This article published in the CNN money magazine talks about the lessons which the American public must learn following the economic disaster. It was the worst financial meltdown since the 1930's affecting any and all kinds of financial institutions. The government tried to keep it under control by taking over various banks and insurance agencies. Here is the list of 5 lessons which the article talks about:
1. Asset allocation still works:
Diversification is essential for any sort of investment. You should not restrict yourself to just stocks and bonds but also look for other investments such as hedge funds and foreign equities.
2. The world is riskier and will stay that way:
Those days are over where you could expect to earn profits over long periods of time. Now you need to be aware of the inherent risks out there and need to adapt accordingly.
3. Real Diversification is harder to achieve than it looks:
Again you need to be aware markets in and out. Just investing money with diversification doesn't guarantee success.
4. Recongnizing a bubble is hard. Hedging against one is harder:
The moral is to not bet against meltdowns. It is almost impossible to predict them. You should try to invest proactively.
5. You can't time the market. But you can time yourself:
Again, predicting markets is hard. Instead try to be reactive to different market signals and act accordingly.
1 comment:
Wow, this article definitely clarifies the fact that we cannot expect the economy to go back to the way it was, even when the recession is over. I think this is what most people believe will happen. It looks like our economic system has and will continue to be permanently altered by the recession, and we will have to change our perceptions accordingly.
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