The first few weeks of 2016 have been incredibly volatile. Global economic insecurity, US stock market declines and numerous “man bites dog” anecdotes in the press have created an atmosphere that I have seen a few times before. One of the consistent factors throughout all of these panic periods has been that those who are active as opposed to reactive generally come out on top. Panic is never the answer. Hindsight is 20/20 and if we look back at the internet “bubble,” September 11th and the financial crisis in September 2008, there is no denying that many experienced some serious financial downfalls. However, I would argue that the majority who felt the greatest negative impact, other than our friends, family and fellow Americans who so tragically lost their loved ones, were those who pressed the panic button in a knee jerk reaction.
As I recall all three of the examples above, I think of the conversation between me and my wife on each occasion. “What should we do about our living situation?” When the internet bubble burst, we were perfectly positioned to purchase a 2-bedroom co-op on the Upper West Side. We were lucky. Post September 11th, we like many of our New York City friends and family were exploring options outside of what we deemed to be an unsafe urban environment. We could have sold our apartment at that time for about the same price as what we paid for it or perhaps a small loss. We stayed. As the real estate market came back and exploded post September 11th, we observed the equity in that home increase nearly 30% and were able to sell in 2003 and purchase a larger home for our growing family. By the time the 2008 financial crisis hit, my wife and I had discussed selling our new 3-bedroom condo for TWICE what we had paid. A 100% gain in 5 years! Again, my wife and I decided to stay. We have since renovated that same home where we live with our 14 year old son and our 11 year old daughter. Our home is now worth about two and a half times what we paid in 2003! And we still aren’t selling.
My point in sharing the story above is that each individual must carefully evaluate his or her own specific situation to determine what makes the most sense for each individual. For instance, had we decided to sell our home prior to 2008, we would have likely watched our equity disappear into the abyss of the post Lehman stock market. And what if we decided to sell now, where would we put our money to keep it “safe”? I don’t have all of the answers by any means, but I can assure you that each and every individual must consider every element of their current situation before determining whether to buy, sell or sit tight.