On September 15, 2008, Lehman Brothers went bust. I remember this day clearly because I made a $200 side bet with my friend over the weekend that the US government would bail them out. To my surprise, the US government didn’t rescue Lehman, and the stock cratered that Monday and never recovered. This is my most poignant memory of the financial crisis.
Despite all the economic devastation, I wouldn’t mind rewinding time and going back to 2008. I’d rather be 31 than 42, simply because I love life and want to live as many years as possible.
As we potentially head into another recession due to rate hikes, geopolitical risk, and elevated inflation potentially dampening demand, here are some lessons learned during and since the financial crisis.
Lessons Learned Since The 2008 – 2009 Financial Crisis
1) It’s really hard to go all-in, even when you know you should.
Despite telling myself over and over again that we were in the buying opportunity of a lifetime, I couldn’t convince myself to invest much more than my usual 401(k) maximum because my world was falling apart.
A couple dozen friends had been laid off, including my best friend at the time, who worked at Lehman Brothers. I feared I might be next and would need as much cash as possible to hold me over just in case.
In 2005, I had taken a $1,200,000 mortgage to buy a single family home. I already had around $380,000 in mortgage debt from the first property I bought in 2003. With property prices in San Francisco falling along with the stock market, bankruptcy was a very real possibility if I had lost my job.
Therefore, I built a significant CD portfolio with most of my excess cash instead. At the time, the best 5-year and 7-year rates were at 4.25% at the time, so I decided that was where most of my savings went.
The only things I did right were keeping my job and not selling any real estate or stocks in the middle of the downturn.
Debt is the real killer during a financial crisis. Please make sure you have enough liquidity to last you through at least six months of living expenses in case you lose your job. You do not want to be a forced seller during a market meltdown.
2) Chaos is a great motivator to change.
I had been putting off starting Financial Samurai since 2006, when I graduated from business school part-time. But once the financial crisis hit, I decided to finally launch in the summer of 2009. If I got laid off, I needed a backup plan.
The pain and suffering you feel today might be the best thing that could have ever happened to you. But it would be much better if you could predict the upcoming pain and make some changes before the pain happens.
For example, instead of experiencing a heart attack before we change our eating and exercise habits for the better, why not change now? Instead of getting a divorce because we neglected to work on our communication skills, why not actively work on listening better today?
You have to study the people before you who’ve been through a lot of pain to try improve your odds of not going down the same path. Always work on your X-Factor. When the next financial crisis comes, you’ll be more ready than 97% of the population who doesn’t think ahead.
3) Family is everything.
In 2008, decided it was time to get married. I had known my wife since college, and she would be turning 28 in mid-2008. For some reason, 28 always stuck in my head as the perfect age to get married for her. I wanted to wait until at least 30 to focus on my career. How convenient it was that I am three years older.
The difficult times of 2008 made me want to hold onto her even more. I could lose everything, but I couldn’t lose her. Relationships were more important than money back then, and they are still more important than money now.
Today, my wife and I are blessed with two wonderful kids. When I get depressed thinking about losing lots of money in a bear market, I find instant comfort in my family. Because of my family, I don’t feel nearly as much pain as I did in 2008. Just an elevated amount of worry.
If you are looking for love, it is absolutely worth spending more time and money to improve your chances of finding someone. Once you have enough money to survive, family is by far a greater asset.
4) You gain a tremendous amount of confidence in 10 years.
Previously, I’d always been embarrassed to ever say I was an expert in anything. But once I turned 32, 10 years after graduating college, I finally felt I had developed some expertise in the Asian Equities market. And now that I’m past my 12th year of building Financial Samurai, I have no problem believing and saying I have expertise in digital media and personal finance.
Because of this experience, I also no longer fear financial ruin either. If Financial Samurai shuts down and all my passive income goes away, I know I can get a job back in finance, fintech, or online marketing. The pay would be enough to provide for a simple life for my family.
Feel good knowing that each year that goes by, your expertise in your field grows. You will eventually reach a point where you will no longer feel like an impostor. You will start to own your destiny.
Use a financial crisis as an opportunity to change or get better. Once the pandemic hit in 2020, I bought stocks in March 2020. Then I bought a forever home in June 2020. The forever home has been huge for improving our lifestyle during the pandemic. Further, I decided to focus more time making money online. As the pandemic winds down, I plan to use the additional money to live a better life and re-retire.
5) The more things change, the more things stay the same.
I met many disgruntled people before 2008 financial crisis who complained about the government, taxes, inequality, racism, bigotry, sexism, and more. I also met lots of people who told me about their days as dotcom millionaires in 2000, including the guy at work who made my breakfast bagel each morning.
14 years later, we still have the same complaints. Yet, instead of losing money in dotcom stocks or housing, it’s losing money in cryptocurrencies or marijuana stocks. Instead of hearing complaints about other people’s problems in person, complaints are simply amplified all over social media ad nauseam.
You’re either going to let things get to you, or you’re going to do something to change your dissatisfaction. Just think about how much you could accomplish if you worked for one extra hour a day for 10 years. We’re talking about 3,650 hours of extra productivity to learn a new language, build a business, become an expert at work, or make a difference in a kid’s life.
6) You’ll regret more the things you don’t do, than the things you try.
Conrad, my 56-year-old colleague who worked in the mailroom told me this a couple weeks before he was let go. He had been reminiscing about all the things he wished he’d done in his 30s when I asked him what he would have done differently if he could rewind time. His layoff angered me into figuring out an exit plan since he only made about $40,000 a year and needed the money more than most.
As I look through the years to 2008, my main regrets are not taking a guaranteed offer to work for a new company in NYC in 2010, not starting Financial Samurai in 2006, and not trying to have children sooner. For the last two, better late than never.
I should have jumped at the work opportunity to move back to NYC with a big pay raise. An upstart firm had offered me a 50% bump for two years guaranteed. Who knows if they would have honored the second year guarantee if I underperformed. But I’ll always be left wondering what if.
I had been too comfortable at my then job, was too loyal of a solder, and had used my house as an excuse to stay. Given I left my job two years later, not getting that last bit of extra cash was a mistake.
Given this regret, I’ve learned to try more things such as coach HS tennis, be a foster kid mentor, write and copyright a song, create a podcast, and attend more events. The biggest thing I want to try now is to leave San Francisco and relocate to Honolulu once my boy is eligible for kindergarten in 2022. This will be a significant move since we’ve been here since 2001.
On the positive side of not leaving for a new firm, I was able to negotiate a really nice severance package given I had been with them for 11 years. If I had gone to the new firm, I might have been stressed out of my mind, and may have sold my house in 2012 instead of in 2017 for much more. There would have been no way I could have negotiated a severance package with the new firm either.
Although feeling regret is tough, there’s no point dwelling. Reflect and move on. Work on making better decisions today!
7) Even if you see the future, it’s hard to take advantage.
During the first year after leaving, I wasn’t entirely sure leaving was the right thing to do so I kept in contact with colleagues, met with recruiters, spoke to ex-competitors, and applied to various tech startup jobs online. Here was my chance to potentially try something new without worrying about earning maximum income.
The first place I applied to in 2012 was Airbnb. I thought it would be big. It was, but then the coronavirus pandemic hit in 2020, wiping out over 60% of its value from 2015. I didn’t even get a chance to interview. See one of my rejection letters below:
A couple months later, Airbnb raised money valuing them at around $2.5 billion. If I had been able to get $200,000 of equity and stay for the full four year vesting period, that equity would be worth roughly $10 million today since Airbnb is valued at around $120 billion. Oh well!
Today, I strongly feel that buying real estate in the heartland of America is a wise move. However, deals still go sour even if you invest in the right state, city, and platform. As a result, I will continue to do as much research as possible to figure out the best investments possible.
To gain outsized reward, you must take commensurate outsized risk. If you are not willing to take any risk, learn to be happy with what you have.
8) You have more abilities and strength than you realize.
Even though I wasn’t able to get a single full-time tech/startup job offer, I was fine with the rejections. I wanted to fully experience this new life with Financial Samurai. The rejections gave me comfort knowing that at least I tried to find something. Now I could move on with no regrets.
Financial Samurai’s growth has actually exceeded Airbnb’s growth so far, but with the added benefit of pure control and autonomy. I learned how to mix creativity with sharing practical financial knowledge. Before then, I was so restricted in what I could write due to compliance, it was frustrating. I also learned I had more endurance than I thought possible.
Whatever you think your limits are, know that you’re probably utilizing less than 50% of your potential. It’s only when you’re hanging off a cliff with one arm, will you find your true inner might to pull yourself up.
9) Time fixes and breaks everything.
Even if you had gone all-in the day the S&P 500 peaked on July 1, 2007 (1527), despite losing ~50% by October 2008, you’d be up about ~80% if you had held on to today. Add on dividend reinvestments, you’d be up much more. It’s hard to lose money in the S&P 500 over a 10-year period.
Real estate has seen a similar recovery in many markets around the country. With the amount of uncertainty in the economy today, real estate is probably going to be a strong performer for the next several years.
Unfortunately, these past 14 years of playing sports have truly taken a toll on my body. My left knee feels like it may have permanent ITB/TFL damage. My right shoulder must have a tear because it hurts when I try and throw or serve hard. It’s sad to no longer be able to move like I once did.
Please cherish your health! Do more stretching and warmups. It’s not worth going all-out in sports anymore due to injuries.
10) Friends come and go.
I no longer hang out with the same people that I used to hang out with in 2008. My best friend from Lehman was never really the same after the layoff. I got him an interview at my firm to work with me, but one of my Australian colleagues nixed him.
I used to hang out with several client friends for drinks, golf, and dinners. But after I left the industry, I no longer had the enthusiasm to keep hanging around in a business I no longer enjoyed. It really takes a lot to maintain relationships when you don’t have something strongly in common or a corporate card!
I’m very lucky that nobody I’m close to has passed away since 2008. But I’m not so sure the same can be said over the next 10 years. Therefore, I plan to spend more time with my loved ones than in the past, especially now that I have a new addition to the family.
11) Being wealthier won’t make you much happier.
Most of us have more than tripled our wealth since the previous peak in 2007. But do we feel much happier? I venture to guess most will say no.
I don’t feel happier because I was never an unhappy person to begin with. I’ve always been around a 7.5 – 8 out of 10 for my steady happiness state. I will occasionally shoot to a 10 when amazing events happen such as the birth of my son and daughter. But that elevated level of happiness never lasts.
Instead of stressing over doing well with a work client, now I wonder whether my children will find their own happiness. Instead of worrying about whether I’ll ascend at work, I worry about whether I can continue providing for my family due to the rapid increase in healthcare and tuition costs.
Thanks to having more money, I do appreciate not having to stress about getting a $80 parking ticket or having to ration my food. But I’ve also become accustomed to such convenience, and therefore, can’t help but take my wealth for granted.
The only thing I’ve found helpful to combating hedonic adaptation is to show gratitude, volunteer to help others, and write out your blessings. If you don’t want to start a site, at least start a gratitude journal. Writing is the best free therapy.
12) Once you’re ahead, stay ahead.
When all your friends are making lots of money in a bull market, even if you’ve already made enough, you can’t help but want to make more. As a result, you end up taking unnecessary risk. Post-pandemic, there is an incredible amount of investing FOMO with so many speculative assets going up. The risk of another financial crisis has gone up.
Over the years, I have received plenty of pushback from all-in equity investors whenever I write about investing in bonds and structured products that hedge against downside risk. Going through the 2000 and 2008 downturns were enough to make me realize that the good times don’t last forever.
However, due to my lack of discipline, I didn’t invest as much in bonds and structured products as I should have to protect my wealth. If I truly stuck to my desire of happily growing my net worth by only 5% a year, I would have invested even more conservatively.
The wealthier you become the more important it is to shut out the noise. When it comes to investing, everybody has their own opinions on what you should do with your money. Instead, make your own decisions with your own money. Personally, I really like investing more in private funds now.
Please do not confuse brains with a bull market! A financial crisis hit in March 2020. And it could very well hit again in the near future with valuations at all-time highs and the Fed no longer on our side.
Focus On The Future
It’s unlikely the stock market will perform as well over the next 10 years as it has over the previous 12 years. Expect lower return assumptions. But at least we made a good amount of money while the good times lasted right?
To make so much money in stocks and real estate since the pandemic began should be an unexpected windfall. The vulture investors are coming out now as stocks fall back to earth.
Use the downturn to review your finances, assess your true risk tolerance, and come up with a sound financial plan. Then list one or two things you really should focus on besides building more wealth.
Over the next 10 years, I plan to focus most of my time on being a present father. Kids grow up quick. My hope is that my investments stay as far in the background as possible so I don’t have to think about them too much.
My time for trying to build a fortune is over. I now just want to keep what I have. The main way I can do this is by having a diversified net worth and a healthy passive income component.
Protect Yourself From The Financial Crisis
The best way to protect yourself from a financial crisis is to be on top of your net worth. To track your net worth for free, sign up for Personal Capital, the web’s #1 free wealth management tool. It will help you get a better handle on your finances.
After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. The financial crisis is upon us again in the new decade. You must pay attention to your money closer than ever before.
Achieve Financial Freedom Through Real Estate
Real estate is my favorite way to achieving financial freedom. It is a tangible asset that is less volatile, provides utility, and generates income. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate a significant amount of mostly passive income.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.
Take a look at my two favorite real estate crowdfunding platforms. They are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
With stock market valuations so high, I’m a better investor in real assets. Investing in a real asset that also generates steady income is the ideal scenario after enormous stock market gains. The key to build great wealth is making it last over time.