When the stock market collapsed in 2008, many investors panicked and wondered: Should I ride this out or should I make changes?
The market's spikes and dips can certainly throw people for a loop—especially if you’re new to investing. But if you ask a financial planner about the top strategy that a person could have taken during the recession, here's the answer you’re likely to hear: People who held on—staying the course—typically fared the best.
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“Over long periods of time, markets compensate investors,” says John Tabb, a Certified Financial Planner™ at Questis, which manages market-based, globally-diversified portfolios. “When you try to jump in and out of the market, you have to be right twice—which is hard to do. If you miss one of the two or three best days of the year, you may miss a large portion of that year’s gain.”
Dana M. D’Auria, a certified financial analyst and director of research at investment advisory firm Symmetry Partners, agrees: “Most people aren't going to outsmart the market. The goal is to buy low and sell high, but investors are notoriously bad at timing and tend to do the opposite.”
What about simply looking at the history of a stock and trying to guess? The unanimous reply from experts: If you're not a finance pro, that tactic can be a big gamble. It may sound clichéd, but “past performance is not indicative of future results,” says Laurie Nardone, a Certified Financial Planner™ at investment advisory firm Shira Ridge Wealth Management.
Of course, there are always going to be some people who are investment intrepid—like these three men and women, who've all been investing for at least 10 years. So we asked them to share their thoughts on what they’ve done well and what they could have done better before, during and after the recent economic crisis.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Past performance is not indicative of future results. The individuals interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services. LearnVest Planning Services and any third-parties listed, discussed, identified or otherwise appearing herein are separate and unaffiliated and are not responsible for each other’s products, services or policies.
The All in the Family Investor
Stef Safran, 41, founder of stefandthecity.com, Illinois
“When it comes to my investment strategy, I take cues from older family members. My grandfather never graduated high school, but he became a millionaire through investing. My dad also did well by investing and my mother was in a stock club. There was always talk about stocks around the dinner table, and I listened carefully to what everyone had to say, since I saw how successful they were.
Starting in the early 1990s, my grandparents gave me gift money over the years and told me that I could invest it in anything that I wanted. So I went to a brokerage company, and gradually invested in a total of five to 10 stocks. I chose big-name companies, mainly strong tech firms like Apple, Microsoft and Hewlett-Packard. My grandfather also encouraged me to invest in Con Edison. He’d say, 'Utilities are going to be around forever.'
The stock market is like Vegas: I’m bound to win on some and lose on others, but slow and steady wins the race.
Over the past two decades, even through the recession, I hung onto the majority of those stocks. Now and then, if I saw my dad buy or sell something, I would follow in his footsteps. But, for the most part, I’ve used a 'buy and hold' philosophy. The stock market is like Vegas: I’m bound to win on some and lose on others, but slow and steady wins the race. Overall, my investments have doubled, despite the recession.
I also benefited from having a conservative, low-risk 401(k), which my grandparents had recommended. When I was younger, my broker kept telling me that I should be more aggressive and risky, but I never got around to making the change. So when the recession happened, my 401(k) didn’t take as big of a hit as it could have.
I'm lucky to also have bonds, in addition to stocks. Annually, from the year I was born to my 13th birthday, my grandfather gave me a bond instead of a check. The idea was that the bonds would eventually go toward my college education. But my dad was able to pay for school, so I’ve been able to let these bonds sit and grow. I’m keeping most of them where they are, in case I need money for a medical expense, a new home or something unexpected in the future.”
The Socially-Minded Investor
Tom Hoebbel, 49, owner of a photography and video store, New York
“Since the early 1990s, I invested in mutual funds and had an IRA. In 2008, when the stock market was near its bottom, I made a couple of big changes. First, I rolled my IRA into a Roth IRA because I figured that I would likely incur the smallest tax penalty. Then I sold all of my mutual funds, and began investing in individual stocks through an online discount brokerage.
I used Warren Buffett’s advice to 'be greedy when other people are fearful.' Since everyone was panicking, I bought five stocks at very low costs. For example, I bought Apple when it was about $100 per share and Google when it was around $300 per share.
I also invested in socially responsible stocks of companies that give back to the environment or the community. It’s important to me to choose companies with values that I believe in. Some of these stocks have done well for me, such as Tesla, the electric car manufacturer. Others haven't—and I dropped the bad ones fast.
My wife and I are self-employed, so we don’t have a pension or a company match ... it’s all up to us.
I’m happy that my investments have tripled since the recession. As the economy struggled, my wife and I did have to cash out a few stocks over the last few years to make ends meet. But we haven’t had to lately. In fact, I now put a portion of my income aside to add to the fund. If I had kept all of my stocks in the market after 2008, the amount of growth probably would have been larger.
I was initially earmarking this money for my kids’ college tuition, but they ended up getting financial aid. Now I want to put it toward retirement. My wife and I are self-employed, so we don’t have a pension or a company match ... it’s all up to us.
Going forward, I’ll stick with my plan. That said, I make fewer trades now than I used to, since I have to pay a fee each time, and sometimes the fees cancel out my income. I’m aware that my strategy is high-risk, and that most financial planners would spread things out into other types of investments. So as I get closer to retirement, I’ll probably take fewer risks.”
The Measured Investor
Lisa Cobb, 57, homemaker, Virginia
“My husband has a few rollover 401(K)s, each of us has an IRA, and we have joint brokerage accounts. I started investing in stocks in the early 1980s, when my dad gave me money one holiday, telling me to invest it in whatever I wanted within one year. At first, I worked with a financial adviser, but then switched to online brokerages because I found that I was interested in the day-to-day and week-to-week ups and downs of the stock market. In fact, when I was younger, I once told my dad that I wanted to be a stock broker!
A lot of our money is in mutual funds, which are e-managed. But I also love choosing stocks. The vast majority of the time, I pick a stock and stay with it for a while. But sometimes I’ll notice that a stock has a history of rising and falling at certain times, so once in a while, I’ll jump in and jump out.
At one point, I was in a monthly investment club with 19 other people and learned a lot. I’ve had a subscription to Money magazine for 33 years and I read Forbes and Fortune regularly. I used to read the newspaper for stock information every day, but now I mostly turn to CNBC.
I slowly started putting money back into stocks in 2009. I do regret that I never closed my eyes and put it all back in.
As for my strategies, I look for solid companies that are experiencing what I think are 'temporary problems.' For example, in 1994, Johnson & Johnson was having a crisis, but I knew that they would eventually rebound because they are a great company. So I invested less than $5,000 and reinvested the dividends, and that stock bounced back and has been wonderful.
I did the same thing when Steve Jobs went into the hospital for his pancreas problem in 2009, buying Apple for under $80 a share. I also used that strategy with Facebook—so many people thought their IPO was a bad idea, so I waited until the price dropped, scooped up shares and now it’s way up.
With growth companies that I believe will continue to do well, I don’t wait for the price to drop because it may not. In terms of small caps, I don’t feel confident making those decisions, so that’s why I have mutual funds. I also don’t know much about the biotech industry, so I have an ETF for biotechs. But I feel like I understand large cap stocks, so I handle those. Eventually, I will hand everything over to someone else because I know that I’m not as sharp as I used to be!
In 2007 our portfolio was looking so good that I kept thinking: Something is going to blow. In 2008 I was on vacation, driving to Myrtle Beach. I stopped in one town along the way, and the grocery store had no bread. The cashier said, 'The trucks aren’t delivering it.' When I got to Myrtle Beach, the same thing happened in a store there. Then I turned on CNBC and heard: 'The country is frozen. Credit is frozen.'
So I kicked up my computer, and took two thirds out of our portfolio and put it into CDs. That was the boldest move I ever made. I slowly started putting some of the money back into stocks in March of 2009. I do regret that I never closed my eyes and put it all back in. But, overall, my strategy has worked well. Our investments have grown 10 times since we started.”