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Bear Market Grads: What You Should Learn From the Financial Crisis

by Larry Swedroe and William Reichenstein

Bear Market Grads: What You Should Learn From The Financial Crisis Splash image

By March 2009, most U.S. and international stock indexes had lost at least half of their value in the current financial crisis.

Since that time, some indexes have managed a small rally, but all remain substantially below their peak levels. In addition, banks are in lousy shape, and governments around the world are running huge deficits and trying, seemingly in vain, to cure the financial ills that beset the world economies.

There has been a litany of articles trying to lay the blame for the crisis. We do not propose to add to this literature. Rather, our primary aim is to discuss the investment lessons from the crisis, and to make positive suggestions for investors today.

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Larry Swedroe is director of research and principal of Buckingham Asset Management in St. Louis, Missouri. He is also author of six books on investing, including “Wise Investing Made Simple” (Charter Financial Publishing Network, 2007), and can be reached at lswedroe@bamstl.com .
William Reichenstein , CFA, holds the Pat and Thomas R. Powers Chair in Investment Management at Baylor University and is head of research at Social Security Solutions, Inc .


Discussion

Alice from Georgia posted over 3 years ago:

I am a new investor and find your information very educational and informative.


Henry from Maryland posted over 3 years ago:

Awesome article tying together things that I have learned (the hard way) while investing over the past 30 years. It pays to maintain a steady approach to investing. Don't be greedy, don't make big moves, watch the expenses, and don't go for gimmicks.

Well done!


Mark from Texas posted over 3 years ago:

For additional details to follow the above strategy see William Bernstein's book, "The Investor's Manifesto."


Donald from Massachusetts posted over 3 years ago:

Where do Convertible Bonds fit into the strategy...aren't you protected the same as your example of the Exxon bond, minus the 6% interest?..thanks, Don


George from Michigan posted over 3 years ago:

I hope that everyone in the SEC reads the article couple times per year! Then maybe the SEC will do a better job in the future.


Marvin from California posted over 3 years ago:

Easiest thing for the general "smart" investor to do is buy a low cost balaced fund i.e. Vanguard Wellington or Vanguard Star. Automatic balancing with broad low cost diversification.


Bob from Arizona posted over 3 years ago:

This is the 4th AAII newsletter I've read since recently joining. Each one has contributed to my knowledge and helped me make better decisions about managing my portfolio. Thanks.


Bill from Texas posted over 2 years ago:

Re-balancing does not work: http://seekingalpha.com/article/63576-rebalancing-can-be-hazardous-to-your-portfolio


Bill from Texas posted over 2 years ago:

I have made a ton of money in hedge funds (CTAs) since 1995. 2% management fee and 20% incentive fee should never scare you. Returns quoted are inclusive of these fees. I was singing all the way to the bank in 2008 while others lost 50%+. Hedge funds and CTAs, are fantastic investments if you know what you are doing (same goes for stocks, bonds etc.)


Bill from Texas posted over 2 years ago:

I endorse Vanguard Wellington.


Bill from Texas posted over 2 years ago:

High-yield [junk] bonds and convertible stocks might be too complex to the average investor. Might consider high yield mutual funds. Do an evaluation using Morningstar.


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