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Money Fix: Lessons from 2008 financial crisis

The upside of crisis is the opportunity to

The upside of crisis is the opportunity to buy stocks, housing or any other forms of investment when prices are low, says one financial executive.   Credit: Getty Images / iStockphoto / Ridofranz

Life offers many lessons if you’re still and studious enough to grasp them. The past is always a road map to the present. The last time things were so bad economically in this country it was 2008.

What can we learn with a look back, and how can it help us in the current chaos? Experts share their insights.

Stay invested, but diversify

“No matter how bleak and dire a situation may be, the markets are very resilient and as long as you have the patience and some time to ride through the volatility, longer term the markets have always come back,” says Christopher Congema, a certified financial planner with Landmark Wealth Management in Melville.

He explains that if an investor had the worst timing in the world, and invested into the S&P 500 Index in September 2007 (which would have been like getting on the Titanic right before it hit the iceberg), had they done nothing else and just stayed invested, they would still have realized an annual average return over the next 10 years of 7.2%. And that is having the worst timing.

But what was key then, like now, is being diversified. While the S&P 500 Index was down 55.3% and took 37 months to get back to break-even, a diversified portfolio of 60% stocks and 40% bonds was down only 36.8% and took 13 months to get back to break-even, points out Congema. If you hit the panic button and sell during the pandemic you potentially create permanent losses. “Don’t sell in a temporary decline. Successful investors always act on a plan, while all failed investors always react to the news and current events,” says Jonathan R. Blau, president of Fusion Family Wealth in Woodbury.

Borrow wisely

Subprime lenders had a huge role in the financial meltdown of 2008. Beware now, greed hasn’t disappeared and with the economy people may seek out everything from expensive payday loans and other loans they aren’t equipped to handle.

“Avoid predatory lending that will crop up in this new economy. Pay attention to the interest rates and terms of the loans and mortgages you are looking to take out. Put plainly: Really examine what your payment is going to be in comparison to your current income and expenses. Not what you think the future will hold, but what you're able to comfortably afford right now,” says Renee Vitullo, a personal finance consultant in Valley Stream.

Seize the moment

The upside of crisis is opportunity.

“One lesson we can learn from 2008 is how at the worst times we can still make money and get wealthy in the process. Right now is a great time to invest, whether it's stocks, housing or any other forms of investment. This is because the prices are at an all-time low,” says Andrew Roderick, CEO of CreditRepairCompanies.com.

He points to an example: “Investing in travel companies can be a brilliant snatch! We cannot travel as frequently as we could a year ago, some businesses are losing out, but within 12 months the travel industry will be booming again, and this may increase even more than in the past because of the restrictions we have in place today.”

You want to be that person who is sitting pretty with a ton cash who can take advantage of fire sales on everything. Those with stellar credit will be in good stead, too. Adam Rauch, president of One Line Agency, a sports and entertainment marketing company in Huntington started his business during the 2008 recession.

He was able to secure a loan in part because of his ability to prove his company would be financially viable. Better still he had strong personal credit and a long-standing financial relationship with a bank.

The moral of the story — do the right things in good times, like paying bills on time.

“When all is well, saving feels like a boring and unnecessary use of money but it's an essential aspect of financial wellness,” says Julie Ford, a certified financial planner with Ford Financial Solutions in Manhattan.

But consistent saving and investing can put you in a position to profit when the economy goes south.

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