Let’s take a quick poll. How long does it take you to stop writing “2009” on your checks and documents now that 2010 is here? For us, it takes a while –especially after all we lived through last year.
For 365 days, we faced unprecedented economic, political and financial challenges and it’s hard for us to put last year to bed. Did you know that in the last three months of 2009, one million Americans lost their homes through foreclosure? One million! And they tell us that things are getting better? Before we relegate last year to a scratched out handwriting error, let’s take one last look back at 2009 and list some valuable lessons that investors learned.
The recession of 2008-2009 (and maybe 2010?) taught us that there was no place to hide. Whether you owned an annuity, commodity or real estate in a community, the value of your investments likely went down substantially in late 2008 and early 2009. Many thought diversification meant having different brokerage accounts with three financial salespeople. Others thought that commodities such as oil and gold would offer a buffer from the financial maelstrom.
Faced with defaults and unprecedented volatility in bonds, utilities and preferred stocks, even the most seasoned bond investor found it near impossible to maintain their “buy and hold” strategy that had been bullet-proof until now. Many new financial and insurance investments that were sold as safe, “guaranteed” and liquid were locked up and blown out of the water. Even if you were lucky enough to have cash in the bank, you were faced with the fear that your bank might fold and take your savings with it. Chances are, you didn’t face this crisis without discovering a chink or two in your personal financial armor.
These financial risks aren’t limited to the investments in your retirement accounts or the bonds in your brokerage account.