Today, we can look back and glean important insights from the financial crisis that began with the U.S. housing market and culminated with a full-blown global credit crunch that affected many countries around the world. This crisis, known as the Great Recession, is the worst recession in the United States since the Great Depression. The start of the crisis is often marked by the bankruptcy of investment bank Lehman Brothers on September 15, 2008.
Governments from around the world were forced to save banks from failure and Central banks had to pull out all the stops to prop up the markets. The aftermath: The Great Recession cost 11 million people their jobs and gobbled up $13 trillion in wealth as the stock market and home prices plummeted. The unemployment rate doubled from 5% in December of 2007 to 10% at its peak in October of 2009. The S&P 500 fell almost 40% while the housing market plunged by roughly 30%.
A decade later, we have seen various aspects of recovery across the board. Since 2010, 8.7 million jobs have been recovered and unemployment is currently down to 3.9%. Through 2017, the S&P 500 has returned on average 7.8% annually for ten straight years. However, home prices on a national level are still lagging. Only about one third of homes nationwide have surpassed their pre-recession values. It is estimated that another 8 years will pass before the national housing market fully recovers. Banks are now held to higher liquidity standards and face harsh stress tests to ensure they can withstand catastrophic events going forward.
Through it all, we have learned some valuable lessons that can be applied to personal finances on an ongoing basis.
Risk Does Matter
Without risk, growth is impossible. Your focus needs to be on taking an appropriate amount of risk to accomplish your goals and objectives.
Diversification is important because it can help balance risk and reduce the impact of one asset underperforming.
Panic selling because of market fluctuations is one of the biggest hurdle’s investors face. It is often more prudent to have a long-term portfolio objective that can weather market fluctuations.
Financial success is contingent on taking the appropriate risks to meet your goals and objectives, staying diversified with your investments, and staying consistent through market fluctuations.
As always, if you have any questions specific to your situation please not hesitate to contact us.