Our “Off The Wall” Blog
is now Monument #Unfiltered

Subscribe below to receive our unique, straight-forward, unfiltered wealth advice delivered straight to your inbox.

What Every Investor Needs to Know About the Lost Decade

U.S. News and World Report Smarter Investor

Not everyone lost money during the last ten years.

How many times over the past year have you read or heard about the “Lost Decade?” It’s been a popular topic because a lot of investors lost money between January 2000 and December 2009.

But just because major indices may have been flat or even down during this period doesn’t mean a well-diversified investor needed to follow suit. What many investors don’t realize is that there were sectors of the U.S. economy, as well as some overseas markets, that did very well over the same time period. This is why it is so important for investors to have a well-diversified portfolio.

First and foremost, do your research or outsource it to a professional.

Diligent and comprehensive research is a must for any investor who is managing his or her own money. Taking the time to ensure you are invested in (or just as importantly, not invested in) the appropriate sectors at the appropriate point of any economic cycle can mean the difference between a positive and negative portfolio performance. If you are not qualified to do it yourself, hire a professional.

If you choose to hire a professional, make certain that you fully understand his or her qualifications before turning over the reins or following advice. One of the easiest ways to find out if someone is qualified is to check his or her designations. When looking for advice for complete and comprehensive financial planning, find a Certified Financial Planner. For asset management, look for a CFA charter holder. By the way, “professional salesperson” is not the qualification you should be seeking out.

How would a triple-digit return have sounded?

Let’s take a look at the returns in round numbers of some different benchmarks between January 2000 and December 2009. For that time period, the Dow Jones Industrial Index was down 9 percent and the S&P 500 Index was down 25 percent. If you were an investor who had all of your investable assets in these indices, it was indeed a Lost Decade.

However, there were sectors that were up in excess of 100 percent over the same time frame. The energy sector, as measured by S&P, was up over 100 percent. Additionally, an investment overseas would have netted a big return as well, since the MSCI Emerging Markets Index was also up more than 100 percent for the decade.

Okay, how about a double-digit return?

The Russell 2000 Small Cap Value index was up more than 60 percent for the Lost Decade. The S&P MidCap 400 and the S&P SmallCap 600 both rose in excess of 60 percent as well.

Okay, fine … you just wanted something up over 20 percent?

Three indices were up over 20 percent for the Lost Decade: the S&P Consumer Staples sector, the S&P Materials sector, and the Russell 2000 Small Cap Stock index.

If you had a Lost Decade, what now?

Here’s the key take-away point—just by having a diversified portfolio that contained allocations to the mid-cap, small-cap, and emerging market indices mentioned above over the past decade could have been enough to turn a Lost Decade into a Winning Decade.

If your returns for the decade were good or even stellar, it’s probably worth the time to figure out why. Was it because of luck, solid research, or maybe concentration in one sector? It’s worth knowing why the portfolio was successful and determining whether it was a big bet that went right, or because all of your investments were working as expected.

If you are managing your own money, ask yourself why you were overweight in investments that were down for the decade or vice versa. Laziness? Poor research? Relying on TV shows designed to sell advertising? There could be one or myriad reasons for poor investment selection.

Hire a professional.

If you decide to hire a professional, make sure you understand his or her investment philosophy and that the philosophy is inextricably tied to a complete and comprehensive financial plan. If a professional cannot explain it in terms you understand, it’s probably worth taking a pass on the person or the strategy.

And remember, there were a lot of sectors that were down big-time over the Lost Decade. The telecom sector was down more than 60 percent and the Russell 1000 large-cap growth index was down 40 percent.

David B. Armstrong CFA, is a Managing Director and co-founder of Monument Wealth Management in Alexandria VA, a full service Private Wealth Planning and wealth management firm. Monument Wealth Management is backed by LPL Financial, the independent broker-dealer and Registered Investment Advisor. He has been named one of America’s Top 100 Financial Advisors for two straight years by Registered Rep Magazine (2009 & 2010) based on asset under management. David and Monument Wealth Management can be followed on their blog at “Off The Wall“, their Twitter account@MonumentWealth, and on their Facebook page. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for individual. To determine which investment is appropriate, please consult your financial advisor prior to investing. All performance references is historical and is not guarantee of future results. All indices are unmanaged, cannot be invested in directly, and do not reflect the deduction of fees and charges inherent to investing. The prices of small and mid-cap stocks are generally more volatile than large-cap stocks. Securities and financial planning offered through LPL Financial, Member FINRA/SIPC

Read this article on U.S. News & World Report >>

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.

A copy of Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures. Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your Monument account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Monument accounts; and, (3) a description of each comparative benchmark/index is available upon request.

Please Remember: If you are a Monument client, please contact Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Get Monument #Unfiltered: Our Free Private Wealth Newsletter

Our no B.S. wealth advice delivered 2x per month, max. Tuned specifically for busy, high-net-worth business professionals and investors who want straightforward advice without the fluff.