21 Financial Lessons Learned From The Economic Events Of 2008-2009
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?
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About the AuthorCraig Ford
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.
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