Today marks the 6 year anniversary of the bear market in stocks that ended in 2009. Today, a day in which the stock market showed us its worst day of this relatively new year.
Set off by the banking crisis and sky-high real estate prices and a myriad of banking system shenanigans - lending in particular - 2008 was the full year of "fear and carnage" where many surmised that the USA as we knew it was finished; kaput ! Third world status folks. The stock market fell 38% in 2008.
Well, we know that American doesn't go down without a dog-fight. We're the envy of the world, with a diverse economy and blessed with a geography that yields plentiful harvests for consumption and export. That does not guarantee, however, immunity from booms and busts with asset prices. Today could be the start of the next bear market of 20-30-40 percent down. We don't know, but we can prepare.
From peak to trough, near 14,000 in October 2007, the Dow Jones fell 55%. This ranked very high in the history of bear markets. It took 5-1/2 years to get back to even, in early 2013!
I've been preaching diversification here in the 'blogosphere' for many moons, while the financial media prefers to take this and spin it into drama to keep our eyeballs tuned in. Why such a fixation on stocks. News on bonds and commodities, exchange-traded funds, mutual funds are avoided as if long lost ugly step sisters. Am I missing something? Jim Cramer and CNBC, are you listening?
Bonds and gold are very important in keeping your financial portfolio healthy when stocks are getting massacred. But you won't hear this on your financial news channel. No doubt due to the revenue generated from buying and selling stocks, which is much more than buying bonds.
Well let me tell you, you should strongly consider a diversified portfolio during the next bear market, which may start when we're not ready. Whilst stocks fell in half in 2007-2009, government bonds GAINED 30%, and Gold gained 27%. A three pronged strategy of stock, bonds and gold returned a LOSS of just 3% while using a four-legged attack using cash (Treasury bills) LOST you 1%. I think losing 3% is better than losing 55% of your money, correct?
I am not inferring that the next bear market will be like the last one. It probably won't be. But I bet you that one asset class (stocks, bonds, Gold or commodities) will have a BIG positive impact on your portfolio return and values.
It's better to base your decisions on historical findings vs. the opinions of men with perhaps misguided or biased projections and forecasts.
Post a comment and your e-mail below and I will e-mail you an interesting chart: "The Psychology of a Market Cycle", a mental health view of most investors.
Thanks for reading!
Barry L. Unterbrink
Chartered Retirement Planning Counselor www.stetsonwealthmanagement.com