Can someone answer a question about the 2008 economic crisis

[saver17]

Someone was telling me that during that time if you had a savings account or any investments it all disappeared.

Is this true?

[greenskeeper]

Someone was telling me that during that time if you had a savings account or any investments it all disappeared.

Is this true?

Stock market lost value as did practically everything else "on paper" unless you decided to sell.

Savings accounts the interest rates went to nearly zero but the principal balance was still there.

[saver17]

Stock market lost value as did practically everything else "on paper" unless you decided to sell.

Savings accounts the interest rates went to nearly zero but the principal balance was still there.

Thanks

[MonkeyMama]

We had some investments (individual tech stocks) that disappeared during the 2001 market crash. (We did not sell during the crash, but eventually had to give in and admit that we lost our money. Those stocks never recovered).

The important part is to diversify. Don't risk money that you can't afford to lose.

You would not lose money in savings accounts, unless maybe you had money in cash that was not FDIC-insured? Certainly many banks failed, but FDIC insurance should have covered most situations.

[97guns]

Money in the bank is the safest place to be unless there is a real currency crises like Greece, Venezuela and Cyprus have recently experienced. People in these countries have seen the savings in their bank accounts diminish by 60% and there were huge runs on the banks by people taking out their money.

[disneysteve]

Someone was telling me that during that time if you had a savings account or any investments it all disappeared.

It is disturbing that there are people out there who think and believe that sort of garbage.

[Singuy]

It is disturbing that there are people out there who think and believe that sort of garbage.

I have a young 24 yo tech who applied to medical school thought that any money that is deposited in the bank will be taxed yearly (not the interest, but the entire balance)...so he decided to not have a savings account but only a checking account with a low balance. Perhaps heard it from his folks since he's a pretty hardcore small government advocate.

[Milly]

The housing market collapsed. Prior to the collapse, many people were living in houses they couldn't afford, taking out additional mortgages, and assuming the house price will rise faster than the interest. Effectively, they were using their house as savings. The collapse left them with no equity and crushing debt.

Many people gave their keys to the back and walked away. Suddenly, the banks had lost their money and many failed. The savings accounts themselves were insured and paid by the government, causing future economic problems.

When consumers stopped consuming (particularly on things like washing machines), other businesses started to fail. This caused unemployment and even less stability, putting even more businesses out.

Between all these nasty problems, of course no one trusted the market, so the stock market crashed, leaving many people with much less in their 401k. In that regard, they lost their savings.

Not everything got wiped out though. My sister in law moved her 401k into government bonds in 2007 as she saw the problems emerge. She lost nothing, but regrets not immediately moving the money back after the fall. It took her several years to invest in the market again and she missed out on the rebound. Note: she moved her money back into bonds last year.

Other people saw the housing prices plummet and bought like crazy and are now millionaires.

[disneysteve]

Between all these nasty problems, of course no one trusted the market, so the stock market crashed, leaving many people with much less in their 401k. In that regard, they lost their savings.

That isn't true. Plenty of people continued to trust and invest in the market. I did. The crash didn't change my investment plan one bit. I continued to add to our Roths and other accounts the same as always. When prices dropped, we were able to load up on more shares for less money which made us even more money when the market recovered. The only people who lost money were those who panicked and sold after the crash.

Not everything got wiped out though. My sister in law moved her 401k into government bonds in 2007 as she saw the problems emerge. She lost nothing, but regrets not immediately moving the money back after the fall. It took her several years to invest in the market again and she missed out on the rebound. Note: she moved her money back into bonds last year.

Trying to time the market is a fool's game. She probably missed out on thousands or tens of thousands of dollars of potential gains by leaving the market when she did.

[97guns]

All bubbles are formed with overinflated/overvalued assets, when the bubble pops assets become undervalued and that's when you jump in hard, could be stocks or RE.

If I had large stock holdings that I had big gains on I would be inclined to take some of that money off the table and into a cash account waiting to pounce, all time highs in anything scares me

[disneysteve]

If I had large stock holdings that I had big gains on I would be inclined to take some of that money off the table and into a cash account waiting to pounce, all time highs in anything scares me

Here's the problem with market timing. The market was hitting all time highs a year ago. I'm sure some people got scared and sold. What has happened since then? The market has continued to climb, hitting new all time highs almost every day.

My Vanguard S&P 500 fund is up over 17% for the past year. Anyone who sold last year because the all time high scared them missed out on that gain.

Will the market drop at some point? Of course. Do any of us have even the slightest clue when? Absolutely not.

[97guns]

Here's the problem with market timing. The market was hitting all time highs a year ago. I'm sure some people got scared and sold. What has happened since then? The market has continued to climb, hitting new all time highs almost every day.

My Vanguard S&P 500 fund is up over 17% for the past year. Anyone who sold last year because the all time high scared them missed out on that gain.

Will the market drop at some point? Of course. Do any of us have even the slightest clue when? Absolutely not.

My suggestion is not market timing, huge gains on the asset would prompt me to take some profit off the table.

In 2008 I had my money in CD's drawing 5% totally happy pulling in $1000 month extra income. when 2009 rolled around and I found that yield gone I started looking to get my money into something better which led me to the hammered RE market, it looks like I timed the market perfectly but I was only chasing yield on my money

[AJ444]

I know someone that bet a lot on GM/Lehman during the financial crisis and lost half their nest egg. They thought the gov would bail out Lehman and GM wouldn't fail.

I worked with a guy who won a million after taxes on a game show and he lost a lot of it in the tech crash.

The entire market certainly didn't become worthless but certain investments did, a huge lesson in diversification.

[disneysteve]

The entire market certainly didn't become worthless but certain investments did, a huge lesson in diversification.

This holds true at any time, not just during a down market. Even in the best of markets, businesses fail. So yes, diversification is key to limiting the effect on your total portfolio if one investment takes a nosedive.

[scfr]

Someone was telling me that during that time if you had a savings account or any investments it all disappeared.

Is this true?

The short answer is: NO.

If you want to hear the longer answer from my personal perspective:

During the financial crisis, we had an account at Indymac that we closed shortly before it failed. Then we had accounts at Washington Mutual and later at Wachovia. Those 2 banks failed. Our accounts were under the FDIC limit and we did not lose 1 penny. The "worst" thing that might have happened was that we had a CD at WaMu that was paying a nice interest rate (they offered a promotion shortly before going under in a desperate attempt to bring in money), and the bank that took it over (Chase) could have cashed out the CD immediately and stopped paying that nice interest rate ... but they didn't. Also, if new banks had not been found to take over the banks where we had our accounts, we might have had to wait for FDIC insurance payments. Again, that did not happen as WaMu was immediately taken over by Chase and Wachovia was taken over by Wells Fargo. But it could have happened. (Think about that if you have all of your savings at one bank only.)

We had investments and they lost value, though not as much as many others because we have a very conservative asset blend. Those investments have since recovered and then some. We continued to invest as usual.

We made 2 individual stock trades (or was it 4 since we bought twice and sold twice?) during the financial crisis and made miniscule gains. This was an unusual thing for us to do. It's the only time we've traded individual stocks.

We also bought a house near the bottom of the market, after selling our previous house near the peak and sitting the decline out in rentals. Because we bought when hardly anyone else was, we feel we got a pretty good deal. (A developer had "sold" it to another buyer who was unable to secure financing, so it include some nice freebie upgrades and we were in a pretty strong negotiating position.) Yes, we sort of timed the housing market for our personal residence. But we don't time the financial markets. We do as much research as we can on our local RE markets, and feel we have a much better grasp on that than the financial markets.

Having said all of this, even though we did not lose anything that we didn't recover, and even made some modest gains, it was an unsettling time because when we were living through it none of us had any idea when, if, or how things were going to turn around. In my darkest moments I wondered if my entire adult family (mother & siblings) would end up living with my husband & me --- those were certainly exaggerated & dark fears that didn't last long, but the thought did cross my mind when things really felt their darkest, and my concern was whether DH & I had a big enough financial life boat to keep so many afloat. I chose to keep my head down, focus on what we could control, and looked for small opportunities.