Let's face it. The credit crunch of 2008 will make the history books. No matter how financially astute we are, we all make mistakes.
In my case, it's: Not to count your chickens before they're hatched. I'd been idly watching some bank shares grow. Come the credit crunch, the banks, Bradford & Bingley, and HBOS, were two of the first burned in the UK. That capital is no longer destined for the bigger and better things I had in mind.
Don't buy anything you don't understand is one of the most standard rules of investing. But come the 21st century investors and many advisors alike were bedazzled by new-style investments in second-hand American mortgages. I remember a financial planner telling me the reason he didn't invest his clients' money in the likes of ING's Diversified Yield Fund was that he simply couldn't get his head around how it worked. He's relieved now.
There's always a need to be wary of middlemen. They cream off the profits at the best of times and at worst, disappear. Many sell funds or property based on the commission they can get, not the suitability of the investment. In my own social circle one friend waxed lyrical about the properties sold to her by Blue Chip. Her "investment advisor" just happened to be the financially feckless husband of a friend of mine, who'd never made a sensible investment of his own in his life – other than marrying a high-earning professional.
Don't always assume prices go up. Who's heard the old adage, property never loses its value? Well it can and does. What's more if your short to medium term plans are based on the value of your equities, funds, property, or corporate bonds, then make sure a good chunk of that money is moved into fixed interest investments – and safe ones at that.
Have a plan for the worst case scenario. That may mean being ready with your bags packed to sell the family home or investment properties at the drop of a hat if you lose your job. It may involve having accident, sickness and unemployment insurance, or having a three-month emergency fund in an instant access savings account.
Some other lessons from the credit crunch include:
- The financial world can change almost overnight
- Even middle class people get laid off and lose their income
- If you're investing in overseas property or shares you're betting on those markets as well as the currency market.
Finally, don't forget: DIVERSIFICATION RULES.
What have you learned from the credit crunch?