21 Financial Lessons Learned From The Economic Events Of 2008-2009

By Craig Ford (Staff Writer), on October 8, 2009

One of the great gifts associated with the 2008-2009 events was an opportunity to get some free credits in the school of life. School tuition can be expensive so I am always thankful when life decides to offer me some valuable lesson for free. Personally, I loved the fact that I got to experience the events of 2008-2009 while I am relatively young. I was investing during the 2000 bear, but I was just starting out so I really didn’t pay much attention to the movement of the market. However, this bear market definitely got my attention and taught me a bunch of lessons. These lessons had to be learned by staying in the market.

Here are my class notes on the 21 Financial Lessons that the 2008-2009 schoolmaster taught:

The transition from a declining market to a gaining market happens lightning fast. I learned not to bother trying to predict what will happen next. I am amazed to look and see that just one year after things started to get really ugly (Sept 2008) I have not lost any money in the market. I thought it would take years to recover.
The market can be so volatile that it might be too early to talk about the 2008-2009 events as if they are past happenings. If you underestimate it, stock market volatility kills financial returns. This might just be a chapter break instead of the end of the story.
Tweaking your account in the dark depths of a bear market will likely be counter productive. I did this. In March 2009, I made a conservative shift after being extremely optimistic about my long term investing plan. Now I know that was the exact wrong time to be conservative.
You can never know where the bottom is. You’re welcome to guess but you’ll probably be wrong — several times.
Your time is better spent thinking about other things. While the economic events are fascinating, I learned that I should go out and play with the kids and enjoy all the important things in life.
It is essential to diversify. Some of my mutual funds fell at pace with the market, some fell more quickly, and others fell a little slower. They all balanced each other out to give an extra layer of protection.
There is always a silver lining. How did you benefit from the happenings? Here are seven blessing associated with economic weakness.
The lazy action of doing nothing different is probably the best approach of all. Regardless of the news, buy when you are supposed to buy. That’s why I don’t time the market. The approach of Dollar Cost Averaging really does work.
Instead of thinking about when to get out, see if there is more to put in . Perhaps, the darker the clouds the more you should be investing. Still, you must stick with your game plan. Never go out and get a loan to invest because it is a good time, but if you have the cash, put it to work. Several times when the market took another big hit, I added extra to my investments. I figured if history was a good teacher those decisions would turn out to be to my benefit.
You need to have a game plan. When your emotions start saying ‘sell’ you need a clear headed foundation upon which to stand. Do what you decided to do – not what you feel like doing.
Your asset allocation should reflect your investing time frame. A lot of people suffered severely because they had more money in stocks then they should for their age. I am younger so my stock holding is much higher since I know I will be able to wait until the market recovers.
Keep money out of the market if you are investing for the short term. What an awful feeling that would have been if you decided to invest for a year back in early 2008. The guaranteed returns of a savings account make a lot more sense in the short term.
God gives wonderful opportunities to ask where is your treasure? You might have felt that your treasure was in heaven, but God forced us to see if we acted like our treasure was in heaven.
Great losses are followed by great gains. What goes down will eventually come back up.
Find a good book or movie and turn off the TV. Folks on the TV cover the horrible and terrifying events of life. There is nothing like a good scare to increase your ratings. When the economy is in the highlights, the philosophy is to highlight the negative. Forget all that and read a book.
Getting out of the market at the right time is hard. Getting back into the market at the right time is extremely hard. For that reason I have never and do not plan to try timing the market. Timing the market is hard.
We can trust God enough to continue giving even when things look bad. I know many non-profits had very difficult times at the end of 2008. Some people stopped giving because their income was affected. Others just got scared and held their money more tightly than usually.
Having cash on hand is always a good idea. A little margin goes a long way. An emergency fund is a good idea.
Being debt free distances you from economic crisis. The more financial burden you assume, the more pressure each downturn adds.
During difficult times there are a lot of great buying opportunities – if you have money on hand. This time period certainly was a buyer’s market. For example, this might be a great time to buy a home.
Investing based on your position in life is much easier (and successful) than investing based on market conditions. Just do what you decided to do and you will be a more successful investor than most.

What lesson did the great schoolmaster of 2008-2009 teach you?

Get free updates

via Twitter

via Facebook

via RSS or Email

Share this article

Craig is a fulltime missionary in Papua New Guinea who writes Money Help For Christians and Help Me Travel Cheap, a frugal family travel blog. He is the author of Money Wisdom From Proverbs, has a Masters of Divinity degree, and (most importantly) eats homemade pizza with his family every Friday night.

All posts by Craig Ford (Staff Writer)

11 Comments

kenyantykoon
October 9, 2009, 5:42

the recession taught me that ignorance will always make me lose out on very good opportunities. this i learnt the hard way. and also not to spend so much money on things that i don’t need at the expense of an investing opportunity that may come up in the future
Stephen @ ACE Check Cashing Locations
October 9, 2009, 13:18

Recession taught me to value my own resources more. That there are always opportunities no matter how worse the economy is. It’s just a matter of going out of the box and seeing the things differently…

Very nice post to ponder.
Greg Retzloff
October 9, 2009, 18:46

There’s lots of investment wisdom here, Craig. Wall Street hates it, and so do beat-the-market bloggers.

Markets are all but impossible to time correctly, consistently and productively in the long run. An investor will do well by building a well-diversified, well-allocated portfolio wtih good index funds (think Vanguard) and add money on a regular basis (dollar-cost average). Diversification of a portfolio with various relatively uncorrelated asset categories like REITs, commodities, short-term bonds, U.S. stocks, U.S. intermediate bonds, and non-U.S. stocks should limit portfolio volatility. You will still get the full upside benefit of each asset category while lowering overall portfolio risk.

The vast majority of academic research supports these basic ideas.
JoeTaxpayer
October 10, 2009, 12:24

Hey, Craig, very insightful post.
Curious about your number 3. A rebalance at the bottom is almost always a successful move. It was the conservative shift that hurt you.
If one’s mix was 60/40, (Let me use $6000/$4000 for the example) at the peak, then at the bottom, $3000 stock/ $4200 cash (stocks down 50% or so near bottom). New mix $4320/$2880. Skip ahead to now with stocks up over 50%, and you have $6480/$2900 or a total $9380.
Most rebalancing doesn’t pick the perfect time to do this, so my example is a bit exaggerated in its success, but you offered March as the time to do it. In reality, it would occur every 6 or 12 months, and some analysis would be needed to intelligently discuss the return one would see.
Rob Bennett
October 10, 2009, 12:50

If you underestimate it, stock market volatility kills financial returns. This might just be a chapter break instead of the end of the story.

Thank you for the kindness in linking to the “Stock Volatility Kills” guest blog entry, Craig. That made me happy.

My belief is that this is a chapter break, not the end of the payback that we need to make after having been at insanely high price levels for so long. If we had stabilized at a P/E10 level of 12 (a bit below fair value), I think we might have been off the hook. But I think we collectively made a huge mistake in letting prices get out of control again. I think we have more lessons to learn.

But I agree with your point that we will eventually recover. We will get there. And if we learn the lessons we need to learn, we will be smarter this time. Which means that we will be better able to hold onto gains!

Rob
Craig Ford (Staff Writer)
October 11, 2009, 1:28

@kenyantykoon. Ignorance does have a high cost attached! A little cash on hand will open up a lot of opportunities.
@ Rob. It will be interesting to see how this market story plays out. If there are more lessons to learn I certainly hope they stick!
@Joe. Certainly the right rebalance would have been AWESOME! Unfortunately, I think our nature is that if we tweak the account in the ‘depths’ it will be a conservative tweak not aggressive. That will hurt. If you can control your emotions you can take advantage of the declining market. Hence the value of #9. Thanks for you comment.
@ Stephen. Thanks for commenting. I completely agree about a lot of opportunities. I highlighted some of those opportunities in #7 through the link.
@Greg. It sounds like we have a lot of similar and simple investment ideas. It does frustrate some of the presumed investing elite because this type of talk minimizes their role.
Investing does have some very simply underlying principles . Unfortunately, we make it too complicated.
Andrew @ Financial Services
October 12, 2009, 15:14

#19 is always true, whether there’s a recession or not. It’s never a good thing to have debt. I like #7 a lot. I dunno what happened with the gas prices, all of the sudden it dropped out of the radar and nobody was talking about it anymore. It never fails to occur to me that all of these have been predetermined by the ruling elite but at least, from where we stand, it’s feels good to be able to look forward to a “silver lining” even if everything looks grim.
chris
October 12, 2009, 17:09

Trust god? Really? In a market that incorrectly prices assets? Really?
Craig Ford (Staff Writer)
October 13, 2009, 9:32

@Andrew I completely agree that debt is never a good thing. It seems as though the media does a great job informing us of when things are horrible, but they forget to tell us when things get better. I guess bad news sells better than good news!
Sabrina Bremmer
November 12, 2009, 22:16

Here are some links to understanding money and and debt:

7 Page article in The Times on Goldman Sachs
http://www.timesonline.co.uk/t.....amp;page=1

Article in Rolling Stone on Goldman Sachs
http://www.rollingstone.com/po.....le_machine

The great American bank robbery:
http://vodpod.com/watch/2040248-how-to-rob-a-bank

How banks gained control of America:
http://video.google.com/videop.....256183936#

How to fix bad commercial banks that take in money from depositors. Simple. People power. The Dutch brought an arrogant bank to its knees in twelve days:

http://news.bbc.co.uk/2/hi/business/8323991.stm
Miguel @ Great Stops
November 19, 2009, 17:53

Great Article.

I think #4 & #6 are essential. I have learned without a doubt that no one can predict where the bottom is. You can get a feel for getting closer to the bottom, but it is so unpredictable that you just have to wait and see where it eventualy bottoms out.

Also, I was lucky in that I was already diversified, but I can’t stress enough how important it is to spread your assets around. I have several friends that are still hurting a great deal because they where locked into 1 or 2 options.

Great list and sound financial advice for the public.

Please share your comment:

Comment Rules: Constructive criticism is welcomed. Please use your PERSONAL name or initials and not your business name or URL, as the latter comes off like spam and I'll most likely delete your comment. Have fun and thanks for adding to the conversation! Here's our comment policy and guidelines.

10 blogs that link to this article:

If your trackback does not show in 24 hours, please resend to this trackback URI.

Free Q&A Service

See More Questions

Best Bank Rates

High Interest Savings Accounts	1.51%
High Yield CDs (1-year)	1.75%
High Yield Checking Accounts	1.46%

Best Credit Cards

Best Credit Card	TrueEarnings®
0% APR Balance Transfer	6 mo
Lowest Interest Rate	9.75%
Best Cash Back Reward	5%

Your Credit Score

Featured Reviews

Affiliate Relationships

As required by FTC regulations, please note that we have a financial relationship with many of the companies mentioned on this site. We occasionally review products or services that we have been given access to for free. However, we do not accept compensation in any form in exchange for positive reviews and the reviews found on this site represent the opinions of the author.

Important Notice:

The information found on Moolanomy is provided and intended for informational and entertainment purposes only and does not constitute financial, legal, or other advice of any kind. The information contained on this site is aimed at a general audience, and does not attempt to offer specific advice to your specific circumstances. If you are looking for professional advice, you should consult with an independent financial adviser.

This site contains information about third party products and services, such as credit card offers, online banking, discount brokers, and credit score services. While we endeavor to ensure that the information presented on this site is accurate at the time of publication, any offers and rates shown on Moolanomy can and do change without notice. Visit the official site of the offer for up-to-date information.

For additional information, please review our Terms and Conditions.

Archives By Year

2007, 2008, and 2009

Additional Resources

CheapLoans.co.uk - A simple way to find cheap loans. For a hassle free quotation, apply now!
Mortgage Refinance - FHA lender offers fixed rate mortgage refinance loans for consolidating adjustable rate debt and loans, getting cash back and financing a new home remodel.