Weathering the Storm – Investing through the Global Financial Crisis

I've enjoyed reading some of the posts here on PC about those who weathered the GFC and how they went through the storm

A good blog here worth a read

Weathering the Storm – Investing through the Global Financial Crisis

The Global Financial Crisis was the second significant market event I was conscious of. My investing journey began at the same time as the 2000 ‘Dot com’ bubble. I have few distinct memories of that latter event, though I do recall a work supervisor who had a sizeable investment in an actively managed global technology focused fund, ruefully reflecting on market events.

The Global Financial Crisis was different – it emerged in the early phases of my investment journey, around seven years after I started building an investment portfolio by making regular contributions, and after I had already read a number of investment books and researched some financial market history. Indeed, By mid-2006 I had already set an early FI goal of achieving investment returns equal to average expenditure, with an ambitious deadline of December 2008. This shows how far I was from anticipating the shape of events to come.

This post results from reader questions received about my direct experience with the Global Financial Crisis. It focuses on the period of the crisis and initial recovery, from 2007 through the 2010 .....continues on link

 

How did income fare....

 

As per my habit I haven't read the article but was s/he invested only via ETFs? I recognise the level of drop in come in the graph you have posted but that wasn't my experience with LICs at the time.

The product @Nodrog has suggested would have been very useful at the time - and maybe in the future depending on one's personal circumstances.

 

@SatayKing

No idea what their portfolio was at the time, currently it consists of...

Portfolio summary

• Vanguard Lifestrategy High Growth Fund
• Vanguard Lifestrategy Growth Fund
• Vanguard Lifestrategy Balanced Fund
• Vanguard Diversified Bonds Fund
• Vanguard Australian Shares ETF (VAS)
• Vanguard International Shares ETF (VGS)
• Betashares Australia 200 ETF (A200)
• Telstra shares (TLS)
• Insurance Australia Group shares (IAG)
• NIB Holdings shares (NHF)
• Gold ETF (GOLD.ASX)
• Secured physical gold
• Ratesetter* (P2P lending)
• Bitcoin –
• Raiz* app (Aggressive portfolio)
• Spaceship Voyager* app (Index portfolio)
• BrickX (P2P rental real estate)

 

This one from Aussie Hi Fire was also an interesting read on a bear market

What a Bear Market Feels Like

Depending on how you measure it we are right around the 10 year anniversary of the GFC which a lot of people classify as Lehman Brothers going under, although of course there are plenty of other significant events. I had a pretty up close view of the GFC as at the time of much of it I was in London working on the equities trading floor of one of the biggest banks in the world. Although the crisis had already been going on for quite some time at this point it had been somewhat slow moving and felt more like just a regular bear market than the huge event it turned out to be. There isn’t actually a set definition of what a bear market is but I’m going to use a fall from peak to trough of at least 20%, which the GFC easily qualifies for. Given that many in the FIRE community have never experienced a bear market I thought it was worth taking a look at what it felt like for me at the time. Continue reading →

 

You gotta wonder even before looking further.

 

That’s for sure and because I continued to invest throughout this period (supported with above diapers) income reduction wasn’t much of an issue at all.

 

I feel like the storm is more now than during a bear market. Buying cashflow is getting more expensive and if you want to buy the “potential” cash flow of the disruptors to cover off on that potential/risk its well outside the comfort zone of paying for a bird in the hand. Sure, big bad corrections get the raw emotions fired up, but successful investing is more about conquering unhelpful emotions than anything else.

If I had the choice:

I would happily see the mark to market value of my portfolio halved If I could buy future cash flows for half the price. The rate you can invest at is what ultimately determines the future purchasing power for an accumulator.

What does valuing your portfolio at today’s prices achieve anyway? It’s not as though cashing it all out today is a viable path to funding your future – Mark to market is purely an arbitrary concept to give us something easily measured, but there is no actual use in measuring it. It seems to be human nature though to anchor to portfolio highs and then see future falls as storms to be weathered.

Normal thinking in this area needs to be inverted to deal more calmly with future market volatility.

Bear markets should only really be feared if you become a heavy de-accumulator (job loss, small business failure, trying to live off markets without enough capital etc) during their duration or if you suffer too much permanent loss through holding things that go broke. (large diversification can mitigate against the latter, though you should expect some creative destruction, its healthy)

I say the above with only the experience of the GFC and tech crash early in my investment journey. So, there is always the possibility a future bear market could hand me my arse whilst saying nice theory you powder puff….. But I'm confident or cocky enough to doubt it, direct share volatility has hardened me up and exposed me to more volatility than could be historically expected from the indices, but the future is always unknown and scary so who knows.... that's the uncertainty that keeps it addictive.

 

Just a means off keeping score I guess?

True that

I needs more capital to survive

 

Looks ominous; time to Jettison the Baggage and make full noise ahead or run up the white flag and surrender.

 

Or in other words, counting your money - Big psychological pitfall.

Gambling or investing, anything that is probability based, focus on the process not the outcome.

“you never count your money when your sitting at the table”

 

+1

Then the only Bonds required to get one through those fearful times are these:

 

If you were at or near retirement, your best hope according to Sharesight would have been a lot of dividend paying shares (which actually seem to have held up) or a very high bond component.

 

Sorry, or MLT, which apparently had this remarkable return through the same period:

 

Psychological aspects aside, dividends are literally the same thing as selling down shares. No need to hope for dividend paying shares.

That doesn't sound right at all, the period must be incorrect.

 

Yes, the MLT figure seems somewhat of an outlier.

 

It's not an outlier, it's not correct. Google MLT and the chart will show it didn't make a capital gain during the GFC.

 

Good thing I didn't sell up and plunge on Milton then.

 

Whats the $17.45?