While the consequences of that extreme period of financial turmoil are still being felt, the market recovery in the past decade provides a profound illustration of the value of staying the course through enormously difficult times. The ability to remain invested in your long-term strategy was severely tested a decade ago. For those who withstood the stress, the results were very successful.  As this chart shows, it took just over a year for a hypothetical 50% stock/50% bond portfolio to recover from the market bottom back to pre-crisis peak. 

The individual effects varied, of course, depending on particular circumstances.  For clients who were just entering retirement, having cash reserves in order to avoid selling in volatile markets has made a significant difference in retirement spending.  But those retirees also had to endure a decade of historically low interest rates on their fixed income investments, which may have meant more restrained spending.

We also see the effects in Millennials, who are generally more risk averse than their Baby Boomer parents. The job insecurity and “gig economy” sparked by high unemployment and underemployment during the financial crisis has had lasting implications. This makes them very good savers, much better than Boomers were at their age, but wary investors who may not benefit from the long-term advantages of compound returns.

Regardless of your financial life stage, the Global Financial Crisis has brought changes. Future expected returns across most asset classes are lower now than before the Crisis. This puts greater focus on improving outcomes through disciplined asset allocation and rebalancing, tax-efficiency, and integrated planning and withdrawal strategies. Our ability to maximize these elements is enhanced by the insight gained from long-term relationships with our clients.

Notes:  Stocks are represented by the Standard & Poor’s 500 Index.  Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index.  The hypothetical 50% stock/50% bond portfolio was rebalanced monthly.  Data are provided by FactSet and cover the period from October 9, 2007 through June 29, 2018.  Past performance is no guarantee of future returns.  The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.  Sources:  Vanguard calculations using data provided by FactSet, as of June 29, 2018.