With the Federal Reserve determined to hike rates further, another global financial crisis might be brewing. The Board Of Governors are all very rich, so they'll be OK. However, a world of hurt could be coming for the middle class who will lose their jobs in droves.
Thankfully, balance sheets are stronger this time around. Many of us have also diversified based on our risk tolerance. Therefore, I don't think this next recession will be as bad. However, you never know for sure with risk assets and policymakers.
We almost went through another global financial crisis with the failing of Silicon Valley Bank. Luckily, the federal government stepped in to backstop all depositors of SVB and Signature Bank.
On September 15, 2008, Lehman Brothers did go bust. I remember this day clearly because I made a $100 side bet with my friend the US government would bail it 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 45, simply because I love life and want to live as many years as possible.
Even though central bankers and politicians say we aren't in a recession, we clearly are. Here are some lessons learned during and since the last financial crisis.
Personal Lessons Learned Since The 2008 – 2009 Financial Crisis
I've been investing since 1995 and currently manage an 8-figure investment portfolio. At 45 years old, I have no desire to go back to work so my wife and I can spend as much time as possible with our two young children.
Here is some wisdom I've gathered since the global 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%, so I decided that was where most of my savings went. The situation is similar now with me buying Treasury bonds yielding 5%+.
The only things I did right were keeping my job, not selling any real estate or stocks in the middle of the downturn, and maxing out my 401(k).
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.
At the very least, please keep contributing to your tax-advantaged retirement accounts.
2) Chaos is a great motivator to change.
If you've been procrastinating for a while on something you should do, now may be your time! Doing something new might not only ease your mind, but provide you some insurance in case things get really bad.
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?
Study the people 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.
14 years later, I've written over 2,500 articles on Financial Samurai. I also ended up writing a WSJ bestselling book called Buy This, Not That. My X-Factor gives me something wonderful to do in early retirement, not to mention pay for all our family's living expenses.
3) Family is everything.
You can always make back your financial losses. But you might not always be able to repair your relationships.
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. You will regret sacrificing love for money.
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 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 over time.
One of the great things about time is that you get wiser, savvier, and more efficient.
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 finance. And now that I'm in my 14th year of building Financial Samurai, I have no problem believing and saying I have expertise in personal finance and digital media.
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.
Today, my investment portfolio generates about $380,000 a year and passive income. I’m confident that no matter how bad the next financial crisis is, my wife and I won’t have to go back to work.
Our new home improved the quality of our life during the pandemic. Further, I decided to focus more time making money online and writing a much-needed personal finance book, Buy This, Not That. It is a WSJ national bestseller.
5) The more things change, the more things stay the same.
I met many disgruntled people before the 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 who made my breakfast bagel each morning.
15 years later, we still have the same complaints. Yet, instead of losing money in dotcom stocks or housing, it's losing money in cryptocurrencies and growth stocks. Instead of hearing complaints in person, complaints are 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.
If you want to change, please take action. And no, virtue signaling does not count as taking action. If all you do is complain, 10 years from now, you will still be complaining about the same things.
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.
Since 2008, I've had some regrets. They include 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. As a result, I'm trying to make up for lost time.
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.
Given I negotiated a severance two years later, not getting that last bit of extra cash was a mistake. Then again, if I had joined the new company and wanted to leave after two years, maybe I wouldn't have been able to negotiate a severance.
Given this regret, I've forced myself to try new things, such as becoming a high school tennis coach, becoming a foster kid mentor, writing a song, creating a podcast, and publishing a new personal finance book. The next great challenge may be finally relocating to Honolulu when our daughter enters kindergarten.
Although feeling regret is tough, there's no point dwelling. Reflect and move on. Conduct a regret minimization exercise in order to make better decisions today!
7) Even if you see the future, it's hard to take advantage.
During the first year after leaving my finance job in 2012, 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 a big hit. I attended a couple of their Friday happy hours. Unfortunately, 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 $5 million today. At its highs, the equity would have been worth over $10 million. Oh well!
What I'm Investing In Now
Today, I believe 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, choosing the right real estate investing platform and doing your due diligence are paramount. Things can and will go wrong.
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.
Even if you have the best vision, sometimes you simply cannot capitalize on it. Don’t beat yourself up about it. There will always be more opportunities in the future.
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 full 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 still be way up if you had held on to today. 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. Over a 10-year period, you will likely do very well investing in real estate. And during stock downturns, real estate tends to significantly outperform.
Unfortunately, these past 15 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.
At 46, I have adapted to my aging body by playing less tennis and playing more pickleball. It’s so much easier on the joints. That said, I still jammed my back one day lunging after a ball. I couldn't walk the next day!
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 in common or a corporate card!
Since 2008, several friends and family members have sadly passed away. It's is likely even more will pass away over the next ten years. Therefore, I plan to spend more time with my loved ones than in the past.
The pandemic has made many of us more lonely, due to health safety precautions. As a result, it takes more effort to combat loneliness. The good thing is that many more people are looking for companionship. So, if you make the effort, you will find more friends
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 – 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 get promoted 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 $104 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 given I believe our outsized wealth is mostly due to luck. 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.
After more than 11 years of early retirement, I have come to realize I have a higher steadier state of happiness. But it's taken me a while to realize this because life is full of twists and turns.
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 was an incredible amount of investing FOMO and real estate FOMO with so many speculative assets going up. Your goal is to beat greed and not deviate from your investing framework.
Over the years, I have received plenty of pushback from equity investors who were all-in whenever I wrote about investing in bonds (terrible year in 2022!) 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 individual muni 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.
It's OK to sell stocks on occasion to buy things you want. Otherwise, there's no point investing in an asset that provides zero utility.
Learn to stay focused and simplify
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. Stick to your appropriate net worth asset allocation in order to defeat investing FOMO. Investing FOMO can destroy your wealth in a hurry as many people who invested in speculative assets in 1997, 2000, 2007, and 2022 found out.
Personally, I really like investing more in private funds now. It's nice to invest in a 5-10-year timeframe and not know the daily price movements. Private funds enable to to focus on everything else that matters.
Please never confuse brains with a bull market! A financial crisis hit in March 2020. And another one could very well hit again in the near future with high valuations and an overly aggressive Fed.
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.
If you were one of the people who bashed me about my lower safe withdrawal rate suggestion in retirement, please be more humble. Think dynamically, not fixed.
To make so much money in stocks and real estate since the pandemic began is 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. I also want to do more traveling and writing. 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 and spend down what I already have. The main way I can do this is by having a diversified net worth and a healthy passive income component.
Next up, I'll review how this current bear market compares to the 2008 bear market.
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 Empower (previously 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. 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.
Fundrise is my favorite real estate platform. It enables investors to diversify into real estate through private funds. Fundrise has been around since 2012 and now manages over $4 billion in assets. For most people, investing in a diversified real estate fund is the way to go.
The key to great wealth is making it last over time. As a physical asset, real estate stands a greater chance than stocks in holding its value.
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