There’s a potential global financial crisis on the horizon, with interest rates on the rise and an inverted yield curve. The rich folks on the Board of Governors will be fine, but the middle class might be in for a rough ride with job losses. But don’t panic just yet. We’re better prepared this time with stronger balance sheets and diversified investments based on our risk tolerance. So, this recession might not hit as hard. But with risky assets and policymakers, you can never be too sure.
Remember the near-miss we had with Silicon Valley Bank and First Republic in 2023? We were on the brink of another global financial crisis, but the federal government stepped in and saved the day. It reminds me of when Lehman Brothers went bust in 2008. I lost a $100 bet that day, thinking the US government would bail them out. They didn’t, and Lehman’s stock plummeted and never recovered. That’s a memory that sticks with me.
Despite the economic turmoil, I sometimes wish I could go back to 2008. I was younger then, and who doesn’t want to live as long as possible? But we need to face the reality that we might be heading into another recession. So, let’s learn from the past and prepare for the future.
I’ve been investing since 1995 and now manage an 8-figure investment portfolio. At 45, I’m happily retired and spending quality time with my two young kids. Here are some lessons I’ve learned since the last financial crisis:
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Investing all-in is tough, even when you know you should. During the last crisis, I held back from investing more than my usual 401(k) maximum because I was worried about job security. I had a hefty mortgage and the thought of bankruptcy was very real. So, I built a CD portfolio with most of my excess cash. The only things I did right were keeping my job, not selling any real estate or stocks during the downturn, and maxing out my 401(k). Remember, debt is the real killer during a financial crisis. Make sure you have enough liquidity to last you through at least six months of living expenses in case you lose your job.
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Chaos can be a great motivator for change. If you’ve been putting off something, now might be the time to act. I started Financial Samurai in 2009 as a backup plan in case I got laid off. 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.
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Family is everything during a global financial crisis. You can always make back your financial losses, but you might not always be able to repair your relationships. Embrace your family during difficult times. 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.
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You gain a tremendous amount of confidence over time. If you get through a global financial crisis, you will come out wiser and stronger. I’ve been building Financial Samurai for 14 years now, and I have no problem believing and saying I have expertise in personal finance and digital media.
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The more things change, the more things stay the same. We still have the same complaints as before the 2008 financial crisis. Yet, instead of losing money in dotcom stocks or housing, it’s losing money in cryptocurrencies and growth stocks. If you want to change, please take action.
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You’ll regret more the things you don’t do, than the things you try. My 56-year-old colleague told me this a couple weeks before he was let go. Since 2008, I’ve had some regrets, but I’m trying to make up for lost time.
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Even if you see the future, it’s hard to take advantage. I applied to Airbnb in 2012, but didn’t even get a chance to interview. 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.
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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.
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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.
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Friends come and go. I no longer hang out with the same people that I used to hang out with in 2008. Since 2008, several friends and family members have sadly passed away. Therefore, I plan to spend more time with my loved ones than in the past.
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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.
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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.
In conclusion, it’s important to stay focused and invest long term. It’s unlikely the stock market will perform as well over the next 10 years as it has over the previous 12 years. 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. My time for trying to build a fortune is over. I now just want to keep and spend down what I already have.
