For wealthy investors, events like the financial crisis of 2008 and the pandemic-induced crash of 2020 serve as valuable lessons rather than mere dangers. The assets that not only endured but also expanded afterward adhered to unconventional yet effective principles, steering clear of the generic advice to simply "play it safe."
Diversify Beyond So-Called "Safe" Investments
The events of 2008 revealed that what is labeled "low-risk" can be deceptive, as many affluent investors faced significant losses in mortgage-backed securities they believed were secure. Similarly, the experience in 2020 demonstrated that accumulating cash isn't always the best strategy—those who clung to their cash missed the swift recovery of the stock market. Instead, investors should aim to diversify their holdings across unrelated asset types, such as farmland, art, short-term bonds, and stocks.
Prepare Your Portfolio for Potential Crises
Individuals impacted by the 2008 crisis often overlooked the interconnections among their investments: a decline in housing values severely hurt both their real estate and mortgage funds. The 2020 crisis highlighted the dangers of being overly invested in travel or retail sectors, which devastated portfolios. Wealthy investors should create "what-if" scenarios to prepare for various outcomes, such as significant drops in oil prices or a pandemic causing business shutdowns. This proactive approach can help them avoid substantial losses.
In 2008, savvy investors capitalized on undervalued blue-chip stocks and distressed properties, but they were selective in their choices. In contrast, those who thrived in 2020 focused on technology and healthcare rather than failing shopping malls. The essential strategy is to seek assets characterized by strong long-term potential, rather than just low prices—high quality tends to weather crises much better than cheap options.
Prioritize Liquidity—But Choose Wisely
During the 2008 crisis, many investors found themselves stuck in "liquid" funds that became inaccessible. The 2020 experience taught that excessive low-yield cash can hinder growth. Wealthy individuals should ensure they have accessible liquidity: consider short-term Treasuries, asset-backed lines of credit, or cash in high-yield savings accounts. It's best to avoid investments that lock up funds, forcing unnecessary sales at a loss.
Be Wary of "Too Good to Be True" Returns
The Bernie Madoff scandal of 2008 illustrated that claims of "steady returns" can be deceptive. In 2020, various crypto scams lured investors with promises of "crash-proof" profits. If any investment guarantees high returns without volatility, it's wise to step back; real wealth tends to grow with some level of risk—consistent returns without any risk are a fabrication.
Strategically Adjust Your Portfolio, Don't Just Follow Rules
Investors in 2008 who indiscriminately rebalanced found themselves buying more of their losing assets. Conversely, the successful investors of 2020 focused on reallocating funds to sectors on the rise. Rather than sticking to rigid schedules, consider rebalancing when an asset class diverges more than 10% from your target or when trends shift due to crises. This approach keeps your portfolio in sync with changing realities.
Crisis situations reveal which wealth is merely fortunate versus what is truly sustainable. By reflecting on the lessons from 2008 and 2020—such as avoiding overconcentration, assessing risks, and emphasizing quality—wealthy investors can not only endure downturns but also be positioned for successful growth.
