), we bought it as a place to live.

Thanks,

Jack

 

[yoderjac]

I saw some statistics once that showed if a big crash. (50-60)% happens in the first five years of retirement there’s a good chance you won’t fully recover over your average retirement life. If you make it 6-10 years before a big crash you will probably recover. Over 10 your good.

Yes, that is the exact point I was making. If you have to eat out of your nest egg early, it can be nearly impossible to recover. Once I leave the job market, it won't be easy to get back in at anywhere near the same level (might be specific to my work).

So, how to you avoid this situation? These market dips don't last for more than 3 or 4 years. After that point, the market has recovered. So, my plan is to have 3-4 years worth of cash to cover the difference between my expected needs and my fixed income (pensions, social security, etc.) If I get that big drop early after retirement, I use the cash. If not, I liquidate stocks. I keep that cash bucket full because dips in the market will come. When the do, I eat cash, when it recovers, I liquidate stocks to refill the bucket and eat stocks.

Not everyone can use this strategy. It depends on your lifestyle, fixed income streams, and nest egg size. I'm old enough that I have some good fixed income streams. My wife and I will both have pensions. So, a gap between predicted needs and fixed income is small enough that I can keep 3-4 years worth in cash and have stocks earn enough over the long haul to keep the system going. The one big got-ya for me is "predicted needs". I have a tough time predicting the cost of boredom (especially for my wife). While I'm happy to continue doing habitat work, teaching hunter ed, hunting and fishing in retirement, she my be more inclined to travel. We have not done much traveling. I can predict the cost of my hobbies pretty well because they are established. Her's ...not so much.

Thanks,

Jack

 

[rocksnstumps]

The big investment crash late in your career or very early in retirement is known as Sequence of Returns Risk (SORR). You can google it and find examples and likely strategies to consider that help medigate the financial pummelling that might otherwise result. Have to keep up with the times though. Agree that getting into bonds right now with interest rates at practically zero is not all that appealing especially for any mid to long term time frame. Best to consider shorter terms or frankly I find CDs and building a CD ladder thru my credit union much "better" paltry returns than a lot of bonds.

 

[yoderjac]

The big investment crash late in your career or very early in retirement is known as Sequence of Returns Risk (SORR). You can google it and find examples and likely strategies to consider that help medigate the financial pummelling that might otherwise result. Have to keep up with the times though. Agree that getting into bonds right now with interest rates at practically zero is not all that appealing especially for any mid to long term time frame. Best to consider shorter terms or frankly I find CDs and building a CD ladder thru my credit union much "better" paltry returns than a lot of bonds.

Forgetting the timing, I can't find any case for bonds in terms of return. There is a case for bonds in your portfolio reducing volatility for those can't don't sleep well at night. I think brokers recommend them because they get too many calls from clients when volatility is high. I could not find hardly any period where a mix of cash, bonds, and stocks out perform a mix of stocks and cash alone over the long haul. Sufficient cash to cover dips and the rest in the broad market seemed to win every scenario I tried. Of course, if you had a historic deep and long downturn, all bets are off.

 

[Telemark]

I worry about real estate values. They've surged on a near constant decline in interest rates over 40 years that I think only served to inflate prices. With rates now at practical zero, can real estate keep rising? I think that'd require an increase in external real wealth (not funny money) or productivity. I'd argue neither of those are happening. Yields are on the rise, but the income doesn't seem to make it to the bottom line for most of the producers.

I'm not talking about real estate to sit on. I'm talking about income-based investment real estate.

Rents go UP with inflation. Commodity prices go UP with inflation. Property values go UP with inflation. Loan values go DOWN with inflation.

Point being, you get the asset paid off by the income it generates, and you do that faster now, because inflation is likely to hit HARD in the next few years. Then you continue to earn income from the property, or you sell the asset.

It's what I am doing, and it's been a winning strategy for me. But I'm not a financial advisor, and this is not advice.

 

[Telemark]

Completely agree. On top of that, when the govt finally has to pay for COVID and starts raising taxes, how will they increase them? Who knows, but with the big base for the Dems being urban voters, I could see a case being made that the home interest deduction is unfair to renters. Sprawl has also been driving land prices for years. Just think what impact something like that could have on the single family home market that then ripples through the real estate market in general.

Don't get me wrong. I own real estate, but I don't consider it a financial investment. My home is (currently) worth much more than I paid for it, but I why did I buy it. I wanted to live in it rather than a rental first. Second, the homeowner interest deduction let me afford about 30% more in mortgage payment than I was paying in rent. And finally, because it seemed the market was in a slump and the value would increase over time. It turned out that (so far) my home was a good financial investment, but that was not the primary reason I bought it. When we bought the pine farm, I thought there was a chance for it to be a long-term real estate play because of the location, I also knew we could get some level of income from the sale of pines over time, but the primary reason we bought into the pine farm LLC was to have recreational land where we can hunt. When I bought it, I did so never expecting to sell it.

The pine farm has been a terrific personal investment. It has kept me sane and let me learn a huge amount. I get great enjoyment out of the habitat work as well as hunting. From a financial perspective, we bought at the top of the market and the land is worth about 60% of what we paid. On tope of that, the capital investment each year from the LLC is about $10K or so. We have only received back a fraction of that in income from timber sales so far. The LLC does not own most of the equipment. We own that personally, so I personally put in much more than my share of the capital call each year. It turned out to be a terrible financial investment (so far).

So, while I do own real estate, I don't consider it part of my retirement investment portfolio. We also purchased a couple lots where we plan to retire. We just built a barn with about 540 sq ft of living space were we plan to live while building our retirement home. (There is another thread on that). But again, we did not buy this as a financial investment (although we always hope our assets will increase in value), we bought it as a place to live.

Thanks,

Jack

You are confusing a lot of terms here, and you're ignoring a lot of facts.

Home interest deduction is unlikely to end, because the banks love it.
Sprawl is likely to continue because people are moving out of cities.
A home is not an investment; it is a liability.
Recreational land (what you call a "personal investment") is not an investment per se if you never plan to sell it; it is a liability.
Your equipment is not an investment, but it could be owned by the LLC if you wanted it to be.

It doesn't seem like you have any investment real estate, but you are trying to use your real estate as a measure for real estate as an investment.

 

[chummer]

Not sure of your definition of home but mine is certainly an investment and a big part of my retirement plan.

 

[yoderjac]

You are confusing a lot of terms here, and you're ignoring a lot of facts.

Home interest deduction is unlikely to end, because the banks love it.
Sprawl is likely to continue because people are moving out of cities.
A home is not an investment; it is a liability.
Recreational land (what you call a "personal investment") is not an investment per se if you never plan to sell it; it is a liability.
Your equipment is not an investment, but it could be owned by the LLC if you wanted it to be.

It doesn't seem like you have any investment real estate, but you are trying to use your real estate as a measure for real estate as an investment.

Laughable. Time will tell what happens with home interest deductions. It is a political decision and not predictable. For most homeowners over the last 50 years, the equity in their homes has become a major investment over their lifetime. Most folks consider a home and asset and investment that they can use in the interim. The term "personal investment" as I use it refers to an investment in myself and family as people, not a financial investment. Much like a home, own would hope it grows in value over time, but the primary purpose is our use in the interim.

I explicitly said in a previous post that I own real estate but don't consider it part of a retirement portfolio.

 

[SD51555]

I'm not talking about real estate to sit on. I'm talking about income-based investment real estate.

Rents go UP with inflation. Commodity prices go UP with inflation. Property values go UP with inflation. Loan values go DOWN with inflation.

Point being, you get the asset paid off by the income it generates, and you do that faster now, because inflation is likely to hit HARD in the next few years. Then you continue to earn income from the property, or you sell the asset.

It's what I am doing, and it's been a winning strategy for me. But I'm not a financial advisor, and this is not advice.

I think carefully about all of that. Those are industrial age truths, and I'm sure it's paid dividends as long as you've been working on it. We're entering a new world.

Rents do go up. What's problematic, is renters incomes aren't following, as illustrated by the 1/3 of people (all time high BTW, and rising) aged 18-34 still living with their parents. This has been on the rise for the past 5-6 years. The work from home trend is really putting cripple on rent in high priced lockdown cities too.

Commodity prices do not go up with inflation. Commodities are very cheap today, with the exception of those affected by stimulus. They're in severe depression if you factor in the expansion of the money supply.

Property values have gone up because falling borrowing costs brings more buying power for the same amount of cash. Every national catastrophe back to 9/11 was followed by a boom in real estate driven by swiftly falling interest rates.

I'm not trying to rain on your parade, but I don't know anyone else that feels the way I do about this. That's usually when a bubble bursts, if it's allowed to burst. Judging by the amount of fed intervention on interest rates, both buying all the new debt from the government to hold rates down, and now directly buying up mortgages at a faster clip than 2008, they're running out of tools.
I'd think long and hard about the solvency of anyone paying me rent, especially if me paying my loan is dependent on it. I'd worry about rates that can't go down enough from here to bring forward the next greater fool (economic term, not an insult) to award you a gain at sale time. I'd worry about government gridlock holding up the next stimulus payment, or telling people they don't have to pay me rent, and I can't kick them out. I hope I'm wrong, but I can't ignore the signs of stress on real estate.

 

[Kooch]

I think carefully about all of that. Those are industrial age truths, and I'm sure it's paid dividends as long as you've been working on it. We're entering a new world.

Rents do go up. What's problematic, is renters incomes aren't following, as illustrated by the 1/3 of people (all time high BTW, and rising) aged 18-34 still living with their parents. This has been on the rise for the past 5-6 years. The work from home trend is really putting cripple on rent in high priced lockdown cities too.

Commodity prices do not go up with inflation. Commodities are very cheap today, with the exception of those affected by stimulus. They're in severe depression if you factor in the expansion of the money supply.

Property values have gone up because falling borrowing costs brings more buying power for the same amount of cash. Every national catastrophe back to 9/11 was followed by a boom in real estate driven by swiftly falling interest rates.

I'm not trying to rain on your parade, but I don't know anyone else that feels the way I do about this. That's usually when a bubble bursts, if it's allowed to burst. Judging by the amount of fed intervention on interest rates, both buying all the new debt from the government to hold rates down, and now directly buying up mortgages at a faster clip than 2008, they're running out of tools.
I'd think long and hard about the solvency of anyone paying me rent, especially if me paying my loan is dependent on it. I'd worry about rates that can't go down enough from here to bring forward the next greater fool (economic term, not an insult) to award you a gain at sale time. I'd worry about government gridlock holding up the next stimulus payment, or telling people they don't have to pay me rent, and I can't kick them out. I hope I'm wrong, but I can't ignore the signs of stress on real estate.

That Finance Degree might have been a decent expense there SD.

 

[Mortenson]

I'd probably consider your home a liability, and treat it like an asset, and hope you get lucky someday if you have the need. I'm in the camp they're liabilities for most people. Not all.

 

[homerj1]

If a home/property is owned outright with no lien, would some still consider it a liability?

 

[Mortenson]

Less likely to. Depends. How much does it cost to keep it from becoming a dump?

 

[yoderjac]

I think carefully about all of that. Those are industrial age truths, and I'm sure it's paid dividends as long as you've been working on it. We're entering a new world.

Rents do go up. What's problematic, is renters incomes aren't following, as illustrated by the 1/3 of people (all time high BTW, and rising) aged 18-34 still living with their parents. This has been on the rise for the past 5-6 years. The work from home trend is really putting cripple on rent in high priced lockdown cities too.

Commodity prices do not go up with inflation. Commodities are very cheap today, with the exception of those affected by stimulus. They're in severe depression if you factor in the expansion of the money supply.

Property values have gone up because falling borrowing costs brings more buying power for the same amount of cash. Every national catastrophe back to 9/11 was followed by a boom in real estate driven by swiftly falling interest rates.

I'm not trying to rain on your parade, but I don't know anyone else that feels the way I do about this. That's usually when a bubble bursts, if it's allowed to burst. Judging by the amount of fed intervention on interest rates, both buying all the new debt from the government to hold rates down, and now directly buying up mortgages at a faster clip than 2008, they're running out of tools.
I'd think long and hard about the solvency of anyone paying me rent, especially if me paying my loan is dependent on it. I'd worry about rates that can't go down enough from here to bring forward the next greater fool (economic term, not an insult) to award you a gain at sale time. I'd worry about government gridlock holding up the next stimulus payment, or telling people they don't have to pay me rent, and I can't kick them out. I hope I'm wrong, but I can't ignore the signs of stress on real estate.

You are not the only one thinking that way. I think it is even worse. As COVID intensifies the wealth-gap, political pressures from the left intensify. Populism is now a significant part of both parties. Rent control has been in urban centers for quite a while. Will it expand? There is also a demand side to the equation for things like commodities. As the economy slows and consumer confidence weakens who knows what direction things will take.

My point to Telemark is that one can make the case he makes, but one can also make a very different case. There are a lot of complex interrelationships. There are no slam dunks right now, including income producing real estate.

Thanks,

Jack

 

[yoderjac]

If a home/property is owned outright with no lien, would some still consider it a liability?

I'm not sure the financing directly comes into play. I'd say that goes to how much of an asset or liability it is. I'd also say it really depends on how you look at it. Is a car and asset or liability? For some, it may be both. If you live far enough from you job and don't have alternate transportation, it could be considered and asset in that it contributes to income production. Of course, if you hit someone without insurance, it can be a great liability. Similarly, in order to produce income you need a place to live. If your alternative is rent, you are swapping one liability for another and the better one to have depends on the situation. The liability in a home includes the maintenance, taxes, and any associated debt. It is a long-term liability with limited liquidity but with the chance for appreciation. For most folks during my lifetime, the equity appreciation has far exceeded any liability. This, excludes the folks who bought near the top of the bubble and over extended themselves financially.

Personally, I consider a home an investment, but not one that I would base a retirement plan on. For my retirement planning I assumed my current housing costs will continue in retirement. We will likely sell our appreciated home and build in a lower living and real estate cost area. I don't know whether we will have a mortgage or not yet. I have one currently. It will depend completely on financing cost at the time and whether I think I can earn more in the market over the long haul. If I do get one, it would essentially be an investment loan.

If I were a 20-something today, I would not buy a home with the expectation that it will grow equity that I can use for retirement. I certainly would not buy a home in lieu of investing in a Roth.

Thanks,

Jack

 

[homerj1]

Less likely to. Depends. How much does it cost to keep it from becoming a dump?

Say $6500 annually.