Even though the Dow Jones Industrial Average was flat for the month of October, it’s still up 48% from its March low and 11% for the year. And many parts of the bond market have staged massive rallies of their own.
But last week’s big stock-market swings — including Friday’s 250 point plunge — showed there are still big challenges facing investors.
American consumers remain hamstrung by debt, collapsed home prices and a dismal job market. The massive efforts by the federal government to stabilize the economy have inflated the budget deficit, creating worries about future levels of inflation, interest rates and the strength of the U.S. dollar.
Against this backdrop, here are some key lessons to take away from the wild ride that’s been 2009:
1 Stocks-for-the-Long-Run Is Dead
With the Dow Jones Industrial Average down 8% from where it was 10 years ago, investors are questioning the idea that they shouldn’t react to the market’s shorter-term ups and downs. It’s not a question of buying and selling stocks like a day trader, but rather being flexible with an investment mix based on a long-term plan.
‘You set the amount of risk you’re willing to take in a portfolio and you have to be willing to adjust because the markets do change,’ says Earl Osborn, chief investment officer at Bingham, Osborn & Scarborough, a San Francisco financial advisory firm.
For example, when a portfolio that was 50% stocks and 50% bonds was confronted with last September’s tumult in the financial markets, the appropriate response may have been to sell some stocks and buy high-quality bonds, maybe shifting to a mix of 40% stocks and 60% bonds, Mr. Osborn says.
Then when it appeared that financial Armageddon wasn’t imminent, as it did in March and April, and the risks of owning stocks had declined, ‘I might take that…up to 60% stocks, 40% bonds,’ Mr. Osborn says.
2 Stocks-for-the-Long-Run Is Alive
Stock investors may still be licking their wounds, but the basic reason for owning stocks hasn’t changed: Over the long term, they can be an effective way to grow a portfolio.
The key is looking forward, not back. And many investors believe the best place to find long-term growth is in the emerging-markets nations, especially those in Asia.
As the dust began to settle this spring, Shawn Rubin, a financial adviser at Morgan Stanley Smith Barney, saw the financial crisis as a tipping point that would steer China on a more sustainable growth model focused on domestic spending. Coupled with the region’s powerful population growth, he feels Asian emerging-market stocks have entered a period comparable to the U.S. after World War II. To capitalize on that, he turned to mutual funds that own small-company Asian stocks.
‘It makes sense just like the U.S. made sense,’ Mr. Rubin says. ‘There may be a small movie-theater chain in Malaysia that someday could be as big as Viacom.’
3 Don’t Fight the Fed
It’s an old trader’s adage that when the Federal Reserve starts making changes, investors ignore that news at their peril.
Investors now scratching their heads at how the stock and bond markets could stage such big rallies with the economy still struggling are overlooking the Fed’s efforts to lower interest rates to essentially zero and flood the markets with money.
The Fed basically forced investors out of cash and into riskier investments. And the government’s propping up of the financial system led to a sharp rebound in the stocks that had been hit the hardest by the crisis, such as banks. Now many are focusing on potential disruptions to the markets as the Fed likely eases back on its efforts next year.
The lesson isn’t that investors have to understand the inner workings of the Fed. Instead, says Kenneth Solow, chief investment officer at Pinnacle Advisory Group in Columbia, Md., ‘investors need to understand what makes the markets move.’
That includes understanding how swings in sentiment can move markets or the basics of valuations. And some of it is simply paying attention to the world around you, as during the housing bubble, and adjusting a portfolio accordingly, Mr. Solow says.
4 Buy Fire Insurance
Most people have home insurance, car insurance and life insurance. Very few have portfolio insurance.
There’s a tendency among individual investors to want every investment in their portfolio to go up all the time. That’s great in a bull market, but does nothing to preserve money during a steep downdraft. And few small investors realize that professional traders almost always build a hedge into their positions against being wrong. So when they inevitably lose money on a trade, it doesn’t put them out of business.
This past year not only shows the value of having a small slice of a portfolio that acts as insurance, but also which investments really held up under strain. It’s a very short list: U.S. Treasurys and to a lesser extent, gold. One new investment gaining fans is the iPath S&P 500 VIX Short-Term Futures, which tracks the VIX, the Chicago Board Options Exchange Volatility Index. Often known as the fear index, the VIX tends to rise sharply in times of turmoil, as it did last autumn.
Mr. Solow, for one, is keeping roughly 5% of client portfolios in gold. ‘It’s a defense against the system blowing up,’ he says.
位于旧金山的金融咨询公司Bingham, Osborn & Scarborough的首席投资长奥斯本(Earl Osborn)说，你设定愿意在投资组合中承担的风险程度，然后必须愿意做出调整，因为市场确实会不断变化。
今年春季随着尘埃开始落定，摩根士丹利(Morgan Stanley)旗下美邦(Smith Barney)的金融咨询师鲁宾(Shawn Rubin)将金融危机视为一个引爆点，将促使中国转向更具可持续性的增长模式，将重点放在扩大内需上。结合亚洲地区强劲的人口增长，他觉得亚洲新兴市场股已进入堪比二战后的美国的阶段。为了对这种情况加以利用，他转而投资持有亚洲小型公司股票的共同基金。
其教训并不在于投资者必须理解美联储内在的工作方式。马里兰州哥伦比亚Pinnacle Advisory Group的首席投资长索罗(Kenneth Solow)说，相反，投资者需要了解市场运行的动力何在。
过去的一年不光显示了将投资组合的一小部分用作保险的价值，同时还展现了哪些投资在艰难的世道下能够真正保值。这类投资为数寥寥：美国国债和（在较小程度上的）黄金。吸引投资者的一项新投资是iPath标普500波动率指数短期期货(iPath S&P 500 VIX Short-Term Futures)，该投资跟踪芝加哥期权交易所市场波动率指数(Chicago Board Options Exchange Volatility Index)，即VIX，又称恐惧指数。该指数在市场动荡时期往往会急剧上升，去年秋季就是如此。