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How to Invest Now- Lessons From the Previous Recession of 2008-2009

As the stock market continues to be volatile and unpredictable, up one day and down another, we thought of sharing with you data and analysis from a similar time in order to provide some understanding and perspective. We’ll look at the last recession of 2008-2009.


As many may remember, the 2008-2009 Great Recession brought about one of the most severe stock market drops since the Great Depression of the 1930s. Yet, a disciplined, educated and patient investor could have made money during those very hard and trying times. While no one recession is similar to another and the current crisis we’re seeing is probably unprecedented on the health scare side, the similarities of a stock market drop are all there. An example would be the ‘most unfortunate’ investor who started investing at the very peak of last market cycle prior to the Great Recession of 2008-2009. Most people fear what will happen if they start investing and then the market goes down. A legitimate fear, but it shouldn’t be for long-term goals when you’re equipped with a plan and education.

If that investor started investing at the very peak of last market in October 2007 and kept investing monthly (at the S&P 500 index), could you imagine what she would have had? The market (S&P 500) lost over 50% over many months, terrifying even the most experienced investors. The recovery, coming back to its high of October 2007, took over 5 years until March of 2013, but this ‘unfortunate’ investor buying monthly, without even thinking, had a 38% positive total return for that five-year period. What?! Yes, a 38% positive return after the five years that the market recovered, back to when she started. That was one of the worst crashes, second to only the Great Depression of the 1930s, while other recessions have been quicker to recover. And if you already had money in the market prior to 2007, that money would have returned to where it was in 2007 (0% returns), but you made 38% on the new money you invested during that period. Let me say it again, 38% return when the market did 0%! But most people panicked, got out and never got back until later, missing on most or all of the recovery gains. If we compare it to our current situation, we’re far down from the peak, and alot has already happened.

The above chart shows an investor that starts investing $500/month at the S&P 500 index (represented by SPY ETF) at the very peak of the market (October 2007) and continues investing monthly until the market recovers (March 2013). The red line above shows the deposits that this individual made during those years (left axis) for a total of $33,000 total invested (if investing $500/month). The blue line shows her portfolio as fluctuating with the market (left axis), and the green line is the market index, S&P 500, represented by the SPY ETF (a broad market ETF that follows S&P 500 index, on the right axis). This example uses an investor depositing $500/month but it can work for any amount, and the percentage returns will be the same.

You can also notice that at the end of this recovery period that the total portfolio balance (blue line) is now $45,700 for a total return on invested amount ($33,000) of 38%. Also to note, is that the portfolio value was below the invested amount (blue line being below the red line) only for about one year (from about August of 2008 to August of 2009), thus, this client only saw portfolio losses for just that year, and not the whole 5 years of recovery.

This research is a good representation of a typical market drop with the typical recovery that follows. No one knows what may happen, but for long-term goals, it is always good to buy when prices are low and hold on for your time horizon. This strategy doesn’t guarantee no losses, as nothing does, but it does give a rational approach to a time of panic when most people should be buying during lower prices versus selling, as they often do. Please contact us if you have any questions or if you would like to learn more on how to start executing on such a strategy.