It was nearly a year ago that we saw the collapse of one of the country’s largest investment banks and the dive into the deepest recession since the Depression. Today on Wall Street President Obama lit into investment bankers.
“Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them,” he said. And later, “Hear my words: We will not go back to the days of reckless behavior and unchecked excess at the heart of the crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.”
My question is: Will consumers and investors be guilty of the same? Individuals, unlike Wall Street, are looking saner than over the past few years.
We’ve learned, over the last year, to spend less and save more. According to a recent study by HSBC, over the past six months, 55 percent of survey participants have cut back on leisure activities, 46 percent have cut back on travel and 40 percent have cut back on electronics spending. We’ve learned that a night in with Netflix can be just as good as a night at the movie theatre. And thanks to public figures (namely Michelle Obama) we’ve learned that Talbot’s and J.Crew can be just as chic as couture. Going hand in hand with frugality is saving. Over the course of the past year, we’ve learned that saving for a rainy day is more important than ever. Today, the U.S. savings rate has climbed from 1.2 percent at the beginning of 2008 to an average of 5 percent during the second quarter of this year.
We’ve learned — once again — that you can’t time the markets. Individuals who pulled out after the fall were unfortunately many of the same that missed the recent 50 percent run. (Missing just the best 20 days over the past 20 years would cut the return of an investor who had plowed $10,000 into an S&P 500 index fund from $93,000 to $39,000.) That’s why I still believe that the best strategy is to buy it at all levels, stay in it for the long-term, and rebalance twice a year. By doing so you’ll be sure you aren’t overweighted in any particular asset allocation simply by the moves of the market.
And we’ve learned that panicking about our finances doesn’t help. Yes, when the markets get shaky, I like most Americans, worry. But I know that the secret is controlling the things I can control — the amount of life insurance I carry, the fact that I drive a sensible car, the ability to cut one dinner out during the week or one vacation over the course over the year — rather than fretting about those things that I cannot manage.
After the Depression these lessons stayed with individuals for a good 40 years. Here’s hoping they have that much sticking power this time around.