CHICAGO, Sept 17 (Reuters) – Five years ago I was watching
the world financial system implode after the failure of Lehman
Brothers in real time. Since I’m largely a buy-and-hold
investor, I grimaced while my retirement savings took a
pummeling in 2008-2009.
What have we learned since that calamitous year? There were
certainly a few gut-wrenching surprises as well as some enduring
truths that still hold in personal investing for the future.
1. Gravity is stronger than diversification
For years, we adherents to the Modern Portfolio Theory of
diversification have practiced the fine art of blending our
portfolios with assets that don’t typically move together. In
2008, many, including me, were surprised when commodities funds,
which were supposed to move in the opposite direction of stocks,
followed stocks into the abyss. When nearly everything declines
in a global meltdown, there are few safe havens.
In late 2008, worldwide demand for commodities also
plummeted. An exchange-traded fund like the PowerShares DB
Commodity Index Tracking Fund holds a variety of
commodities contracts from crude oil to zinc. The fund dropped
nearly 32 percent that year, nearly matching the 37-percent loss
of the S&P 500 stock index.
The fund remained a poor investment over the past five years
as global commodity demand is relatively sluggish and China and
India slowed down. It has fallen almost 5 percent annually, on
average, during that period through Sept. 13.