March 3, 2011, 6:00 am

What We Can Learn From The Financial Crisis

by: MD    Category: Financial Planning
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Learning From The Recession

The financial crisis is the greatest thing that ever happened to our generation.

– Suze Orman.

When I first read this statement in Generation Earn I was pretty surprised. Why is this? How can a financial meltdown and credit crisis be a good thing? What about all of those people that lost jobs? There’s solid reasoning behind this, because according to Suze: we would still be buying expensive stocks and overinflated real estate. As much as we’ve gotten adjusted to complaining about the recession and blaming every little problem on the economy, it doesn’t have to be all negative. And what if we could turn this into young investor tips?

What we can learn from the recession and the economic crash of late-2008 moving forward?

To accept reality.

It is what is it. Recessions happen. Just ask your parents. The financial crisis has taught us that we need to accept the reality of the situation no matter how good or how bad it is. Instead of looking for a way out or complaining about it to anyone that will listen, we need to be proactive and productive. Proactive in the sense that we try to prepare ourselves as best as possible for economic downturns that can happen at any time. Being productive is all about working to make positive changes during a negative time instead of dwelling. The reality of the situation can’t be changed. Your attitude and how you approach things can always be changed fortunately.

Rebalance your investment accounts.

Put more money into bonds, GICs (Canada), and CDs. If you feel that the stock market is too volatile and you can’t handle the market swings, then this might be the a sign that you should rebalance your investment accounts so that you don’t lose your mind. Perhaps a significant portion of your savings were in stocks. If you lost a size-able chunk of money during the crash then proceeded to panic for the next few months, then this is a sign that you need to switch up your investing style.

Don’t give up on the stock market.

Not to contradict my previous point, but too many investors started bashing the stock market after the crash. There are still many strong management teams out there. Just because your portfolio decreased in value it doesn’t mean that you should give up on your stocks or your investments in the stock market.

Now that we understand the lessons learned from the recession, what can we do about it? What can we do moving forward from the recession that hit the globe in late-2008?

Learn from your mistakes.

You need to take a step back and look at where you went wrong. If you lost a scary amount of your retirement savings, you need to try to figure out why you were so vulnerable in the first place. I personally learned that I couldn’t handle the market swings. This is why I decided to keep only a tiny portion of my savings in the stock market. What did you learn from the financial crisis? What will you learn moving forward?

Pickup new hobbies.

Instead of stressing about the economy and reading about every new conspiracy theory out there, you can pick up a fun hobby. The most effective hobby for getting your mind off all of the negative hype of the economy is usually something physical. I find that when you push your body by picking up a new sport, you get your mind off whatever is stressing you out at the time. Regardless of the hobby that you pick up, remember that there’s many fun ways to fill up your evenings.

Avoid cable news.

Watching the cable news can only add to your stress levels. What good will come out looking at ambiguous charts and listening to so-called “experts” predicting global doom? I have friends that are probably leading experts on “market conspiracies.” They always inform me of new and emerging theories of global doom. That’s interesting and all, but who wants to live a life like that? Not me. Being informed is beneficial. Being cynical will not do much for you.

As devastating as the recession has been, there’s a lot that we can learn from it. What impact did the financial crisis have on you? What have you learned from the recession?

(photo credit: robhowells87)

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Comments

by: The Financial Blogger | March 3rd, 2011 (2:25 pm)

I think that avoiding cable news is the best advice 😉

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