Throughout history, when bad news and events touched the daily lives of investors and caused nest eggs to shrink, it’s been natural to ask, “Is this the end of investing as we know it? Have new developments changed things so much that the old patterns no longer apply?”
These four stories should help illustrate an important investment principle: Markets have always gone up and down, sometimes in dramatic and alarming ways. For investors who have maintained diversified portfolios over the long term, the stock market has consistently provided a positive investment experience.
Mark began investing in January 1990. Stocks immediately went on a decline, losing as much as 20% by year’s end. Just as the Cold War drew to a close, the US went to war with Iraq.
The latter part of the decade saw two crises that sent shocks through the world’s markets. A financial contagion spread rapidly across Southeast Asia and Japan and caused a worldwide stock market crash.
Soon after, a financial crisis gripped Russia sending its stock market plummeting. This crisis also sent ripples around the world. But weren’t the 90s a golden age for investors?
What happened to Mark’s portfolio?
What happened to Mark’s portfolio? It tripled in value. Mark added a new asset class: emerging markets. He was smart enough to know international stocks might not repeat their late 80s surge.
Their performance was tepid for most of the 90s. Mark built a balanced portfolio and stayed the course through the ups and downs. Diversification absorbed the shock when stocks fell in 1998.
A disciplined adherence to his allocations helped Mark recover quickly and ride a surge that followed.
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