Personal finances

Op-ed: Lessons from past financial crises can become preparation for the future – CNBC

Summary

Are financial crises occurring more frequently?

There were nearly four decades between the crash of 1929 and the bear market of 1968. Fast-forward to the 21st century — only 20 years passed between three financial crises: the 2001 dot-com crash, the 2008 global financial crisis and in 2020, the Covid-19 pandemic’s economic recession.

What used to be rare, isolated events are increasingly becoming more frequent. In fact, 68% of investors with investable assets of $100,000 or more…….

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Are financial crises occurring more frequently?

There were nearly four decades between the crash of 1929 and the bear market of 1968. Fast-forward to the 21st century — only 20 years passed between three financial crises: the 2001 dot-com crash, the 2008 global financial crisis and in 2020, the Covid-19 pandemic’s economic recession.

What used to be rare, isolated events are increasingly becoming more frequent. In fact, 68% of investors with investable assets of $100,000 or more expect to live through more financial crises in their lifetime, according to Nationwide’s Advisor Authority study. What’s more, 35% of investors surveyed expect to live through three or more additional crises.

One of the best ways an investor can prepare for future financial crises is to look back at previous events. While the economic recession of the Covid-19 pandemic is certainly top of mind, the 2008 financial crisis still weighs heavily on investors’ financial decision making today.

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In the Nationwide survey, 37% of investors were most likely to say the 2008 crash and subsequent Global Financial Crisis had the most profound impact on their approach to finances and investments. This surpasses the 2020 Covid-19 crash and recession (28%), as well as every other major financial crisis over the past century, including the 2001 dot-com crash (9%), the 1990 recession (6%), Black Monday in 1987 (4%), the 1981 recession (6%), the OPEC embargo in 1973 (3%), the bear market of 1968 (2%), the crash of 1929 and the Great Depression (5%).

Take a moment to think about your own experiences during the 2020 Covid-19 crash and recession or the 2008 Global Financial Crisis. What steps did you take to adjust your approach to personal finance or investing?

If you made a change, you were certainly not alone. Many investors changed their behaviors in response to the financial crisis that had the most profound impact on them. Sometimes the changes were for the better, other times they were not.

The top shifts investors made to their approach to managing their personal finances were establishing and following a budget (22%) and starting a “rainy day” or “emergency fund” (21%), as well as working with an advisor or financial professional (21%). The top changes to their approach to investing include managing investments more conservatively (20%) and adopting a new strategy to protect assets against market risk (17%), while at the same time using the market decline as a buying opportunity (17%).

Generally, these practical or cautious adaptations are likely to have been wise moves that affected financial outcomes positively.

On the flip side, some investors made more rash or emotional investing decisions.

These included liquidating assets from qualified retirement savings plans to cover financial obligations (12%), liquidating assets from non-qualified investment accounts to cover financial obligations (12%), moving the majority of their investments from stocks to cash (9%), and panic-selling investments at a loss (7%).

If you find yourself in a position where you are considering these types of actions the next time a …….

Source: https://www.cnbc.com/2021/11/16/op-ed-lessons-from-past-financial-crises-are-preparation-for-the-future.html