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Diversity failed? there’s always stock risk

Tacoma News Tribune – It was a year of disillusionment, betrayal and excruciating pain for investors.

Wall Street got investing so wrong that the financial system needed an emergency $700 billion transfusion of taxpayer money to avoid collapse, and investors lost trillions of dollars of their life’s savings.

For the regular person with a 401(k), it didn’t help much if they obeyed the lessons of sound investing. Although investors are told that diverse mutual fund choices will help them get through a stock market downturn, the practice didn’t save them from a miserable 2008.

As the stock market plunged more than 50 percent from its October 2007 high, everything but U.S. Treasury bonds suffered drastic losses – real estate, commodities, U.S. stocks, international stocks and even hedge funds, municipal bonds and corporate bonds. As investors panicked and headed for the exits, strong and weak investments were sold. Virtually nothing was immune.

“All 10 sectors within the Standard & Poor’s 500 fell, from a 22 percent slump for consumer staples to a 74 percent thrashing for the financials,” said Standard & Poor’s chief investment strategist Sam Stovall.

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