Hello there! I am trying to become financially literate this year. I have listened to a bunch of people refer to the 2008 economic downturn, and how it set back their retirement savings.
I was 8 at the time, so I don’t have much life experience in economic recessions beyond COVID.
I understand that if you have retirement savings (401k or IRA), the money is invested in the stock market. When there is a downturn, those assets are worth less. But retirement accounts are long-term, so wouldn’t the assets just regain their value after an economic recovery? Why would it set you back permanently? Can’t you just wait?
Thank you! 🙌
In: Economics
In 2007 the Dow Jones Industrial Average peaked in October, and then the stock market took a tumble and the value of that average basically dropped in half over the next 16 months. The Dow didn’t get back to its October 2007 level until January 2013. So basically that was 5 years wiped out.
If you’re young, losing 5 years of progress on retirement savings is something you can manage. If you were, say, 60 in 2007, and expecting to retire in 2012… losing that 5 years would have been pretty significant to you.
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