Friday, January 09, 2009

$6 - $8 Trillion in Investment Losses for 2008

On NPR radio (I don't recall the exact source) and this CNBC article on How the Financial Crisis Impacts Your Retirement estimated investment losses between $6.5 to $8 trillion for 2008.

Wow! That's a lot of financial value that just went poof. And it doesn't even include the loss in housing values. Tomorrow, I will write about where did all the losses go.

Looking back, here's what worked in 2008: Investing in CDs, bonds, and shorting stocks. Cash was also a good place to have money. And there were probably some individual stocks like Wal-mart (WMT) and McDonald's (MCD) that had a gain for 2008. These investments made money in 2008.

Just about everything else didn't work in 2008: A diversified stock portfolio, international stocks, commodities, hedge funds, value investing, mutual funds, sector funds, real estate, etc. These investment probably lost around 30 to 40%, as did the market indices. Even university endowment funds weren't protected from the decline. According to The Wall Street Journal, even Harvard's endowment fund lost 22%, or $8 billion, in the second half of 2008.

There is a market expression that says, "Don't confuse a bear market with stupidity." For now, while my wealth has declined significantly, I don't attribute it to stupidity. I do expect the market to rebound and a diversified portfolio will benefit.

However, in the future, I'll remember another market expression that says, "Don't confuse brains with a bull market." When the market rebounds, I plan to take profits on some of the gains and reallocate the funds to CDs, bonds, and cash.

Disclosure: At time of publication, I don't own either stock in our trading account. Our managed accounts own Wal-mart and McDonald's.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

No comments: