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How did people lose their retirement investments in 2008? Most of the stories I've heard where people lost all of their retirement around 2008 involved doing th

How did people lose their retirement investments in 2008? Most of the stories I've heard where people lost all of their retirement around 2008 involved doing things were considered fairly risky before 2008 hit. Were there people who lost all their retirement who were following typical retirement investment strategies? Edit: And to be clear, I know the value of almost everyone's investments went down, but unless your money was all in a single company it seems that most diversified portfolios bounced back.

timthelion 9y ago
Many people put all of their money into paying the mortgage on a house. A reasonably sound investment. And then they found their mortgages to be underwater. Literally every dollar they had put in, was now worthless on paper. Those who did not buy into the sunk cost fallacy allowed their houses be reclaimed. Then they truly had nothing.
- icebraining 9y ago
  Those who did not buy into the sunk cost fallacy allowed their houses be reclaimed. Wait, are you saying it was actually financially rational to do so? Wouldn't they be better off by waiting it out until it the market rebounded? I'm not blaming anyone, just asking what would have been the theoretically better decision.
  - filoeleven 9y ago
    I bought a house in 2007. Ten years later it still is not worth what I owe on it. Sometimes the market doesn’t recover. I’ve wanted to move somewhere else for at least five of those years. I finally have, and my options with the old house are either to rent it out (rent would not cover mortgage payment) or try to deal with the bank to avoid foreclosure, via short sale or deed in lieu. In any of those cases, now I have two problems.
  - timthelion 9y ago
    I truly don't know what the theoretically better decision is. That wording was intended to poke fun at arrogant HNers who think that everything in the markets follows some trivial buzzword based rule-set.
brewdad 9y ago
Right. In the meantime, while working folks could keep their investments intact and have them grow back to pre-crash levels or higher, retired folks needed money to live on and were forced to remove some of their nest egg at the bottom. It takes much longer to recover in that situation.
- markshead 9y ago
  > retired folks needed money to live on and were forced to remove some of their nest egg at the bottom While I understand that people who are already retired can't just choose to keep working while their investments recover, I'm not aware of any retirement investing strategy that has you fully invested in stocks at the point you retire. The whole point of moving your retirement to safer investments around retirement age is so you don't have to take money out of stocks when there is a financial downturn. I may be missing something, but you seem to be describing retirees with a very risky asset allocation. I'm not trying to minimize how devastating that was for people, but I am trying to understand what they were victims of. Were they victims of financial advisors recommending that type of asset allocation?
  - dogruck 9y ago
    Nobody will answer your question. These commenters and down-voters know how to pattern match “he said a person is not a victim” with the knee-jerk response of “you’re bad.” They don’t know how to articulate a sensible argument to back up their reaction though.
vevoo 9y ago
"How did people lose their retirement investments in 2008..following typical investment strategies?" Well, you can follow those strategies until fear takes over. I know of a graduate scholar that got scared, got her money out when you saw how her investment accounts went downwards. You keep the cash, fearing that if you invest again you will loose all. You see how the market goes up, but you do not believe on it again. Or the sunk cost fallacy...or risk aversion with an overestimation of risk. The more financial AND emotional intelligence you have the less likely you are to fall into such life. But let's have empathy because the majority of people have less financial intelligence and cold blod as the average hn reader. Let alone the chance of earning a very good salary for a few decades.
- markshead 9y ago
  I'm not trying to downplay the plight of people who lost a lot of money in 2008 and I'm not trying to say "well it is their own fault" to trying to justify not feeling bad for them. However, I think it is entirely reasonable to assume we will someday experience another similar event. If there was something about this event that caused some people who were following sound retirement investment strategies to lose all of their savings, I wanted to know about it. That is why I was asking.

timthelion 9y ago

Many people put all of their money into paying the mortgage on a house. A reasonably sound investment. And then they found their mortgages to be underwater. Literally every dollar they had put in, was now worthless on paper. Those who did not buy into the sunk cost fallacy allowed their houses be reclaimed. Then they truly had nothing.

icebraining 9y ago
Those who did not buy into the sunk cost fallacy allowed their houses be reclaimed. Wait, are you saying it was actually financially rational to do so? Wouldn't they be better off by waiting it out until it the market rebounded? I'm not blaming anyone, just asking what would have been the theoretically better decision.
- filoeleven 9y ago
  I bought a house in 2007. Ten years later it still is not worth what I owe on it. Sometimes the market doesn’t recover. I’ve wanted to move somewhere else for at least five of those years. I finally have, and my options with the old house are either to rent it out (rent would not cover mortgage payment) or try to deal with the bank to avoid foreclosure, via short sale or deed in lieu. In any of those cases, now I have two problems.
- timthelion 9y ago
  I truly don't know what the theoretically better decision is. That wording was intended to poke fun at arrogant HNers who think that everything in the markets follows some trivial buzzword based rule-set.

brewdad 9y ago

Right. In the meantime, while working folks could keep their investments intact and have them grow back to pre-crash levels or higher, retired folks needed money to live on and were forced to remove some of their nest egg at the bottom. It takes much longer to recover in that situation.

markshead 9y ago
> retired folks needed money to live on and were forced to remove some of their nest egg at the bottom While I understand that people who are already retired can't just choose to keep working while their investments recover, I'm not aware of any retirement investing strategy that has you fully invested in stocks at the point you retire. The whole point of moving your retirement to safer investments around retirement age is so you don't have to take money out of stocks when there is a financial downturn. I may be missing something, but you seem to be describing retirees with a very risky asset allocation. I'm not trying to minimize how devastating that was for people, but I am trying to understand what they were victims of. Were they victims of financial advisors recommending that type of asset allocation?
- dogruck 9y ago
  Nobody will answer your question. These commenters and down-voters know how to pattern match “he said a person is not a victim” with the knee-jerk response of “you’re bad.” They don’t know how to articulate a sensible argument to back up their reaction though.

vevoo 9y ago

"How did people lose their retirement investments in 2008..following typical investment strategies?" Well, you can follow those strategies until fear takes over. I know of a graduate scholar that got scared, got her money out when you saw how her investment accounts went downwards. You keep the cash, fearing that if you invest again you will loose all. You see how the market goes up, but you do not believe on it again. Or the sunk cost fallacy...or risk aversion with an overestimation of risk. The more financial AND emotional intelligence you have the less likely you are to fall into such life. But let's have empathy because the majority of people have less financial intelligence and cold blod as the average hn reader. Let alone the chance of earning a very good salary for a few decades.

markshead 9y ago
I'm not trying to downplay the plight of people who lost a lot of money in 2008 and I'm not trying to say "well it is their own fault" to trying to justify not feeling bad for them. However, I think it is entirely reasonable to assume we will someday experience another similar event. If there was something about this event that caused some people who were following sound retirement investment strategies to lose all of their savings, I wanted to know about it. That is why I was asking.