10 Years After: Lessons learned from the financial crisis

April 03, 2019 | Connor Ryan


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March was the 10th anniversary of the stock market’s low point during the 2008-2009 financial crisis. This earth-shaking event provides important lessons for investors looking to make the right choices in the face of today’s volatile markets.

This March is the 10th anniversary of the stock market’s low point during the 2008-2009 financial crisis. This earth-shaking event provides important lessons for investors looking to make the right choices in the face of today’s volatile markets.

 

It’s darkest before the dawn

If we cast our minds back to March 2009, the financial markets were in a state of chaos. Of course, no one could have known then that, amidst the panic, the market recovery had already begun.

 

On March 9, 2009, the benchmark U.S. stock index, the S&P 500, hit its bottom. Since then, investors have been rewarded with one of the most stunning bull markets in history: the S&P 500 Index has advanced over 330% to the end of November 2018 – and delivered a 16%+ annual return.* While financial crises like the one that occurred over 2008-2009 are extremely rare, there is no avoiding the fact that periodically, markets will experience short-term volatility, which can cause investors to question their investments and investment plans.

 

Basic lessons vs. base instincts

2018 was a year of ups and downs, with equity markets starting and ending the year with some of the sharpest volatility we have seen since the financial crisis. How do you manage through this turbulence? How can we control our base instinct to panic and, instead, stay on course to our goals? What strategies can you put in place to manage risk?

 

• Don’t invest in something you don’t understand

In the lead-up to the financial crisis, many investors deviated from their investment plans, chasing returns in risky assets they often did not even understand. That especially hurt them when markets sank.

• Make a plan – and stick to it

A properly built investment plan – one that aligns your investment portfolio with your unique goals and has steps to manage risk – will help you maintain perspective and avoid emotional decisions when volatility hits. And it will also help ensure your portfolio remains diversified, which helps manage risk and enhance return potential through the use of different asset classes, geographical markets and industries.

Stay Invested

 

• Don’t try to “time” the markets

As the chart above shows, missing out on just some of the best days in the markets dramatically affects your returns. In the short term, markets are mercurial.  However, over the long term, they tend to climb steadily.

• Invest regularly

One way to take advantage of the long-term up-trend is by investing regularly, which allows you to ease into any type of market (rising, falling, flat) and reduces long-term portfolio volatility. Why? Investing a fixed dollar amount on a regular

basis gives you a chance to buy more investment units when prices are low and fewer units when prices are high, thereby

potentially reducing the average cost of your investment. Equally important is that it provides a built-in discipline, helping you avoid trying to time the market.

 

To learn more about implementing a risk management strategy within your investment plan, you can contact me at 905-895-4102, or by email at connor.ryan@rbc.com.

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