- Ten years after the financial crisis of 2008, there are many financial lessons learned.
- Another financial crisis could likely happen, according to Warren Buffett.
- Cautious attitudes toward consumer debt should still prevail.
In 2008, the financial landscape was a perfect storm of bailouts, buyouts and even collapses, which spun worldwide markets into a financial crisis. Now in September 2018 — 10 years after Lehman Brothers and other financial institutions announced bankruptcy filings that started a series of events resulting in the Great Recession — here are some of the crucial money lessons you can apply today.
1. Too Big to Fail: These Banks Rebounded the Best
In the midst of chaos, these five major banks pulled through — but not without help. Here’s a list of the top banks that rebounded from the crisis, including their government bailout amounts:
- Citigroup Incorporated: $25 billion
- JPMorgan Chase & Company: $25 billion
- Wells Fargo & Company: $25 billion
- Bank of America Corporation: $15 billion
- U.S. Bancorp: $6.6 billion
2. Big Banks Needed More Regulation
Today, the U.S. has a thriving and much more resilient banking system than it did 10 years ago. Some have credited the improvement to the Dodd-Frank regulations that were put in place as a response to the financial crisis, such as more robust capital requirements and enhanced big bank supervisory requirements. President Donald Trump has rolled back some of those regulations, such as mortgage loan data reporting requirements, according to CNBC, and only time will tell if the regulations will be needed again or if they were only needed temporarily.
3. Tech and Lifestyle Stocks Have Made Huge Gains
In the years leading up to 2008 financial crisis, agricultural, chemical and mining company stocks were on top. In the past 10 years, Apple and Amazon stocks have been frontrunners in the tech and lifestyle sectors, along with these companies, according to Fortune:
4. People’s Competition Helps Drive Economic Crisis — and Recovery
When investing expert Warren Buffett was asked in September 2018 by CNBC’s Andrew Sorkin if he was worried that another financial crisis would occur, he answered in the affirmative. Buffett believes that human nature, greed and jealousy — such as the need to keep up with the Joneses — are some of the driving forces between economic recovery and, eventually, another crisis.
5. Your Risk Tolerance Can Change, and That’s OK
There’s no doubt a devastating event, like what happened in 2008, can make investors more cautious. Tim Maurer, director of personal finance for Buckingham Strategic Wealth and The BAM Alliance recommended asking yourself how little investing risk you can take and still achieve your goals.
6. You Don’t Have to Own a Home
It has become more common for younger generations not to invest in home ownership due to bearing a heavy burden of student loan debt, changing jobs frequently and dealing with the high cost of living. Many people are instead focusing on increasing their income and paying down debt while putting off homeownership by either living with their parents longer or renting instead.
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7. Diversify, Diversify, Diversify
The old adage “don’t put all your eggs in one basket” hit some people with limited investments — or just home equity — particularly hard during the financial crisis. Don’t invest too heavily in one type of investment or rely too much on one source of funds for retirement. Instead, find a financial investor you can trust and diversify your investments so that if one of your investment areas has losses, others might gain and offset those losses.
8. Use Credit Wisely
The cautious attitude toward credit and debt that resulted from the financial woes of 10 years ago is a beneficial perspective to maintain. Just because you can get a loan or a credit card doesn’t mean that you should. Or if you do take out a loan, that doesn’t mean you should take out the biggest loan you qualify for if paying it off will be too difficult.
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9. Consider Home Equity as a Last Resort
Many people might rely on the equity in their home as their only resource to draw from in the event of an emergency. But depleting your home’s equity for things like home improvements or other non-emergency reasons can put you in a precarious financial position in the event of a financial crisis.
Although you can build equity by owning a home, which you could tap into in an emergency, that’s not your only option. Instead, you can build an emergency fund — which is equal to three to six months of living expenses — pay off existing debts, and consider low-risk liquid investments.
10. Have Cash in Reserve No Matter What
Even though many investors consider cash to be a poor asset, Buffett has shown that people who hold the cash have a huge advantage. If the stock market plummets, and many investors are panicking and selling stocks, you could take advantage of bargain stocks by buying them. Inevitably the market will rise again, and you could make a tidy profit.
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