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4 Key Financial Lessons From The Last Recession

4 Key Financial Lessons From The Last Recession

| October 06, 2020
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The past has much to teach us—if we are willing to listen. In 1905, George Santayana famously wrote, “Those who cannot remember the past are condemned to repeat it.” (1) Strong words, but ones we should take to heart when it comes to our current financial situation: we’ve seen wild volatility, record market drops, and increasing uncertainty surrounding the COVID-19 pandemic, the 2020 election, and the social-political climate of our country. After a record-long bull market and plenty of downturns this year alone, many are wondering when the next recession will officially begin. 

Instead of despairing, we have the opportunity to take what we learned from the market crash of 2007/2009 and apply these lessons to our current predicament. With that in mind, here are 4 financial lessons the last recession taught us. 

1. More Debt = More Risk

One of the harsh realities that many learned in the last recession (and many are realizing again) is that debt is more than simply money you have to pay back; it carries risk. The more debt you have, the more risk you carry. Having debt increases your bills, which increases your monthly living expenses, and ultimately puts a lot of pressure on you to make ends meet.

When you are approved for a certain amount of debt, that doesn’t mean it’s in your best interest to borrow that much money. When job loss, reduced pay, or another emergency comes up, you are still responsible for paying all that back. Plus, your income is your largest wealth-building tool and it’s difficult to increase wealth when too much of your income is going toward debt. 

2. Not All Risk Is Bad

Although debt carries risk, not all risk is bad. To build wealth, you will have to entertain a certain amount of risk, whether it’s in the house you buy, the stocks you purchase, or the career you choose.

However, you can be proactive and put emergency savings for short-term crises in place, and rely on someone you trust to help you make long-term financial decisions. You can work with a professional to determine your risk tolerance level and make sure that your investments are set up in a way to achieve both growth and protection. The benefits of having a recession-proof financial plan and a trusted advisor who can help manage your investment portfolio may greatly outweigh any risk you incur.  

3. Asset Allocation Is Crucial

We don’t know exactly what will happen to our economy in any given month, but we do know that actively managing your portfolio can ensure that you have proper asset allocation for your risk tolerance, goals, and financial situation—namely through diversification and rebalancing.

It sounds fancy, but simply put, diversification means you shouldn’t put all your eggs in one basket. And rebalancing is making sure that your money stays appropriately allocated over time. For example, instead of having the majority of your money tied up in single stocks, you spread out that value between U.S. and international bonds, stocks, and other investment classes. Then, as your investments increase or decrease, regular rebalancing can help establish proper asset allocation to lower the overall risk in your portfolio.

4. Markets Recover

The market has recovered extremely well since the last recession, and there should be improvement again! In the course of our history, the market has always recovered—and more quickly than most might remember. This should be an encouragement to you as well as anyone concerned about their investments or retirement. Look at this graph and you’ll see the recovery over two years, starting from the worst point of the recession.

*Investors cannot directly invest in indices. Past performance is not a guarantee of future results.

Learn From The Past And Move Forward

It’s easy to become complacent when things are good, and the record-long bull run we just came out of may have given you a false sense of security. Now, as we walk through our current uncharted waters, are you remembering the lessons you learned 12 years ago? Let this be a reminder to you that while we can’t predict the future or control the markets, we can take steps to make the right decisions for our money and set it up to succeed in any market environment.

No matter where you find yourself right now, it’s never too late to implement the changes necessary to help secure your financial future. Our Bridgerland Financial team would love to support you and provide knowledge, resources, and strategies for you to move forward—and help recover from any losses you’ve seen. Schedule an appointment online or reach out to us at david.packer@bridgetoretire.com or (435) 535-1630.

This material is provided by David Packer and written by Indigio Marketing, a non-affiliate of Cetera Advisors LLC.

About David

David Packer is founder and financial advisor at Bridgerland Financial, an independently managed financial firm in Utah. With 20 years of industry experience, David serves his clients by helping them bridge the gap between their working years and their retirement. He provides tailored, comprehensive financial plans to his business owner and individual clients so they can retire with confidence. David has a bachelor’s degree in finance and holds the Chartered Retirement Planning Counselor℠ (CRPC®) credential. Outside of the office, David loves to spend time with his wife and five kids and stay involved in his community. He currently serves on the board of directors of the Cache Valley Chamber of Commerce. He and his wife, Melonie, spent years as foster parents and eventually adopted their foster children. David loves playing and watching all kinds of sports, including officiating high school sports, and won’t turn down a good board or card game. Learn more about David by connecting with him on LinkedIn.

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(1) https://www.iep.utm.edu/santayan/#H2

(2) https://www.statista.com/chart/21144/s-p-500-recession-recovery/

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