The Great Recession was a wild time in American history: The economy was shrinking, unemployment was high and the stock market was, well, definitely not going up. The chaos of the financial crisis was a major test for investors who might’ve been wondering: During market downturns, is it best to cut your losses, stay the course or invest even more aggressively?
Staying clear-headed and calm isn’t easy when panic is in the air, but it’s always the right move. Here’s how three investors with three different strategies fared, and how their decisions then have shaped their investing strategies more than a decade later.
A.J. Borowsky, 48, a retiree currently living in La Quinta, Calif.
"I was studying for the Certified Financial Planner exam right as the economy began plummeting. I remember attending one conference where many colleagues were sharing how nervous their clients were. They advised them to stay the course and temper their emotions, but a lot of folks ignored these warnings and dumped everything—ultimately losing thousands.
I didn't want to end up like that, so I did what I did during the dotcom crash of 2000: I continued investing just as I had before. In 2008, my wife Julie and I kicked in $15,000 each to our 401(k)s and directed an additional $31,000 toward a taxable brokerage account.
That’s not to say it was easy. That same year, I lost 16.4 percent of my total net worth; my investments alone took a 29 percent hit. But I kept my focus on the long term—and I’m glad I did. By the end of the next year, my net worth jumped by 25 percent, basically wiping out the previous losses. That never would have happened had I panicked and scaled back.
Time smoothes out even the worst markets. Sticking with it as I did actually helped lay the groundwork for my early retirement a decade later. Consistency always beats trying to time the market.”
Mike Monfredi, 33, a small business owner and blogger in Columbus, Ohio
"In 2007, I was a 23-year-old college student and investor. Admittedly, I didn’t understand all the ins and outs of investing, but my grandfather was a seasoned pro, so I followed his lead. By mid-2007, I had close to $30,000 invested that I was planning to eventually use as a down payment on a house.
Then the Great Recession hit. I rode the wave all the way down to about $9,000, at which point I lost my nerve and sold everything. It was devastating, and I swore off investing altogether for a few years. On one hand, it was a relief to know that I wouldn’t lose any more money, but it also meant that I didn’t recoup any of my losses and missed out on the market rebound that began in 2009.
I eventually started investing again in late 2010. My fear began subsiding after I saw the new market gains and realized that long-term investing usually produces returns over time. Fortunately, I’d changed my investing strategy, too—instead of a mix of individual stocks and stock funds, I stuck with index funds and adopted a set-it-and-forget-it mentality.
I eventually grew my money to $27,000 again and bought my first house. While this felt amazing, it was still disappointing to know that stepping away from investing delayed my home-buying dream for years.
It's a lesson I carry with me now. I still follow the news and keep pace with world events that affect markets, but since I have no intention of cashing in on my investments for at least another 30 years, I don’t give it too much attention. I’m not an absentee investor; just a hands-off one.”
David Bakke, 45, a financial writer in Atlanta, Ga.
"I'd already been investing for eight to 10 years when the Great Recession hit. Like most people, the economic downturn completely rattled my portfolio—I lost somewhere between $8,000 and $10,000. To say that I was deflated was an understatement. It's tough to stomach such a big loss, and my knee-jerk reaction was to cut and run. But instead, I reeled in my emotions and began researching and strategizing.
I focused on the big picture, zeroing in on the historical performance of the stock market over the long term and looking for patterns. What I found was that the markets always bounced back and recovered from crashes over the years. These trends helped me resist my urge to sell—and make the decision to buy more, even as I watched friends and family do the opposite and sell.
My efforts paid off after some time, when my gains added up to thousands of dollars. This was a huge rush that really reinforced that I'd been doing the right thing. I continued investing aggressively and my nest egg has now fully recovered from the hit I took back in 2008—and grown much more.
The whole experience goes to show how, in finances and in life, things can change on a dime. But taking the long view and maintaining good financial habits taught me that things tend to work themselves out over time. Bottom line? Filter out your emotions, stick with it and don't be afraid to buy when everyone else is selling."