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Makin' Money

Investing lessons from the Great Recession

Chris Farrell May 11, 2012

The economy is still struggling. Still, now seems like a good time to look back over the past 5 years and ask what the investing lessons are for the 401(k) generation. Here’s my take in a Kiplinger story: 

We’ve all heard and read suggestions that the market’s message has been to toss aside traditional rules of investing and embrace a different set of insights, such as the demise of diversification and the triumph of market timing. However, what’s striking with a five-year time horizon is how well the old rules for managing money hold up. We forget that these insights were forged during scary times, such as the Great Depression of the 1930s and the Great Inflation of the 1970s.  

“The basic principles haven’t changed,” says Peng Chen, president of Morningstar’s global investment management division. But he adds: “They do need some fine-tuning.”

What are those basic principles? Stocks are risky. Diversification pays (although the approach needs some fine-tuning). Dollar-cost averaging, periodically rebalancing your portfolio, and taking your age into account are all fundamentally sound ideas. 

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