4 Crucial Financial Lessons From the Great Recession

December marks 10 years since the start of the Great Recession. The economic downturn officially started in December 2007 and ended in June 2009, according to the federal government.

One decade later, a few financial lessons stand out, a recent analysis by Fidelity Investments shows. The findings reveal four key ideas for every investor:

1. Focus on the long term

Stocks are for long-haul investing. This lesson is hardly new, but it’s worth repeating because forgetting it can be a costly mistake.

For this “Ten Years Later” analysis, Fidelity polled 1,200 Americans who began investing before the Great Recession. Additionally, Fidelity analyzed the actions over the 10-year period of about 1.5 million people who have workplace retirement accounts with Fidelity, as well as about 5 million people who have individual retirement accounts (IRAs) with Fidelity.

Fidelity found that folks who stuck with investing throughout the downturn saw their investment balances grow by about 50 percent more than those who ditched stocks for cash during the downturn.

In particular, baby boomers who continued contributing to their retirement accounts after the stock market crashed have been handsomely rewarded. The following statistics are on folks born from 1946 to 1964 who have workplace retirement plans with Fidelity:

• The average 401(k) account balance fell from $115,000 in June 2007 to $85,000 at the start of 2009. But today, the balances of boomers who made continuous contributions to those accounts over the past decade are up to $315,000 — nearly triple compared with 2007.
• The average individual retirement account balance among boomers who regularly contributed to those IRA accounts has more than tripled, from $30,368 at the end of 2007 to $96,353 at the end of 2016.

2. Banish debt

The most common change that survey respondents said they made after the Great Recession was reducing debt, cited by 36 percent.

Fidelity notes that this lesson might be fading from consumers’ memories, though, pointing out that household debt levels hit an all-time high in June.

If you have lingering debts, check out “8 Foolproof Steps to Get You Out of Debt Fast.”

3. Diversify

Diversifying your investments by putting money in multiple types of assets — like stocks, bonds and cash — is another classic investing lesson. This method has become even more popular since the Great Recession, Fidelity reports.

As a result of the downturn, 33 percent of survey respondents said they have changed their mix of investment types to become either more conservative or more aggressive.

4. If in doubt, consider consulting a professional

One-quarter of survey respondents said the Great Recession led them to seek help from a financial adviser. And these folks were more likely to report faring better financially than those who did not seek help. Ken Hevert, senior vice president of retirement at Fidelity Investments, explains:

“What we’ve observed is that during times of market volatility, investors who aren’t panicking are those who already have a plan in place, either one they created on their own or through the help of an advisor.”

Whether your investments would fare better with professional help or a do-it-yourself plan depends on multiple factors particular to your financial situation. For help determining which option is better for you, check out:

• “Should You See a Financial Counselor or a Financial Adviser?“
• “How to Choose the Perfect Financial Adviser”

What would you say is the biggest financial lesson you’ve learned in the wake of the Great Recession? Share it below or over on our Facebook page.