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When the housing bubble burst in 2008 and threatened to take out the American economy, I wasn't earning enough money to max out my 403(b) retirement savings account, and I also allowed fears inspired by the recession to keep me away from the stock market until long after it had recovered.
I've always kicked myself for that. Assuming I'd had money to invest when the market was at its worst, that cash would have grown exponentially over the subsequent 12 years.
In 2008, the max IRA contribution was $5,000. If I had maxed out my IRA that year and kept it in index funds that track the S&P 500, my investments would have grown to $12,878 today - and that's including the losses that have occurred since COVID-19 burst onto the scene.
Now I'm sitting in the midst of the next economic crisis. But this time, I'm not losing my mind when I see that my investments have tumbled.
I'm reminding myself how I felt during the 2008 recession
I was working a side hustle as a grocery store clerk in the fall of 2008. Many of the long-term employees at the store held employee stock options, as they were a part of our benefits package. They were plummeting in value, and most employees didn't have other investments to balance their portfolios. The lunchroom was madness, with everyone panicking over when - or if - they'd have that money when they needed it.
I succumbed to the panic 12 years ago. I'm not proud of it, but I allowed myself to get freaked out that the FDIC would fail - that I would lose the money in my bank account - so I took all of my money out in cash, Great Depression style.
Plus, I know that if I'd had any significant money invested at the time (aside from the cash in my 403(b), which I didn't know I could empty), I would have undoubtedly pulled out of the market.
I viscerally remember that fear and panic now, as we sit in the midst of a new crisis. I'm not going to lie: I have moments when I'm scared.
But I'm not scared for my investments. I remember how much I wished I had opened an IRA in 2008, and the profit margin I would have seen if I had chosen to act out of logic rather than fear.
I'm mentally prepared for the panic
When the market drops, everyone freaks out. With due cause.
Recessions - when not related to pandemics - can cause loss of income, increased food insecurity, and homelessness. This can happen to any of us. But it typically affects those most vulnerable first. With a rise in economic inequality in this country, the number of vulnerable individuals increases.
But your investments are one area where you want to stay steady, as I've learned over the past 12 years. As I pursued more investment smarts, my confidence grew not only in my own ability to invest, but in the ability of the market to recover.
Historically, even though there are huge dips and rises along the way, long term, the stock market always goes up.
I have a long time horizon. That means my investments have decades to grow until I need them for my goal: retirement. The market is going to dip a few times before I reach my goal, and if I pull out every time it does, my money will never have an opportunity to grow.
In fact, all I'll do is incur a whole lot of losses.
But I didn't know any of this back in 2008. The self-education I've sought has helped steel me against the panic this time around. If knowledge is power, learning more about the stock market is the alchemical path to inner peace during times of widespread economic turmoil.
I'm reframing the crisis
I've chosen to throw a little extra into the stock market over the past couple weeks. I know we might not have seen the floor yet. We don't know how far down the market will dip.
But if I throw money in now, I'll have bought my investments at a cheaper rate than I could have two months ago. An economic downturn is no cause for any type of celebration. But if you're trying to keep your cool and keep investing despite the fear around you, thinking of stocks as "on sale" rather than "falling" could help you push through and do the right thing for your personal finances despite all the emotion.
It's helping me.
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