Over the past week, we have faced the anniversaries of two mid-September events that have defined our most recent decade. Last Thursday marked the 13th anniversary of September 11th, a day which led to the deaths of nearly 3,000 people, where heroic efforts will never be forgotten, and a day that changed the course of modern history. Yesterday marked the 6th anniversary of the collapse of Lehman Brothers-- which epitomized the financial crisis.
Preceding the crisis, bank borrowed heavily to fund their activities in order to increase profitability from their lending and trading businesses. However, this constant reach for debt not only put individual banks at risk, but it joined banks together since they all borrow from one another. The September 15, 2008 500-point plus drop in the Dow Jones Industrial Average was the largest single day loss the market had seen since 9/11 pushed our economy into a tailspin. Unfortunately, the plunge didn't stop there. The tailspin continued into March of 2009, before the market bottomed when the Dow reached its nadir at less than 6,500 on March 6, 2009, and began to turn around. In March of 2010, the index found its way back to levels more in line with a rational analysis of the economy at the time.
Most importantly, this period of financial crisis meant headaches and uncertainty for folks who were retired or were on the verge of retirement. Uncertainty can often lead to rash emotional decisions. It can be unsettling watching your retirement assets decline when you know that is what you planed on using to fund the your retirement. The best move you could make would be to sell your investments to avoid anymore losses, right? Probably not--because unbeknownst to you, soon, your financial future will depend on your ability to time the market. Timing the market means you have to 'guess' right, twice--once when the market is going to begin falling, and again when the market has bottomed and will begin its turnaround. Is it possible? Yes, but is it likely to be a sustainable investment strategy for your life savings? Not unless you have psychic powers.
Unfortunately, it isn't a straight line to the top when it comes to investing. It isn't a matter of 'if' there will be another market crash; it is a matter of 'when'. When that times comes, it will be important to own quality companies and give them the time to potentially recover those losses and appreciate in value.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).