The Great Recession – What We Did Right

The “Great Recession” may have not been officially declared over just yet, but things we’re seeing in the financial world are showing that we’re regaining momentum, or at least solid ground in the markets.  We’ve seen the stock market gain more than 60% since the low a year ago, which is remarkable even though we’re still a ways off the peak of 2007.

Now is the time to look back and review our actions during this difficult period – review is useful for us to understand what helped us weather the storm and wind up with positive outcomes.  According to some of the things I’ve been seeing and reading, it appears that many folks came through the financial crisis pretty much unscathed.

What We Did Right

We Didn’t Panic – As in most “crisis” situations, it’s a good thing to maintain calm.  In this specific crisis, we held true and didn’t make sudden moves to react to the situation.  Since we had a  well-thought-out plan in place, we stuck to it and, even though we saw our accounts decrease in value – we were able to take advantage of the increases that the stock market provided later.

Good diversification across all asset classes also kept us from feeling the pain that concentrated positions could have caused.  We found that investing globally helps to balance out any one country’s problems so that we are able to retain and grow our funds through thick and thin.

We Didn’t Listen to the Pundits – You know that in this information-deluged age we live in, you can get opinions on the financial world at any moment from dozens of talking heads on the TV and internet.  At any one time you can find someone telling you to buy the market and another telling you you’re crazy if you don’t sell the market.  You did the right thing by recognizing that these folks are entertainers first and foremost.  If it’s fantastic and draws attention, they’ll say it – whether it has merit or not.

We Slowed Borrowing and Living On Credit – Recent reports tell us that consumer non-mortgage credit has dropped off during the past year and a half, when compared to mortgage debt.  Both figures are still high (more than 10% of income is servicing mortgages, and nearly 6% is spent servicing other credit), but these figures have come down from the all-time highs we saw a few years ago.  If what I believe about you, my readers, is true, you are on the much more conservative side of those figures, and you have strived to improve your situation through this crisis when possible.

We Continued Saving – From what I read, it appears that most everyone who is in the position to add to savings and retirement accounts, continued to do so during the financial crisis.  According to Vanguard, a high percentage of retirement plan participants (especially younger participants) have higher balances in their accounts now than they had two years previous – at some of the market highs.

As we all know, one of the most important factors of success in a saving and investing plan is to continue with systematic savings in good times and bad.  Continuing to save and invest even when all the noise going on around you said that you should stay away from investing has worked and worked well forever.  By doing so, you benefited from the dollar-cost-averaging aspect of systematic investing, buying low during the market downturn, and then riding the massive increases we have seen in the market over the past year.

Bottom Line

All in all, we did a good job of recognizing that the markets can’t be controlled, but that we can exercise a degree of control by having a diversified investment plan and by determining that we’ll continue to put aside funds for that eventual sunny day we’re all hoping to see. As I mentioned in a previous article, it’s always good to save 10% to 20% (or more), live within our means, and invest, diversified, for the long term.  These few tenets have served us well – in good times, and as we’ve now seen, in bad.  Keep up the good work!

Photo by earlycj5