Collapse and meltdown are attention-getting words. The collapse of Lehman Brothers in 2008 nearly brought the financial system to a halt. In hindsight, experts say, the crisis of 2007-08 was brought on by things like bundling and selling sub-prime loans.
Investors and financiers were taking greater risks for higher returns in a low-interest-rate economy. Some call that aggressiveness or creativity, others say greed. Remember collateralized debt obligations, or CDOs? Sub-prime loans were put together and used to back securities, which were dubbed CDOs. These “new” investments were given a triple-A credit rating, but the foundation on which they were built was shaky. The only new thing was how complex investing in debt had become.
Protecting your assets requires limiting risk. Simple, right? Fundamentally, a lack of discipline hurts investors in a market. Someone who exercises bad timing or a bad strategy or panics in the face of market shifts or news reports will likely end up losing assets.
According to www.moneychimp.com, from 1871 to 2013, “the stock market has had an inflation-adjusted annualized return rate of between six and seven percent.” If you look at the period from, say, 1988 to 2013, the annualized return rate was 7.57 percent. And from 2005 to 2008, the number was pegged at -7.66 percent. So, yes, there have been peaks and valleys. But return rate has been positive over the long term.
So if you want to protect your assets, determine how you feel about the risk and volatility in the market. The market, over time, will still be the best place for the average person to invest.
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