A compensation payout usually involves a large, lump sum payment that is made once to…
A Decade after the Collapse
It has been a decade since the worst financial crisis, second only to the Great Depression, has taken place. The Global Financial Crisis (GFC) saw millions lose their retirement savings. One of the largest players in the financial arena, Lehman Brothers, collapsed. To put emphasis on the significance of Lehman Brothers’ demise, before filing for bankruptcy in 2008, Lehman Brothers was the fourth largest investment bank in the United States, a pillar of the US banking system. Since 1850, the name had been a mainstay in investment banking. The ability to survive all the past financial crises, such as the railroad bankruptcies of the 1800s, the Great Depression of the 1930s and two world wars, only to be brought down with irresponsible sub-prime lending indicates the severity of the GFC. A crisis which reverberated around the world. Australian markets were not immune to the GFC, equities fell roughly 41% in 2008 causing fear and panic in the market[i].
Today you will find that most have recovered from the GFC, though a resentment towards the irresponsible financial organisations may remain. Despite a rough couple of years, slowly the markets regained stability and people grew more confident, bringing with it an inflow of money. Fast forward 10 years and you can see that the market has regained its losses and then some.
September 15 2008
S&P/ASX 200: 4,817
September 14 2018:
S&P/ASX 200: 6,154
Looking at Australia, since the 41% drawdown in 2008, markets have continued to slowly and steadily rise over the last decade, providing investors with healthy returns. The years 2012-2013 produced double-digit annual returns whilst 2009, 2016 and 2017 generated strong positive returns. 2011 was the only negative returning year since 2008.
S&P/ASX 200 10-Year Chart
As represented from the chart above, you can see the considerable recovery the market has made over the last 10 years, and this is due to a recovered housing market, strength of our banking system and greater stability in the market. Whilst the image of Lehman Brothers going under may reside in the minds of investors forever, the main takeout is no matter how tough the going gets, economies can, and do, adapt to change and bring stability back to markets.
Ride Out the Ups and Downs of the Market
Markets will always have drawdowns as that is the nature of the business. Despite the loss of the fourth largest investment bank and a GFC, the Australian and global markets have been able to recover, recouping losses and surpassing prerecession levels. If you read up on history, you see many success stories come out of troubling times. The key point is through these times hold tight and ride out the storm if you can. Whilst history has a way of repeating itself, know that if the markets were to enter another recessionary period, holding tight and going along for the ride if you are able is a valid option. You will most likely come out the other end intact and ready to build wealth again.
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