Roadtrip to Financial Independence

The market is collapsing and I’m losing everything | What the 2008 crash can learn us today

October 10 2008

I have been retired for 10 years. I am one who has said over and over again. Stay the course. Look for the long term. Yeah, sure. That’s fine until today. Today did it. I am just starting to be scared so that I won’t tell my wife what happened today…stocks down…bonds down…I’m down. Our retirement funds are sucking down the drain. I lost today alone a year’s worth of normal distributions for expenses. I keep thinking tomorrow will be a turn around. I have said that for 30 days.
I am 25% capitulating tomorrow, maybe 50% to money markets….maybe all.

This is not me. I will see tomorrow.

This is exactly what was written in an old post I came across at bogleheads. It is a reminder that even if you reached Fire that does not mean that the market cannot collapse and this could have a high impact on you.

Its easy to say that these examples show that you more then ever need to hold the course, but at the same time, the people who were heavily invested in 2008 did not knew that. As far as they knew the market went down today 5%, and it would go down another 5% and then another. In total the market went down 90% over a period of just 18 months.

In comparison, in the 1929 crash the market went down a similar amount, but over a period of 3 years.

As far as they knew the entire bank system could collapse!

Fifteen things the 2008 crash can teach us

Lesson 1: Do not put all your eggs into one basket

I was just out of university and did not had much investments. I was invested mainly in three stocks, two of which were bank stocks. One fully crashed, to never recover, and one crashed 60-70% and did recover. Bank stocks were considered a safe investment at he time. We were told there is so much mechanisms put into place that a bank cannot crash. It can.

While I was very low invested at he time it really did scare me, and did not make me return to the stock market for a while. When I did return I was not eager to buy stocks anymore. I first focused on funds, believing this would be a safe spread investments. Later I added ETFs to the basket. I did learn my lesson. Investing in one stock is not for me.

Lesson 2: stay the course

People who decided to sell, and did not return to the stock market have regretted up to this day. The market had a huge rebound, such as we haven’t seen in a long time.

When the market collapses, do not throw away your habbits to regularly invest

Lesson 3: automate

My early days of investing was mainly to find something I liked, and when I did I transferred some cash, bought the stock, and following it every day, waiting for the right time to buy.

What I should have done is automating my investments. That way when the stock market collapses you actually can use the collapse as leverage to regrow your portfolio faster to its normal levels. Automate and hold the course!

Lesson 4: Ignore your investments for 2-3 years

This might seem a bit contradictory. You may want to take action, reshuffle, re-invest, get out those bad stocks.

But if you followed point 1 and 2, you know you will have your investments spread and automated.

When the entire world is on fire seeing your investments in red all the time is not fun. You might get emotional (just like the guy in the start of this blog) and do something you will regret.

What you need to do is hold the course. Your investments are automated and spread out, so its okay to take a moment and focus on other things. Why not start a blog about a different topic?

Lesson 5: Do not give financial advise to Friends

Remember I told you about the Stock that crashed I invested in? I actually told my friends that I invested 1500 EUR in this stock, and advised them to do the same. Lucky they didn’t!

I still do tell friends about my investments when they ask. But I will always add that investing is risky and its at their own risk. Especially the case when I do decide to invest in one stock (oops, yes it happened this year – but I am already back out now), and when I buy high risk investments such as Startups or Peer to peer lending.

Lesson 6: its going to get worse before it gets better. But it will get better.

Those who have stayed the course, and kept investing their monthly amount, and did not panic sell, recovered after just 2-3 years. And any year after that is pure profit.

In the latest 20 years alone there have been 13 (small) bear markets, and 3 much bigger (including the banking crisis, the debt crisis, and the dot com bubble). And yet the markets have always recovered and are higher then ever.

Lesson 7: pin down your thoughts

Blogging, vlogging, keeping data in your excel, keeping a dairy.. it is much more motivating to pin down your thoughts when your portfolio is on a 7 year strike of only going up. But when its in red all the time how can you still give any financial advise? Fire is further away then ever and that is what your blog is about?

Keep in mind that while the fun is gone, writing down your thoughts is more important then ever! It will prove vital knowledge for you and others when the nightmare is over.

Lesson 8: follow this blog

When the storm hits, I will be here to report on the front line, so follow me and face it with me!

Lesson 9: no you cannot see the storm coming

Stock prices have reached what looks like a permanently high plateau … I expect to see the stock market a good deal higher within a few months. – Irving Fisher (a few days before the 1929 market crash)

Nobody could see the 2008 collapse coming. When the storm hits you, it comes out of a black fog so you can’t see it, and it comes so fast that you can’t prepare for it.

Only a really really small percentage of people manage to time the market, and since its such a small number its probably caused more by luck then by being some wonderchild who can predict the market as if this person has a glass orb.

You can’t see it come, but one thing is certain, it will come.

Lesson 10: nobody will tell you when the market hit rock bottom

Just like you can’t time when a stock market crash is coming, you cannot time when the stocks will go back up. That’s why Lesson 2 and Lesson 3 are so important., and the rise will be just as steep as was the fall. When people talk the most about that the crisis is over that’s when its about to drop hard!

Lesson 11: have some cash reserves

If you are living on a passive income remember to keep some cash reserves that can keep you going for a few years. Like that if one of your income sources suddenly drops away then you have something to fall back to.

Some recommend an “emergency fund” of a few years, but its might be better to have really enough to use for 2-3 years in case the stock market collapses.

Lesson 12: diversify

Its similar to Lesson 1, but where lesson one is focusing on the stock market, it can be good to have alternative incomes. Think of p2p lending, real estate and side hustles. Read my portfolio to get some ideas on what you could purchase!

Lesson 13: it’s always a good time to start investing

Even at the all time high before the 2008 crash, the market then is still much lower then it is today. If you could buy in 2008 at this all time high during the crisis people would say you were crazy. If you could do this today you would buy instantly as much as you can!

So its never to late to get in. Get in now, invest, and hold the course!

Lesson 14: you probably will forget some lessons!

In theory these lessons all make sense. If you follow them you can cut out emotion and trust on what has worked for over 50 years. But that’s easier said then done when you are losing 70% of your assets in a few weeks. Remember to come back to this blog when this happens.

Keep breathing. Re – read. Automate, and take a step back. Go do some sports, and pick up a new hobby

Lesson 15: final advise from sheepdog

I would like to close with some final advise. Sheepdog who made the original post at the top did not sell his stocks in the end. He did had to sell some bonds, and many years later he has this to say for those who are open to listening

When I started that conversation on 10/9/2008, I was in a bind, as you can read in my comments, but I did learn something and perhaps other retirees or near retirees did as well. When a person must take distributions to meet expenses, and I do monthly, an adequate “cash” account should be maintained so that they don’t “have to” sell at market lows. Keep a sizeable cushion. I am doing what I said I would do…..I maintain the “cash” account from which I take distributions at a minimum of 3 years of needs. I sell stocks and bonds every few months to keep it up. When the next big downturn occurs, and it will, I will not have to sell any investments for at least 3 years. I won’t get caught again.

So it looks like Sheepdog turned out to be okay afterall. He eventually also told his wife, but many many years later.

But the main thing is…he kept the course (something he always advised on the forum he uses before 2008), and did not had to sell any stocks he had purchased. His final words here might just be the most valuable lesson of all!


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