Fool TV: Diversification Rules!

For those who can't (or don't want to) view the video clip, scroll down to the transcript that follows.

Hi, I'm Robert Brokamp, the lead advisor for the Motley Fool Rule Your Retirement service, and this is my "120" on the Lost Decade.

Now, you've probably heard the term "Lost Decade." It's meant to describe how the S&P 500 lost money from 2000 to 2010. But it didn't have to be the Lost Decade. Some people actually made money, and let me describe why.

First of all, that "Lost Decade" part: From 2000, where the S&P 500 began at about 1,450, to the beginning of 2010, where it ended around at 1,115, you're looking at a 23% loss. So you think, "Well, if I invested $10,000 in the S&P 500, I'd only have about $7,700 now." But that may not be true because you have to remember that the S&P 500 is a price index. It doesn't take into account dividends or dividend reinvestment. If you invested $10,000 in the S&P 500 through something like the Vanguard 500 Index Fund and reinvested all your distributions, you didn't make money but you still ended up with $9,000 -- and that's better than $7,700.

But the real lesson of the Lost Decade is not to invest in one type of stock or one type of asset class. While U.S. large-cap stocks did lose money (in fact, for that 10-year period, it was the worst 10-year period since 1926, including the Great Depression, according to Ibbotson Associates), other stocks did make money. U.S. small caps made a total return of about 50% over the decade.

Over that decade, U.S. micro-cap stocks made about 130%. When you look overseas at larger companies in developed countries, they made about 10% -- again, not a great return, but better than a loss. When you look at emerging-market stocks, they made about 150% total, real estate investment trusts about 170%, and then you having boring old bonds, which actually made a total return of about 80% over that decade.

So if you create a moderately allocated portfolio out of all these asset classes, including U.S. large caps, you'd have made about 65% over this so-called Lost Decade, turning your $10,000 into about $16,500.

Now, 2000 to 2010 was not a great decade, but it didn't have to be a Lost Decade. Keep reinvesting your dividends, stay very diversified, and if you'd like to see how I allocate my portfolios in my service, take a 30-day free trial to Rule Your Retirement. I'm Robert Brokamp, and that's my 120 on the Lost Decade.

Robert Brokamp's Recommended Diversified Portfolio

Asset Class

Representative Fund

Top Holding

U.S. large-cap stocks

Vanguard 500 Index (VFINX)

ExxonMobil (NYSE: XOM  )

U.S. small-cap stocks

Vanguard Small Cap Index (NAESX)

Human Genome Sciences (Nasdaq: HGSI  )

U.S. micro-cap stocks

Bridgeway Ultra Small Company (BRSIX)

America's Car-Mart (Nasdaq: CRMT  )

Developed-market stocks

Fidelity Spartan International Index (FSIIX)

HSBC Holdings (NYSE: HBC  )

Emerging-market stocks

Vanguard Emerging Markets Stock Index (VEIEX)

China Mobile (NYSE: CHL  )

Real estate investment trusts

Vanguard REIT Index (VGSIX)

Simon Property  (NYSE: SPG  )


Vanguard Total Bond Market Index (VBMFX)

U.S. Treasuries

For more from Fool TV:

Robert Brokamp owns shares of the Vanguard 500, Vanguard REIT, and Vanguard Total Bond Market index funds. The Fool owns shares of China Mobile and has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1142089, ~/Articles/ArticleHandler.aspx, 10/25/2016 9:50:18 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,195.46 -27.57 -0.15%
S&P 500 2,148.30 -3.03 -0.14%
NASD 5,303.49 -6.33 -0.12%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 9:34 AM
CHL $58.56 Down -0.05 -0.09%
China Mobile CAPS Rating: ****
CRMT $40.90 Up +0.15 +0.37%
America's Car-Mart CAPS Rating: ****
HGSI.DL $0.00 Down +0.00 +0.00%
Human Genome Scien… CAPS Rating: **
HSBC $38.05 Down -0.03 -0.08%
HSBC Holdings CAPS Rating: ***
SPG $196.75 Down -0.26 -0.13%
Simon Property Gro… CAPS Rating: **
XOM $86.83 Down -0.08 -0.09%
ExxonMobil CAPS Rating: ****