In early January 2009, I wrote:
"In 2002, the the S&P 500 lost 23.37%. At the beginning of 2003, the market continued to trend lower, and a funny thing happened, it turned around. By the end of the year, the S&P 500 had gained 26.39%.
I am not saying that 2009 will be a spectacular year and everything will be rosy, but if do your research and diversify your investments, you will at least be giving yourself a chance to participate."
If only I could predict the lottery numbers every week that well!
In the end, the S&P 500 gained 26.5% in 2009 which is almost exactly what it did in 2003. There are few similarities as to why the market turned around in 2003 and 2009, but it did.
Early in 2009, the market was just completely oversold. Everyone was so worried that every single company was going to go out of business that they quite literally sold everything (including bonds and preferred stocks). When the turnround came, it was strong.
Moving forward into 2010, it is definitely hard to see what areas of the market will stage the best performance, so since almost all of you seldom make changes to your portfolios, you must continue to diversify your portfolio - if nothing else, rebalance from last year!
Do not load up on international funds just because they had the best performance in 2009. International funds are somewhat more volatile because the international markets are more volatile, but there is also the currency trade which can help or hurt the fund's performance. If you wish to be more aggressive, adding a bit to your international holdings is a great way to accomplish this goal, but do not over do it!
On the bond side, just like in 2009, investment grade and inflation protected bonds (TIPS) look to be some of the best options. Government bonds should do poorly again in 2010 just like they did in 2009, and there is just about zero reason to be in them right now.
As I said last year, "As for the rest of the account, you really need to continue to research the funds that you have available. A good diversification model that would now include the investment grade and inflation protected bond funds would be excellent. Remember that if you only look at last year, you will be missing the point. Look at good and bad years, look at changes in the managers, etc."
If you look back through history, the second year of a recovery is generally not as spectacular as the first year, but it is usually still a good year. The goal here is to reap returns when we can and mitigate the losses in a bad year. Keep that in mind, and you will almost assuredly do better than those that try to time the market.
I wish everyone only the best in 2010, and I hope it is a very prosperous year for all of us!
"In 2002, the the S&P 500 lost 23.37%. At the beginning of 2003, the market continued to trend lower, and a funny thing happened, it turned around. By the end of the year, the S&P 500 had gained 26.39%.
I am not saying that 2009 will be a spectacular year and everything will be rosy, but if do your research and diversify your investments, you will at least be giving yourself a chance to participate."
If only I could predict the lottery numbers every week that well!
In the end, the S&P 500 gained 26.5% in 2009 which is almost exactly what it did in 2003. There are few similarities as to why the market turned around in 2003 and 2009, but it did.
Early in 2009, the market was just completely oversold. Everyone was so worried that every single company was going to go out of business that they quite literally sold everything (including bonds and preferred stocks). When the turnround came, it was strong.
Moving forward into 2010, it is definitely hard to see what areas of the market will stage the best performance, so since almost all of you seldom make changes to your portfolios, you must continue to diversify your portfolio - if nothing else, rebalance from last year!
Do not load up on international funds just because they had the best performance in 2009. International funds are somewhat more volatile because the international markets are more volatile, but there is also the currency trade which can help or hurt the fund's performance. If you wish to be more aggressive, adding a bit to your international holdings is a great way to accomplish this goal, but do not over do it!
On the bond side, just like in 2009, investment grade and inflation protected bonds (TIPS) look to be some of the best options. Government bonds should do poorly again in 2010 just like they did in 2009, and there is just about zero reason to be in them right now.
As I said last year, "As for the rest of the account, you really need to continue to research the funds that you have available. A good diversification model that would now include the investment grade and inflation protected bond funds would be excellent. Remember that if you only look at last year, you will be missing the point. Look at good and bad years, look at changes in the managers, etc."
If you look back through history, the second year of a recovery is generally not as spectacular as the first year, but it is usually still a good year. The goal here is to reap returns when we can and mitigate the losses in a bad year. Keep that in mind, and you will almost assuredly do better than those that try to time the market.
I wish everyone only the best in 2010, and I hope it is a very prosperous year for all of us!
