It Wasn't a Lost Decade for Everyone

Focus: MARKETS

Howard Gold Image Howard Gold Founder & President, GoldenEgg Investing

Heck, a chimpanzee could have recommended it.

During the "lost decade" for stocks, bonds did their job. "We view the bond allocation as there to help temper the volatility of stocks," says Donald G. Bennyhoff, senior investment analyst at Vanguard. Or, as a financial planner once told me, stocks are the engine of a portfolio, while bonds are the air bag.

But what about 2008? Didn't nearly all asset classes—except Treasury bonds, cash, and gold—get decimated?

Of course, they did, and that's to be expected, said David Swensen, Yale University's chief investment officer, in a rare interview on PBS's WealthTrack.

"Diversification isn't going to help in the midst of a financial crisis,…because in these panics…only two things matter—risk and safety," he told host Consuelo Mack. "And people move away from risk, and they move toward the safety of holdings of Treasury securities. And that causes the price of all risky assets to go down simultaneously."

"You have to move beyond the immediate time of the crisis to see the benefits of diversification," he added.

Indeed. As Scott Burns, director of ETF analysis at Morningstar wrote, diversification and asset allocation "reduce risk and maximize return over the long run. Never in the past 75 years did asset allocation remove the risk of investing."

Incidentally, Bennyhoff agrees with me that lump-sum investing has a clear edge over dollar-cost-averaging, as our little study showed. That only confirms some other research on the subject.

"The sooner you put your money at risk, the better," he says.

So, what about the next ten years?