10 Years After the Great Financial Crisis, Did We Learn Our Lesson?

financial crisis

In March of 2009, the markets bottomed out in the aftermath of the housing crisis and bank collapses. Gigantic financial institutions teetered on bankruptcy and scrambled for government support. Millions of ordinary folks lost their homes or their jobs, and all saw their retirement savings decline in value. In the moment, it was hard to imagine how our economy would get back to normal.

And yet, 10 years later, despite some ongoing volatility, the economy is once again trending positive. On today’s show, we talk about what the bottom of the financial crisis looked like, how the markets turned around, and the lessons that are most important to you, an investor preparing for or in retirement.

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1. Where we were. 

Ten years after the financial crisis, the numbers are still staggering to consider:

  • 8 million jobs lost in the United States
  • 10% unemployment
  • 8 million home foreclosures
  • Over 19 trillion in household wealth lost
  • 40% decline in average home prices
  • 7 trillion lost in stock wealth, savings accounts, and employer-sponsored savings
  • 27% decrease in retirement account balances
  • 30% increase in adjustable rate mortgages
  • 2% annual drop in GDP

It wasn’t just the numbers that made the financial crisis the most significant downturn since the Great Depression, it was the number of people affected. The combination of folks who were overleveraged on their houses and the banks that were overleveraged on loans against those houses created widespread housing and employment problems affecting people from all walks of life.

2. What we learned.

From a big-picture standpoint, government regulation was a hot topic in the aftermath of the financial crisis. The way that some banks were packaging mortgages into securities created a glut of questionable assets that no one wanted to value, let alone buy. This led to a credit freeze for banks and big businesses in the aftermath of the Lehman Bros. bankruptcy.

Whether the government’s Dodd Frank reform and Troubled Asset Relief Program (TARP) went too far or not far enough in their attempts to stabilize the economy and improve regulation is still a source of debate. I do think that the removal of a mark-to-market accounting requirement to force financial institutions to write the value of assets down based on prices in those frozen real estate markets was a major reason that the financial markets began to rebound.

As for you, the investor, I think there are three main takeaways:

  • Stay the course. In general, folks who didn’t panic during the financial crisis and stuck with their saving and investing plans are doing better than people who jumped out of the markets.
  • Stay diversified. The more diverse your investments, the less likely that problems in one business sector will threaten your whole portfolio. In 2008 and 2009, people who were overleveraged in the housing market suffered the most. In 2001 and 2002, people who were overleveraged in the burgeoning tech sector suffered the most.
  • Stay vigilant. March 2019 marks another infamous anniversary in finance: Bernie Madoff pleading guilty to 11 felony charges. Madoff’s clients included Hollywood stars, sports figures, accomplished businesspeople – smart folks who still got sucked into his scams. Fraudsters prey on people’s fear and insecurity during volatile times. Remember one of our mantras here at Keen Wealth: if something sounds too good to be true, it probably is.

3. Where we are now.

The recovery since the markets bottomed out has been truly remarkable. From March 2009 to August of 2018, investors rode the longest bull market in history. More than 17 million jobs have been created, and the Dow Jones is sitting above 25,000 after dropping to 6,600 during the financial crisis.

Now, that doesn’t mean it’s been smooth sailing for everyone. The spikes in volatility we saw in 2018 were historically normal, but still unsettling to folks who were used to the bull market’s ten years of uninterrupted growth. For every Apple, Amazon, and Netflix that’s transformed the global marketplace there’s a Kodak, GE, or Blockbuster that’s failed to change with the times, causing pains for investors and employees alike.

Still, the fact that our economy looks so much healthier, and so different, than it did 10 years ago points once again to the resiliency and adaptability of capitalism. Our economy isn’t perfect, and it never will be. But at Keen Wealth, we believe investors who take the long view and continue to trust in the upward arc of market history will be more likely to have the most opportunities to build wealth and provide for their family’s long-term security.

Further reading:

https://www.cnbc.com/2019/03/04/the-10th-anniversary-of-the-climactic-march-2009-market-bottom-arrives-this-week.html

https://www.investopedia.com/news/10-years-later-lessons-financial-crisis/

Bill Keen: At Keen Wealth, we believe investors who take the long view and continue to trust in the upward arc of market history will be more likely to have the most opportunities to build wealth and provide for their family’s long-term security.

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Got a question or comment? Email it to me and we’ll get back to you or call our office at (913) 624-1841. 

About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

Keen Wealth Advisors is a Registered Investment Adviser. Nothing within this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Keen Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed here. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.  

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