Those of us that lived through the financial crisis of 2008 as active investors remember it quite well. Many who never invested at all may still remember it rather vividly. What often gets overlooked is how quickly financial markets recovered in terms of asset prices.
In the aftermath of the financial crisis, the US economy began an incredible period of consecutive years without a recession. A recession is defined at two or more quarters in which the Gross Domestic Product (GDP) contracted. As of October 2018, the US has officially been out of a recession since June of 2009, a period of more than 10 years. However, real GDP (GDP adjusted for inflation) has not exceeded 3% annualized since 2005. The economic recovery has been relatively anemic by historical standards. Only recently has there been any significant increase in capital expenditures as it relates to business investment among the nation’s top companies, which was up 39% in the first quarter of 2018 according a report published by the Tax Foundation. So it’s certainly understandable why some may still feel as though the effects of the financial crisis continue to linger.
But what about your investment portfolio?
If you have 401k, IRA, personal investment account, or even a pension plan (which is supported by financial investments) the story is a bit different. A closer look at various asset classes tells a story of a much quicker recovery in many areas of the financial markets. Imagine you had the misfortune of beginning to make your first investment in September of 2007. That was the very early stages of the financial crisis. After significant immediate declines in asset prices, where would you be by September of 2017, precisely 10 years later? Below is a list of various key asset classes and the average performance they produced over this time period.
Asset Class Average Annual Rate of Return
S&P 500 Index 7.20%
Ten Year US Treasury Bond 4.60%
Cash (3 Month T-Bill) 0.40%
CPI (Inflation Index) 1.70%
FHFA Home Price Index 1.00%
Crude Futures Index (Oil Prices) -4.30%
As we look at the various different asset classes, we can see that even after suffering the catastrophic losses seen in 2008 into early 2009, the US stock market was still the number one performer on a total return basis 10 years later.