First Person: Why I’m Not Scared of Another Market Crash

by on November 2nd, 2010
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COMMENTARY | The stock market crash of 2008 was not the first time I watched as my stock portfolio took a major dive.

But what I learned from the bubble in the late 1990s helped me not only survive but thrive several years after the crash.

Even though some of my technology stocks lost a lot of value on paper after the crash, I continued to purchase shares every month. Over time, I was able to “dollar cost average” to achieve a profitable position. I was able to get back “in the money” with my stocks after the stock market crash of 2008 by being patient.

Don’t bail on stocks

A lot of my colleagues ditched the stocks in their 401(k) plans in 2008. According to an analysis by Fidelity Investments, investors who held onto their positions during the 2008-2009 crash through June of 2011 had an average balance increase of 50 percent.

My 401(k) plan actually surpassed that average, increasing 60 percent from the lows of 2008 to 2011.

Don’t listen to the broke

It’s usually the broke friend or coworker that panics and sells their stocks when the market is down. One of my broke friends wanted to get rich purchasing a high-flying stock, but she wasn’t in a position to take that kind of risk. Without money in savings and shares in a stock that was now worth half as much, she took a car loan at a 19 percent interest rate. She still offers her “investment advice,” and stock tips.

Don’t stop contributing

If I had stopped contributing to my 401(k) after the stock market crash of 2008, I would have missed out. Fidelity found people who stopped contributing to their 401(k) plans during the 2008-2009 crash saw an increase in their balance by only 26 percent by the end of the second quarter compared to the 64 percent increase seen by those who didn’t stop. Now I keep cash on the sidelines so I can jump in after a crash.

Don’t worry about how old you are

One of the most common excuses I heard for completely bailing on the 401(k) was “I’m too old.” People who were close to retirement insisted they couldn’t weather a stock market crash. However, by the time the market had crashed, they should have realized it was too late. Of those who bailed on stocks in their retirement plan, 50 percent were older than 50, according to Fidelity’s research.

Although I was deeply troubled by the stock market crash of 2008, I learned the problem was only on paper. Time heals all wounds and it also appears to work on financial wounds. Now, I just keep plenty of cash in reserve as a cushion in case of another stock market crash.

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