What Comes Around

Updated on October 3, 2014

wedding photographyWhat the investment lessons of 2008-2009 can teach us about our strategies today

By Kurt Fillmore

President, Wealth Trac Financial Group

While the hit many seniors took to their savings in 2008-2009 might be painful to recall, there are important lessons to be learned (particularly for retirees and those approaching retirement) that can be applied to the portfolios and financial planning strategies of today.

Warren Buffett famously advised investors to “be fearful when others are greedy, and be greedy when others are fearful.” Unfortunately, too many people today are ignoring that advice—and the hard lessons learned during the last stock market plunge. Too many investors today are acting “greedy” when they should really be considering a more cautious approach.

Since the recession, the goal for many has been to make their lost money back. Now that many have achieved that, however, it might be a serious mistake to continue to push for more returns from assets that may be reaching their peak. Particularly for retirees and those approaching retirement, now is the ideal time to rebalance your portfolio to an appropriate risk tolerance for your age and personal circumstances.

To understand why, it may be helpful to take a closer look at how the “typical” investor was positioned in 2008 and see how it compares with common approaches today:


Prior to the recession, interest rates were not especially high, and stocks were doing extremely well. Most people were relying heavily on their 401K—usually through their employer. Those 401Ks were offering stocks and bonds (often in a standard 80/20 ratio), and were typically structured based on the usual mutual fund investment strategies. With no diversity outside of stocks and bonds, and with broad, mutual fund investments leaving them overexposed, they were vulnerable—too vulnerable. Far too many investors never made any changes to their portfolio as they aged, making their losses that much more painful. After the plunge, people were panicked. They understood that if they lost any more, a disaster might turn into a real emergency.


Fast forward to 2014, and it’s clear that people are not as worried about their finances as they were just a few short years ago. Some of that newfound confidence is because they have been riding a stock market wave. For others, however, it is exactly the opposite:  they have been avoiding stocks entirely.

Those in the second group of conservative investors may have small leftover positions in the market, perhaps some stray stocks or a Roth IRA. But the majority of their assets are in CDs and other cash-type assets, earning very little interest. While there is peace of mind in knowing where you stand, you will inevitably be losing money over time because of inflation, and yields are extremely low.

The first group of more aggressive investors, however, is in some respects repeating the mistakes of 2008, favoring riskier bond investments and stocks. Chasing high yields is only leading more and more investors down increasingly less stable paths.

Lesson learned?

No one wants to feel the anxiety of 2008 again. With that in mind, we need to remind ourselves that when the market is at all-time highs, it is better to have somewhat less in equities. Everyone understands what can happen if the market crashes, but the reality is that a risky bond can be just as risky as the stock market. In fact, in some cases, they can even be riskier. This is especially true today because interest rates are so low. When interest rates go up (and it is when, not if), bonds will take a big dive.

For retirees and pre-retirees especially, the goal should be to address the issue now, to correct this overexposure, and to safeguard you and your family’s financial future. Making sure that you don’t have too much in securities is a good start, but it also makes sense to consider annuities and other similar products.

Psychologically, an annuity is a good fit, providing seniors and their families with more security and fewer uncertainties. A steep market drop is no longer a disaster, and the predictability of income flow means that not only can you can more clearly predict and plan out your financial future, but an annuity backstop means that you will actually be able to take on more risk with some other investments. Reducing your market exposure and embracing annuities is not just about being conservative—it also allows you to be flexible. Concerns about whether the market is at its peak will dissipate, and you can stop trying to accomplish the impossible goal of “timing” the market.

Ultimately, knowing where your monthly income is coming from and enjoying the luxury of not having to worry about yields, means that you can hopefully avoid repeating the trials of 2008, and can structure your investment assets in a way that optimizes both quality yields and long-term security and stability.

Kurt Fillmore is President and Co-Founder of Wealth Trac Financial Group, based in Southfield, Michigan. Fillmore and his team counsel clients on wealth management and income planning using innovative strategies custom-tailored to the needs of each individual.

+ posts

Senior Outlook Today is your go-to source for information, inspiration, and connection as you navigate the later years of life. Our team of experts and writers is dedicated to providing relevant and engaging content for seniors, covering topics such as health and wellness, finances, technology and travel.