Читать книгу Personal Finance After 50 For Dummies - Eric Tyson - Страница 85

The 2000s was a decade that contained several wake-up calls for investors concerning risk. The 1990s was one of the best ever for U.S. stock market investors, especially those who loaded up on technology and Internet stocks. So some investors were complacent about the risks in the stock market.

There were two severe bear markets of the 2000s: the first occurring in the early 2000s and the second occurring in the late 2000s. Folks nearing retirement with too large a portion of their portfolios in stocks were shocked to see their retirement plans altered by unexpected events.

The early 2000s bear market punctured the bubble in technology and Internet stocks, which by any reasonable measure were grossly overvalued in the late 1990s. Many investors, however, blindly bought them because the successful companies in this space were growing fast. These investors neglected looking at valuation measures (such as price-earnings ratios, book value, cash flow, and so forth). When these companies’ earnings began to decline, their stocks got clobbered, with many falling 70, 80, even 90 percent or more. Because technology stocks comprised a large share of popular stock market indexes like the S&P 500, investors who thought they were being conservative by investing in index funds also absorbed part of this decline.

The terrorist attacks of September 11, 2001, also surprised many investors and added to financial market turmoil especially as wars were fought in Iraq and Afghanistan.

The financial crisis of 2008 and 2009 brought a new set of problems. Instability and risk in the banking system and investments held by that sector shook the foundations of many countries’ economies, including America’s. Some large, blue-chip companies previously thought to be safe went under, and others needed government assistance. The U.S. stock market suffered its largest percentage decline since the 1930s. Investments in real estate and other assets also declined sharply during the crisis. So even investors with diversified portfolios learned a new lesson about risk.

The stock market bounced back after both of the 2000s bear markets. But some damage was still done to investors’ portfolios with too large a percentage invested in stocks. Those who suffered the most were those who panicked and sold at depressed prices and those who were poorly diversified and overweighted with hot sectors that came plummeting back to Earth. And it was a nerve-wracking period for older investors — and a reminder to understand the risks in various investments and the value of proper diversification.

On a final note, we’d like to highlight the economic and financial market turmoil brought about by the government mandated economic shutdowns during the COVID-19 pandemic. Stocks were crushed in March 2020 but came roaring back so those who didn’t panic had their patience rewarded. Employment and salaries — especially in hard-hit industries, such as travel, restaurants, small retail businesses, and so forth — were another matter.

Income-oriented investments, such as corporate bonds and treasury bills, don’t allow you to profit when the company or organization profits. When you lend your money to an organization, such as by purchasing bonds, the best that can happen is that the organization repays your principal with interest.