Funny Money: That giant sucking sound is stocks - or your radio
That sucker cried out -- actually, it yaaaaawned out -- for more diversity. Instead, we got two Harvard graduate school products whose heads had been stuffed with canned arguments that clearly involved the illegal use of plungers. There should have been a third-party candidate to provide the vital element that independents bring to American politics: entertainment value.
Consider 1992, when Adm. James Stockdale, running as vice president with independent Ross Perot, gave us the memorably existential opening statement: "Who am I? Why am I here?" In the presidential debate, Perot livened things up himself by warning of "a giant sucking sound." We thought he meant NAFTA, but it's clear now that the loony Texas billionaire was alerting the nation to the future menace of Taylor Swift.
Paltry gains from stocks alone
Speaking of "giant sucking sounds," last week I looked at the dismal performance of U.S. stocks since 2000. Faithful readers (Hi, Mom!) will recall that an investor who regularly purchased shares of an S&P 500 index fund would have been rewarded with the paltry gain of just 1.53 percent a year.
But while stocks in the new millennium have been strictly Y2-Not-OK, Bill Hammer Jr., a certified financial planner and author of "7 Secrets of Extraordinary Investors," notes that diversification puts investors in a much better position.
"If you had a much broader, diversified stock portfolio, even during what was a particularly poor period for large U.S. stocks, you still could have gotten decent returns," Hammer says.
It pays to keep your balance
Take a balanced, conservative portfolio that followed U.S. stocks using the S&P 500 index, along with an aggregate bond index and another for international stocks and three-month Treasury bills. With 30 percent in short-term Treasuries and 50 percent in investment-grade U.S. bonds, this strategy leaves just 20 percent in stocks. It's the kind of defensive portfolio used for an economic downturn or by a risk-averse retiree. (For more portfolio suggestions, visit http://www.funnymoneyblog.com.)
A lump sum invested this way from 2000 through 2011 would have produced an overall gain of 61 percent, or 4.05 percent compounded annually. If you'd put $10,000 into this portfolio and rebalanced it each year, you'd have $16,095 by last New Year's Eve. Adjusted for inflation, you'd be ahead by more than $3,000.
So, diversified investors would have survived two damaging stock bubbles and the worst downturn since the Great Depression, and still have beaten inflation. The lesson is that it pays to keep your investments diverse, whether it's adding cash, bonds or something else, because the more concentrated your portfolio is in any one area, da verse it gets.
(Brian J. O'Connor is an award-winning columnist for The Detroit News. Contact him at email@example.com.)