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My Experiences with Prior Recessions

Over the last few months, a number of people have asked me about my experiences during prior recessions.  Most often the questions focus on the Great Recession of 2008-2009.  That being said I have been an adult financially for 2 recessions.  Both have brought unique experiences which perhaps shed some light on my investment philosophy.

My First Recession: The Dotcom Bomb

My first adult experience with a recession was the Dotcom Crash of 2001-2002.  During this time I was a Sophomore and Junior in University.  I was pursuing a Bachelors of Computer Science at the time and interning with a Software/ Computer Engineering Company.  Needless to say, that didn’t end well in a period known as the Dotcom crash.

From Up to Down in the Blink of an Eye, A Recession Begins

I interned at this Computer company starting in 2000.  At the time the tech market was riding so high I was offered a high paying job to stop pursuing my degree and come to work full time.  I’m so lucky I didn’t take them up on that offer.  My internship at the same company during the 2001 year was much different.

During the period of January to August of 2001 I continued to intern, but all around me the company was laying off people.    There was no more offer to leave school, I was lucky I survived my entire intern period.  From January to August I counted at least 4 different large layoffs.  Around me the mood turned sour as morale dropped to 0.  People that had worked for the company for 30 plus years were unceremoniously walked out the door…

The Ceremony of the Layoff: Recession Horror Show

Actually, in retrospect, it was kind of a ceremony. Due to the nature of the R&D work at this employer if you were lucky to be chosen for a layoff they walked you out on the spot.  Then you needed an escort to come back later and get your stuff.  It seemed very inhuman to me as a still in college intern.  Here is someone who spent 30 years contributing to a company only to be walked out like a criminal.  It was such a brutal and demoralizing process that there were a series of bomb threats on site near the end of my 8-month internship.  Needless to say, I never returned to that employer for work after my stint was up.  

No Loyalty, Every Man for Himself

Even if I had returned, I heard through the grapevine that my HR recruiter had been laid off as had my hiring manager.  There wouldn’t have been much to go back too. A brutal but important lesson for an intern to be sure.  To your employer, you are ultimately just a resource.  There is no loyalty.  Ensure you take care of yourself.  

My Hardship was Mitigated During the Dotcom Crash

  Thankfully at 20 I was still largely subsisting off student loans and had few investments.  As such little can be said about the impact on my investing style.  I did hold one investment for $1000 that went essentially to 0.  This drove me to an investing style favoring index funds.  But overall this experience had little impact on my understanding of risk tolerance or long term investing behavior.

Quick to Start, Slow to Recover

That being said, the impact of the dotcom crash didn’t stop magically in 2003.  No as a newly minted computer science grad of late 2003 early 2004 I inserted myself into an employer’s market for jobs.  I ended up spending nearly 6 months unemployed living in my parent’s basement while working on finding a job.  It was a brutal period and another lesson.  Never again did I want to be dependent on my parents for survivalAn emergency fund to allow me to stay self-sufficient was now minimum viable.

Fully Recovered, The Future so Bright I have to Wear Shades

Fast forward to 2009.  Things were humming along.  Late in 2008 our bonuses were released and mine was something like 14%.  I also received a promotion and a decent 6-7% pay raise.  Little did I know a few months later it would all come crashing down.  

Before I continue, notice a trend of extreme good times followed by a sudden collapse.  People are so worried about what they can see when predicting the next downturnThe simple reality is no one can reliably time a downturn.   Usually it is the things you don’t see coming that cause it.  It also tends to happen swiftly without warning.  The only thing you can do is prepare for it, and take advantage of the good times why they are here.

Enter The Great Recession, A Promotion with a Pay Cut

Anyway, my pay raise lasted a total of about 3 weeks.  My employer decided instead of doing layoffs for my division (other divisions did layoff) to instead cut employee pay by 10%.  3 weeks into my new promotion I ended up doing a job with more responsibility for less money.  I wasn’t particularly happy about that.  Several other benefits to which I had been accustomed disappeared, not the least of which was my bonus which was now 2-3%.      Still, unlike many around me, I had a relatively secure job.  

The Dominos Fall Around Me

People we knew lost their jobs.  Many people living on my street lost their homes.  Foreclosures and short sales were everywhere.   I read some of the same warning signs in housing today.  People talk about leveraging one house to buy another in an endless chain.  How soon we forget how risky leverage is?  The people hit hardest during the recession seemed to be playing the real estate game.  The lesson I learned is real estate is fine, but my leverage should be limited.  Leverage not only leads to losses but can completely wipe you out. I’ve had a strong desire to pay off our debts before the next recession.  We’re close to achieving that.  It’s all about limiting our risk of needing that parental support I mentioned earlier.  Or worse if you have no such support.

A Slow Return of Benefits regardless of Recession Recovery Speed

Anyway, my employer received considerable revenue from government expenditures, so there was a floor on how far they would fall.   This made my job a little more secure than most.   This was even truer when the stimulus package was released.  That immediately increased our revenues.  Still, the return to normal benefits and pay significantly lagged the return in sales.  I’d dare say my benefits did not fully recover until 2014 or so. Similar to my experience in 2004 with a difficult job market, I found the benefits lost during a recession can take many years to recover.  I decided during this time to try to get myself Financially Independent.  Then should I be placed in such a situation again I could walk away if I did not agree with the terms.

My Investment Experience During the Great Recession

By 2009 I had an ok investment setup for a 28-year-old.  With about 50K in retirement accounts and about 10K in an emergency account.  I didn’t actually sell any of my own positions during the downturn.  I did reduce my contributions to my investments slightly, mostly to keep my take-home pay constant after the pay decrease.  But overall I just kind of ignored my own investments.  

I say my own with emphasis here.  In 2010, I married my wife and began managing her investments as well.  I found a ragtag collection of individual stocks, many of which I felt had severe structural issues.  (GE and Bank of America come to mind).  I did sell these and immediately cycle them into index funds. 

In addition, during 2009 I rolled a prior employers 457 plan into my Roth IRA, taking advantage of a down market.  At the time I was at the same asset allocation I am today, 25% bonds and other safe investments.  This is why I feel relatively confident in my own risk tolerance.  I was able to continue to invest in light of all the negative news in 2008/2009.   I even managed to pull stocks out and not try to time their reinsertion multiple times during this period.   If you think the current negative public perception of stock market futures is bad, you can only imagine the deafening negativity of that period.    And yet I stuck with my plan.    It takes a severe pull back to know your actual risk tolerance, knowing it is a big piece of the investing puzzle.

Every Recession is Unique

So that mostly covers it.  Two recessions and a bunch of learnings.    There is just one more thing to add, that may not be apparent here.  Upon further reflection I note that the 2 recessions had very little in common.  Recessions hit different parts of the market.  They impacted my career/income in different ways.  They impacted those around me in different ways.  I don’t remember huge numbers of short sales for example in 2003, but they were everywhere in 2010.  The point being each recession is different.  So not only can we not truly predict when they occur, but we also can’t fully predict what they will impact.  All we can do is prepare as best we know how and ride the storm out.  The best time to prepare is yesterday, the second best is today.  I implore you to start, regardless of market sentiment at the time of this post.  After all, it’s usually the things you don’t see that cause the recession.

For those old enough to have been adults, what were your experiences during prior recessions?

14 Comments

  1. xrayvsn
    xrayvsn January 21, 2019

    Really nice recap of what it was like to go through not one but two recessions.

    I realistically only went through one (’09) as I really had nothing to speak of invested in the market for the dot com bubble.

    Even going through one recession really does not prepare one to go through the next, especially if there is a lot more money at play/risk. I lost more than I had invested in total in 09 when 2018 came around even though it was a smaller percentage drop, the amount of money that it affected was far greater.

    • FullTimeFinance
      FullTimeFinance January 21, 2019

      Very true, the more assets you have the larger the impact. Then again, a recession and a stock market decline are not necessarily synonymous. Having more assets does counteract the risk of losing one’s job to some degree.

  2. Liz@ChiefMomOfficer
    [email protected] January 21, 2019

    I wrote about the impact the Great Recession had on my family, but not the dot-bomb. I was also a college sophomore/junior, but was an accounting major. The tech bubble bursting didn’t have an impact but the collapse of Arthur Anderson did. It’s pretty much how I ended up in large company IT.

    • FullTimeFinance
      FullTimeFinance January 21, 2019

      Sounds like a similar situation for an accountant when the Big 5 were in crisis. Who knows what areas of the economy will be hit hardest in the next pull back.

  3. Matt
    Matt January 22, 2019

    My most visceral memory of the ’08 recession was commuting: what had been bumper-to-bumper on I-75 in Detroit in 2006 was now…smooth sailing. Where did all the people go? When things returned to “normal,” I used this reflection to check the road rage.

    I second the notion that going through a recession is the true measure of risk tolerance. But, there is some limit to the learning when you approach or cross the retirement threshold.

    • FullTimeFinance
      FullTimeFinance January 22, 2019

      That must have been surreal. Around here the construction from the stimulus kind of killed any concept of better traffic.

  4. Joe
    Joe January 22, 2019

    I went through both of them too. The dot com bubble taught me a ton about investing. During that boom, everyone and their grandmother invested in tech. When the bubble burst, we all lost a ton of money. I even put a good portion of my 401k into my employer’s stock. Bad idea. After that, I diversified and learned to become a better investor.
    In 2008, I knew from my previous experience that the stock market would recover. I just focus on investing as much as I could. It worked out really well. 100% equity in both recessions, but now I’m much more conservative. We have about 25% cash/bond now.
    I think the recession will be much milder than those previous 2. They were really bad.

    • FullTimeFinance
      FullTimeFinance January 22, 2019

      I definitely don’t expect a repeat of 2008. That crash especially set many records. Still, you never know.

  5. Arrgo
    Arrgo March 5, 2019

    I went through both recessions. The IT company I worked for laid off almost all the temps plus some lesser performing full-time techs. Fortunately, I had some seniority and really wasnt making big bucks so I was ok and didnt get laid off. One good thing in hindsight was this was good for my IRA and 401k contributions that I had just set on automatic. In 2008/2009 I decided to max out my 401k contribution and use some savings I had to cover any larger expenses that came up. Since stocks were down so much, I figured it was a “good deal” to put more in at the time which turned out to be a great thing. This was before I was as focused on investing as I am now. I agree that a good strategy is to take advantage of the good times while they are here. Things can change quickly and you dont really know when it will happen. Live smart and have some financial discipline even when you dont think you need to so you are prepared. One of my sayings is: Things are good and we need to keep them that way.

    • FullTimeFinance
      FullTimeFinance March 6, 2019

      In the long term as bad as 2008 was it was a quick recovery. If you held the course or stepped up investing you really made out. Thanks for the comment.

  6. Mr. 39 Months
    Mr. 39 Months March 5, 2019

    Nice recap and thank you for sharing. I think a lot of people were a little “taken aback” by 2018, since many folks entered adulthood after 2009, and have only seen the market go up, and seen the economy grow (though slowly for the first 6-8 years after the 2008/2009 crash).

    I’ve been through the 1987 market crash, the 1990, 2000 and 2008 recessions. Like you, that has given me some “perspective” on this, so in 2000 and 2008, I just kept investing like normal, didn’t sell off, and was rewarded when the market recovered.

    It also helps that I’m an engineer, so I really haven’t had too much of an issue with the recessions and job losses (though getting out of the military in 1991 did leave me with a rough 6-month job search to start off).

    Thanks again!

    • FullTimeFinance
      FullTimeFinance March 6, 2019

      I’ve heard the transition to civilian life from the military can be rough. Large portions of my extended family have either made that transition or remain as officers. Did you get your degree in conjunction with your time served or employ the GI bill?

  7. C
    C March 5, 2019

    I was a stay at home Mom in 2008 of two small children when my husband got laid off. Luckily I was college educated and was able to find a job quickly. We lived on my part-time salary and never touched our savings. It was a GREAT learning experience when you consider need vs. want and what is truly important.

    • FullTimeFinance
      FullTimeFinance March 6, 2019

      It’s interesting to consider the lasting impact of 2008 on how people process financial situations. A whole generation experienced a moment of utter panic where it seemed like the financial world was collapsing.

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