10 Years After... Lessons Learned from the Financial Crisis

This March is the 10th anniversary of the stock market’s low point during the 2008-2009 financial crisis. This earth-shaking event provides important lessons for investors looking to make the right choices in the face of today’s volatile markets.

IT’S DARKEST BEFORE THE DAWN

If we cast our minds back to March 2009, the financial markets were in a state of chaos. Of course, no one could have known then that, amidst the panic, the market recovery had already begun.

On March 9, 2009, the benchmark U.S. stock index, the S&P 500, hit its bottom. Since then, investors have been rewarded with one of the most stunning bull markets in history: the S&P 500 Index has advanced over 330% to the end of November 2018 – and delivered a 16%+ annual return (return of the S&P 500 Index from March 2009 to November 2018. All returns in local currency, annualized and include reinvestment of all dividends).

While financial crises like the one that occurred over 2008-2009 are extremely rare, there is no avoiding the fact that periodically, markets will experience short-term volatility, which can cause investors to question their investments and investment plans.

BASIC LESSONS VS. BASE INSTINCTS

2018 has been a year of ups and downs, with equity markets starting and ending the year with some of the sharpest volatility we have seen since the financial crisis. How do you manage through this turbulence? How can we control our base instinct to panic and, instead, stay on course to our goals?

DON’T INVEST IN SOMETHING YOU DON’T UNDERSTAND

In the lead-up to the financial crisis, many investors deviated from their investment plans, chasing returns in risky assets they often did not even understand. That especially hurt them when markets sank.

MAKE A PLAN – AND STICK TO IT

A properly built investment plan – one that aligns your investment portfolio with your unique goals – will help you maintain perspective and avoid emotional decisions when volatility hits. And it will also help ensure your portfolio remains diversified, which helps manage risk and enhance return potential through the use of different asset classes, geographical markets and industries.

DON’T TRY TO “TIME” THE MARKETS

Missing out on just some of the best days in the markets dramatically affects your returns. And even professionals can’t reliably predict exactly which days will be the best. In the short term, markets are unpredictable. However, over the long term, they tend to steadily climb.

INVEST REGULARLY

One way to take advantage of the long-term up-trend is by investing regularly, which allows you to ease into any type of market (rising, falling, flat) and reduces long-term portfolio volatility. Why?

Investing a fixed dollar amount on a regular basis gives you a chance to buy more investment units when prices are low and fewer units when prices are high, thereby potentially reducing the average cost of your investment. Equally important is that it provides a built-in discipline, helping you avoid trying to time the market.

By following these basic rules, you not only put the odds of success on your side, but you are sure to make your investment journey a lot less stressful and much more enjoyable.

Mathieu's column, Your Financial Corner, will appear in each edition of Chamber Vision magazine, published by The Chamber of Commerce for Greater Moncton.

About the Author

Mathieu LeBlanc, CPA, CA, CIM

Associate Portfolio Manager, The Cormier Group of RBC Dominion Securities
Mathieu LeBlanc is a Chartered Professional Accountant and Associate Portfolio Manager with The Cormier Group of RBC Dominion Securities.