Hey Finance Warrior!
This week marks 10 years since the collapse of the Lehman Brothers, the largest bankruptcy filing in history.
Where were you during the volatile month of September in 2008 when the world was unsure what was happening with the US Banking System?
I was a Financial Advisor at Citigroup – one of the banks deemed “Too Big to Fail.” I was there each day in Sept when the market had wild swings of 400, 500 & 600 point drops. My body still remembers those jaw-dropping, dramatic swings in the market. Our eyes were glued to Bloomberg screens as we watched fear sweep the markets.
I was there the morning of Sept. 15 with the shocking news that Lehman Brothers would go bankrupt.
I was there on the Friday when Citigroup was the name of the day dominating the headlines with questions about whether it would make it.
On that Friday, Citi's CEO held a conference call and asked us Financial Advisors on the front lines to call our clients and tell them their assets would be safe at Citi. Admittedly, I was not certain about that. Nevertheless, I knew I would be the client contact for my clients, whatever happened that weekend – a sale, a merger…or even bankruptcy.
Over the weekend, the government announced a bailout for Citi. Citi was one of the largest global banks. It was one of the lucky ones – it was saved.
Sallie Krawcheck, CEO of Ellevest and Chair of Ellevate Network, was the head of my division a Citi during that time. She ran Smith Barney as the head of Wealth Management. In 2007, she was working on the international expansion of my division to Europe and Asia. I had raised my hand for the expansion to Asia. It's funny to think about that today. Then the market tremors began in 2007 followed by dramatic market events in 2008.
Forget about expansion, it was about survival for Citi in the fall of 2008.
In October of 2008, I finished my application to Chicago Booth. It was one of the most volatile times in financial markets history. I applied to Chicago Booth to pursue an MBA so I could learn all about the Financial Crisis. I wanted to learn about what problems lead to the Crisis so that they would not be repeated. Chicago Booth was home to many thought leaders who focused on Banking, Regulation and Central Banks. Several professors became Advisors to the government throughout the Financial Crisis.
I often refer to my acceptance at Chicago Booth as receiving the golden ticket, just like Charlie in Charlie & the Chocolate Factory. I had read Raghu Rajan's book Fault Lines and wanted to learn from him. (I loved his class!) Anil Kashyap wrote the first MBA course on the Financial Crisis. He created the class each week as the events unfolded. That was my favorite class! Doug Diamond, a Bank expert, wrote the model explaining how bank runs occur (yes, like in the movie It's a Wonderful Life). I didn't even get credit for his class – I audited it to learn directly from him. Diamond will win a Nobel Prize for his work.
Notably, one of the members of the Fed – Randy Kroszner, a Central Bank expert – was one of the five members of the Federal Reserve Board of Governors during the Financial Crisis. As my professor, he shared first-hand accounts of what it was like to be in the room during the tense discussions about what to do with each crisis situation during the fall of 2008. In the fall of 2008, the US banking system was truly in danger.
This was my experience at Chicago Booth – and I LOVED it! I had a deep dive in learning about the moving parts of the financial crisis.
Ten years later, where do we stand?
While financial markets continue to rise (+82% after recovering from the decline), people remain on the sidelines and are not investing in stocks.
For the age group, 18-29, just 31% own stocks (!). This generation was hit hardest by the Financial Crisis related to unemployment, student debt, and stock market losses. Nevertheless, this is the generation that has the most time to benefit from time in the stock market.
Barron's refers to this group as the “Lost Generation.” Are you part of this group? We need to do a better job to educate and encourage this group to invest in equities with a long-term time horizon.
The second hardest hit group is age 30-49. Just 62% are invested in stocks. This number also needs to increase as they also have decades of time to benefit from upward moves in the stock market. This group is my target market. I want YOU to take control of your finances and invest as you have the most to benefit!
As a gentle reminder, the US stock market has generated a 9-10% annual return over the last 100 years. Although there is concern this level of return is not sustainable, I have a different view. I am bullish with the amount of tech innovation driving the US market. If the last decade has been any indicator of the pace of tech change, my money is on (and in) the stock market.
Another major change in the market over the last ten years is the number of people invested in Target Date Funds. Do you own a Target Date Fund in your retirement plan? These Funds are groups of mutual funds/index funds with an allocation to stock and bonds that changes related to how close your age is to retirement. Nearly 50% of individuals are in Target Date Funds – compared to just 14% in 2008.
I talk about Retirement at the age of 100 in my 8-week online course (my next one starts in October). If you are under the age of 50, retirement at 65 is now an outdated concept. You will live to the age of 95 – that's 30 years! Let's make those years productive of LIVING and INVESTING.
What have we learned in 10 years? The stock market continues to be a mechanism that allocates capital to growing companies. While we are near the peak of the business cycle with strong economic growth (3.5%) and low unemployment (3.9%), the stock market will go up and down.
I encourage my audience to be long-term investors. We cannot let fear keep us from investing. If you arm yourself with the tools of a Finance Warrior, you will be equipped to weather the highs and lows of the stock market.
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