Seven Lessons from the Global Financial Crisis for Investors

The Global Financial Crisis was the worst financial crisis since the Great Depression, resulting in banks freezing lending, financial institutes requiring rescue and 50% plus share market falls.  As we enter the tenth anniversary of the GFC, Dr. Shane Oliver reflects on the key lessons for investors from the GFC:

• The inevitability of cycles: long periods of good growth, low inflations and great returns are always followed by something going wrong.
• While each cycle is different, markets are pushed to extremes of valuation and sentiment. Patient investors could be provided with opportunities here.
• Higher returns come with higher risk. Risks may not be immediately apparent, but will invariably make their appearance at some point.
• Be sceptical of financial engineering or hard-to-understand products. The GFC showed us that the biggest losses for investors were in products that no one actually understood.
• Avoid too much gearing or gearing of the wrong sort. Gearing magnifies gains as well as losses.
• The importance of proper diversification. While listed property trusts and hedge funds were more popular alternatives than low-yielding government bonds prior to the GFC, through the crisis they ran into big trouble, and government bonds were the star performers.
• The importance of asset allocation. The GFC reminded everyone that what matters most to your investments is your asset mix.

You can read the full article here: Oliver’s Insights – Seven lessons from the Global Financial Crisis for investors

Dr. Shane Oliver is Head of Investment Strategy and Economics and Chief Economist at AMP Capital.