‘Stock Market’ Category Archives


Surviving the Stock Market Crash in 2008

by Ziva Beck in Must Read, Stock Market

In January 2008, we went away for a week for a family vacation. During the week we were out, the market took a nose dive and the S&P 500 index dropped more than 5%. I didn’t like it at all!

That weekly slide got me thinking about how much down side I can really take and how would I feel if the stock market was down 10%, 20% or even more. In other words, I started thinking about my risk tolerance in the event markets go down.

Some financial advisors recommend subtracting your age from 100 to determine the percentage of your exposure to stocks. For example, if you are 30 years old and subtract your age from 100 then you should have 70% of your investments in stocks. That is all well and good until you are actually faced with a loss. Your age is a good starting point for determining your asset allocation. Additional factors to consider include your future earnings potential, how easy it is to replace the amount that is lost and when do you need the money. In general, if you expect to make more money in the future and don’t need the money for a very long time, you can take a higher risk and invest more in stocks.

To get a better understanding of your risk tolerance, you can take a look at the table below. It shows the amount of Loss based on the % of your money in stocks for total available assets of $100,000 and a market drop of 30%.

When further examining my risk tolerance, I realized I was very uncomfortable loosing more than 6%-10% of my total assets. My whole asset allocation had to be revised. I sold most of my stock funds and moved the money to safer investments.

Later in the fall of 2008, the market had a crash of over 30% in what is known one of the most painful market crashes in recent history. I lost 30%-40% in my mutual funds like everyone else. But because my overall investment in the stock market was adjusted to my risk tolerance I didn’t loose more than I was comfortable loosing. It still hurt but was manageable.


Lost Decade for the Stock Market

by Ziva Beck in Must Read, Stock Market

The S&P 500 Index is a weighted index based on 500 large-cap US companies and is frequently used to measure stock market performance.

In 2000, I decided to invest $20,000 in the Vanguard S&P 500 Index mutual fund with approximately 10 year horizon. It seemed like a reasonable approach. Many financial experts recommended using the index funds versus the actively managed funds. Vanguard is known for its low expenses fees. Really, it seemed I can’t go wrong here.

Fast forward to January, 2010. After two severe market corrections in 2002 and 2008, I sold my shares in the Vanguard S&P 500 Index fund at a loss of $2,767. This was painful! What went wrong?

In one of her shows, Suze Orman mentioned that we are currently in a secular Bear Market that started in the year 2000. That is when I learned that there are secular Bear and Bull stock market cycles. In the 80s and the 90’s we were in a great Bull market that lasted 18 years. In a secular Bull market, the general stock market tends to go up. In a secular Bear market, the general stock market tends to go down. You can find year by year summary of secular Bear and Bull markets at http://www.crestmontresearch.com/docs/Stock-Secular-Chart.pdf. The previous secular bear market lasted 16 years. The current secular market started in 2000 and is projected to last at least another 5 years.

My lesson learned is that while frequently recommended Buy and Hold strategy worked well in the secular Bull market in the 80’s and 90’s, it is not as simple during the secular Bear market that we are currently in. Certainly, it didn’t work for my 10 year investment. In hindsight, I would have been better putting that money in a 5 year CD. I believe now that more active management is needed during the secular bear market. It does require more effort and more education but is a possible option.