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The 2008 financial crisis and the Great Recession were unsettling. People lost jobs, homes, and a good chunk of their nest eggs. The S&P 500 saw an almost 40% drop in 2008 alone.
The 24-hour news cycle and social media offered up plenty of data, advice, and stories of sheer panic. And the messengers we listened to likely affected our reaction to the market’s decline—as well as our longer-term financial prospects.
I started thinking about how the likes of John Bogle and Jonathan Clements helped me develop a thick skin for market gyrations and the things we can’t control.
They were calm, thoughtful mentors whose writing helped me take a long view in times of uncertainty. This perspective enabled me to remain in the market and to continue contributing to it as it crashed, reaping gains over the years to come.
Writing about behavioral economics for MarketWatch.com, Paul B. Farrell brought a very different style to the table during and after 2008. He rambled. He pontificated. He raged against the machine and seemed mad as hell, like Peter Finch’s Howard Beale in the movie “Network.”
Farrell’s colorful MarketWatch headlines included “‘Good News’ About Living in Peace on a Dying Planet” and “Frankenstein Capitalism is Sucking the Life from America’s Soul.”
The casual reader might see an over-the-top permabear warning of impending doom. Someone worth reading more for spectacle than for helpful financial wisdom. Indeed, some reader comments questioned his sanity and if his articles even belonged on a financial website.
From my side of the computer screen, I suspected there was method in Mr. Farrell’s seeming madness. This same prophet of gloom would also sneak in a perfectly thoughtful column about simple, well-diversified “lazy portfolios” or an all-index approach.
I don’t know for sure, but I suspect he was drawing a line between what we can’t rationally control (Wall Street elites) and what we can (our own behaviors). This is where his message becomes helpful.
If we stop trying to outmaneuver all market threats, we might be less likely to time the market, err on the side of trading, and lose money in the process.
Despite the bluster, then, Farrell was leading his readers to much the same place that Bogle and Clements were. Know yourself. Build an automated plan. Keep it low cost and well diversified. Leave it be. Find peace. Now those are wise thoughts to keep in mind as the market sits near its all-time high.
Excellent article. Yes, downturns time to watch and buy, uptrends time to sell. Patience, lucky for me I learned this early on, and in one 3 year downturn my portfolio was down 45%, but have no fear, just hold on to your seat, have patience and the market after that was 15 years of up, and only one down. Patience and Discipline, you just watch during a DOWN market.
William,
It’s ironic that you posted this. Just yesterday my daughter texted me a picture of her returns from her Acorns account which is about 67.%.
I mentioned to her how our Vanguard account has more return money in it than what we contributed. I also told her that exactly 10 years ago we were in the red a few hundred dollars. Her reply was you never want to see that.
I saw her comment as an excellent teaching moment. My reply was true, but the key was I didn’t panic and kept investing and look at where it is now. I also reinforced with her that the in the short term the markets go up and down, but in the long run it has been up.
After retiring I read several investment books (books I should have read years earlier). In one of them, I can’t remember which, it said that over the course of a year the average stock or fund can have its price drop up to 50%, but then have that drop reversed within the same year.
It just happened to me. I almost baled out, but then changed my mind, and now the price is back up and even a little higher. If I hadn’t been looking at the price everyday I wouldn’t have even known it had happened.
It pays to leave things alone.
Time in the market is key, isn’t it? Especially with a broad market index. If you bail out, when are you going to get back in? You may just miss some of the biggest gains of any rebound that follows. I believe John Bogle once said: “don’t peek.”
Amen. (I would like to include an exclamation point after my reply but Jonathan wouldn’t approve.)
That’s so true about Jonathan and exclamation points, Rich. I believe he said don’t use them unless World War III just broke out.
Back in 2008, I was in an unusual situation that worked out well for me, ironically.
In November, 2007, I joined a major fraternal financial services organization, affiliated with a major Protesant religious denomination. I had just sold my insurance agency, and was recieving my payout over a 3 year period, at roughly $70k a year. The first year was paid out in 12 installments, so as I was building my book of business from 11-2007 through 12-2008, I had a base of income in addition to the commissioins earned from product sales and bonuses earned.
If any of you had advisors in those days, you may recall they were nowhere to be found and rarely heard from. from roughkly 2008-2010. This created a perfect storm for me, in that I was offering to serve their financial services needs as their portfolios were blowing up and theur advisors had abandined them. I gaithered clients hand over fist and by the end of 2008, I had built a substantial book. Even better, the clients I gathered stayed with me through their renewals in months 13 and later. 2009 was another banner year for me, in which I qualified for performance bonuses again.
In 2010, I realized a lifelong dream, when I joined The American College and began a 15 years career teaching in the CFP, CLU, ChFC, and finally the RICP curricula. My students benefitted greatly because unlike traditional college professors who rarely have any real world expereince, I had been in financial services for 38 years and I was not teachuing theory. Over my 15 years career my peers and I taught and trained thousands of well educated financial sercices professional, most of whom will serve hundreds of client families, across the US.
In 2013, I “met” The Bogleheads, through a friend with whom I rode motorcyles. He was a physician and actually lived on the street where John Bogle lived, in Bryn Mawr, PA. I also had a number of Vanguard employees as students, and one of them gifted me an autographed book on Mutuial Funds, authored by John Bogle.
I moved all my accounts to Vanguard and used Vanguard funds in my 403b, and never looked back. Prior to retiring, I used the traditional Vanguard 4 Fund Portfolio. As I approached retirement in 2024, I purchased a series of annuities to be paired with my social security, using roughlky 40% of my fortfolio, and used them as the Bond porttion of my portfilio. Today, my 60% equity portion is 00% invested in VTI and VXUS, 80/20.
Our income is almost 40% income tax free, since the annuities were funded with Roth dollars, and of course, our Social Security has a COLA feature. Our guaranteed income is over 120% of our retirement expenses, and our portfilio is there for late in life emergencies like LTC for my wife, and legacy funding. (I have a very rich LTCi policy myself, and our annuities have a LTC benefit that increases the payout by 50% for up to 5 years, for either of us. I wasn’t able to buy an LTCi policy for my wife because she didn;t qualify.)
I have seen any number of posts on HD where annuities are disparaged, and for those who don’t like or want them, more power to them. In our case, they are doing exactly what they were purchased to do…provide a guaranteed stream of income, for life, for both my wife and me…and making the volitilty the market irrelevant.
Like most HD contributors and readers, I am a huge proponent of a broadly diversified portfolio of low cost ETFs or Mutual Funds. I do not time the market, and either does anyone else,,,sucessfully. Wall Street is a shell game and the house always wins, especially when it is treated like a casino. Although not a popular opinion among many who think they are smarter than their record would indicate, I believe the market is moved by three components…Greed, Fear, and Stupidity…and I refuse to play.
Continued success in your investments and retirement!
Mike, how did you structure your “series of annuities”, based on years to begin payout, a variety of insurers or some other factor(s)?
So annuities constitute your entire bond portfolio if I understand correctly. Are any of them COLA adjusted?
Annuities seem fine as long as we do our homework and make sure we have have the right type for our situation. I trust you know more than a thing or two about them given your background . . .
D.J.,
Yes…most likely…as I authored and edited textbooks on them.
Annuities have been around since the days of the Romans. It is only in the past 75-80 years that intermediaries have managed to sully their name and reputation
Like life insurance, they are truly unique in their purpose, so much so that they have no substitutes.
In retirement I find peace with a 45/45/10 portfolio. I know that if the market turns into a bear if my bonds do nothing (not a guarantee as I learned in 2022- “Why aren’t my bonds rising as my stock position is sinking to protect me?”) my losses will be half of that. What I give up in return is when the market increases my index fund portfolio will not rise a commensurate amount, and I’m fine with that.
2022 was a wake-up call about bonds, wasn’t it David? I still hold a position in a total bond fund, but sleep better with more short-term bonds and cash in the mix today.
My bonds are now split roughly equally 1/3 each of short term, short term TIPS, and total (intermediate term) bond ETFs for some diversity in my bond allocation.
I agree, D.J. If our peace depends on that “all-time high” market, we’re in for a bumpy emotional ride.