A lesson from the financial crisis, 10 years later: Keep your cool
“What did regular investors lose? Not much. If they stayed in the stock market, they’re better off now than they were before the crash. Some lost much of their savings and decided to get out of the market—and didn’t get the benefit of the subsequent upturn. They’re the ones who got hit the worst.”
—former secretary of labor Robert Reich, as quoted in 10 years after the financial crisis, has your retirement portfolio recovered?, The Washington Post
Ten years ago this week spelled the demise of Lehman Brothers. The investment giant’s bankruptcy was the first of many dominoes to fall as the financial crisis engulfed the world economy.
In her Washington Post column today, Michelle Singletary recalls the shock she shared with millions of Americans as the crisis tore through her retirement portfolio. As a personal finance writer, Singletary writes that the bitter irony wasn’t lost on her: The very advice she gave her readers—prioritize saving for your golden years—now seemed meaningless in the face of the crash. She vividly remembers wanting to pull out what money she had left and hold it in cash—yes, going against every rational tenet of slow, steady investing she’d espoused over the years.
But a decade on, she’s glad her husband talked her down, and she didn’t let the shock get the better of her. Investors (including Singletary) who didn’t panic in the midst of the crisis and held onto their investments have, for the most part, recovered in full. And then some.
It’s the biggest lesson of that awful day: The economy is always going to boom and bust—and even crash. It could happen again sooner than you think. But as in any kind of crisis, keeping calm is going to be the best asset in your investment portfolio—especially if you stick to passive investments that track the market broadly, such as index ETFs and index funds. The complex aftershocks of the 2008 crash and the Great Recession are still playing out; this is one simple piece of advice that could protect you no matter what comes next.
