The Moment I Realized I Had to Get Conservative and Diversify
I've been involved in the stock market for almost 30 years, and for the vast majority of that time I was convinced that you should always be 100 percent invested. My rationale was that there was no place else where you could find the same levels of return -– historically between 9 percent and 11 percent annually -– and that keeping even a little of your money in bonds, certificates of deposit, money market funds or any other instrument was akin to leaving money on the table. All of that changed in 2008.
As an active stock market investor, I had always been nimble enough with my trading to make a better than average return through the years. But my investing experience included a blind spot –- well, actually two blind spots. Two periods when I was not fully engaged in the market and thus missed a valuable lesson that I would have to be taught later, at the age of 40.
Just a Spectator for the Crash of '87
When the stock market crashed in 1987, dropping a record 23 percent in one day (the equivalent of 3,900 points in today's market), I had barely been investing for two years. Although I vividly remember following along during the day and being amazed at the carnage, it still seemed like I was a spectator since I only had a little bit of money in the market. Not enough personal pain was inflicted upon me for the event to have lasting impact.
More than a decade later, when the dot-com bubble burst and the market, especially the Nasdaq, began to implode, by a lucky accident I was not actively involved in the market. A company I had started was going through some big changes, and I knew managing it would take my full attention, so I had temporarily put all my investing capital with a money manager, who turned out to be fairly conservative. Once again, when the markets started to crash, I watched from the sidelines, never feeling a true connection to what was going on and missing my second opportunity to learn the lesson of diversification.
The Great Recession Begins
Fast-forward to the beginning of 2008, when the financial crisis intensified and the market entered a highly volatile period the likes of which had never been seen before –- and I had never experienced before –- and things began to get dicey in my portfolio. At first, I tried to trade my way around the extreme spikes and dips that were happening daily, but not only was the market different, my life stage was different, which made keeping my head above water tougher.
Earlier in my life, I didn't have the responsibility of being a husband and -- more importantly -- a father on my shoulders. In addition, my wife and I were going through a stressful procedure to add one more to our clan. And at 40, I found I just didn't have the energy to fight the market on a daily basis.
It was then that I decided that I needed to diversify my portfolio across different asset classes and investment instruments. More importantly, for the first time in my life I allowed other people -- financial professionals -- to manage a portion of my funds. Though initially reluctant to make this more, in retrospect it was the best thing I could have done -- and the right time in my life.
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