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An old saying reminds us, “There’s no lesson in the second kick of a mule.” Once you have learned something the hard way, nothing can be gained by repeating the experience.
We all learned a lot from the great recession of 2008-2009. Given the tough times we’re facing in today’s troubled economy and markets, it’s worth revisiting that event and brushing up on the experiences that made us all a little wiser. We can apply the things we discovered back then. And if the financial forecasts are correct, we’re in for choppy sailing ahead.
On top of that, if have been in this profession long enough, you’ll come across people who are always talking about the next recession. These prophets of gloom never get tired of telling you it’s imminent.
One thing is certain, whether it is imminent or down the road: We will go through another recession. That’s the cyclical nature of our economy. Let’s look at what we learned during the last significant financial downturn and see what it can teach us today.
I gleaned three critical lessons from the great recession.
Adjust when steady. When the boat’s going down, hold on tight. When the boat is stable, that’s when we make changes. When markets are plunging don’t change your allocations. That’s not the time to sell.
Many investors panicked and overreacted during the great recession. And it took them longer to recover than those who stayed the course. When tempted to act impulsively by bad conditions, take a moment and remember how you felt during the last market drop. And yet you came through it. Make your adjustments when things are steady, not falling.
Nothing lasts forever. When you see markets plummeting to the ground like bags of wet cement, it’s easy to fall victim to the Henny Penny’s refrain, “The sky is falling! The sky is falling!” And yes, things can indeed look bleak during a big downturn.
But nothing in the financial world remains constant. Ours is a business of perpetual change. Good times don’t go on forever. Nor do the terrible times. The worst winter is always followed by a beautiful spring. You just have to have faith and confidence that no matter how cold it gets, winter will eventually end.
The same is true in the financial sector. Think back to late 2008 and early 2009. Some analysts kept saying, “This time is different.” And they were right to a certain extent; the great recession was the country’s worst financial drop since Wall Street crashed in 1929.
It was long and painful, but it ended. Here we are today, 13 years later, and things are fine. Things are better now than they were at the start of that recession.
The markets have exceeded where they were when things turned ugly.
Bad times don’t last. But good, solid financial planning does. And it will still work for you when things inevitably get better.
Keep your cool. Look beyond the current moment, expect better times ahead, and then remind your clients – and yourself – that the upswing will eventually come. It’s only a matter of when.
And last but certainly not least, history doesn’t always repeat itself. One of the most important lessons I took away from 2008-2009 was what caused the last recession likely won’t cause the next one. Just look at the examples in our own lifetime.
The great recession was triggered by the housing sector’s collapse. Well over a decade later, we are focused on housing. There are a lot of voices saying it will likely spark the next recession. When that market gets a little dicey, we worry a recession is coming because of a recency bias.
A tech boom and bust drove the recession of 2000-2001. And before that, in 1987, the savings and loan implosion led to a major downswing.
Here’s where things get tricky. It is tough to predict where the next trouble spot will emerge. It’s impossible. Though in hindsight we can clearly recognize the warning signs we missed, it’s hard to recognize them beforehand.
As a result, too many people stay in their familiarity zone, monitoring the thing that caused the last recession. That approach rarely works. They’re caught flatfooted when the next crisis erupts. It’s challenging to predict the cause of the next recession.
As a wealth manager, remember these lessons from the past. They’re useful not only in setting the proper expectations for your clients, but as valuable guides to steer your way through challenging conditions successfully. Doing that will go a long way toward making sure your clients’ financial allocations are placed right to help meet their uniquely personal goals. Help your clients hold tight when things go wrong so they can be in the best position to take advantage of the situation when things go right.
What caused the last recession won’t lead to the next one; things don’t go down forever, and when the boat is going down, hold on tight and wait to make changes until things have improved. If you constantly keep these lessons in mind, you’ll be better positioned once the next financial crisis blows over.
Finally, never forget George Santayana’s famous observation. “Those who cannot remember the past are doomed to repeat it.”
Don’t let the mule kick you a second time!
Matt Reiner is a CFA, CFP®, and partner at Capital Investment Advisors, a $2.8+ billion RIA in Atlanta. Reiner is also CEO of Wela Strategies, a sister company to Capital Investment Advisors, and is the founder and CEO of Benjamin™. Benjamin is an AI technology created by Reiner after seeing the gaps in technology used in his own firm. Reiner's true passion is using his vast experience to coach other advisors across the country, helping them evaluate their firms' practices and find the best strategies for future success. To reach Matt Reiner, visit www.MattReiner.com.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
