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Was the Last Decade Really Lost?

Some pundits are saying that the last decade was lost because the S&P 500 declined. But not all investments performed poorly. Of the 55 fund categories tracked by Morningstar, 51 made money, including many that delivered double-digit returns. By diversifying broadly, investors could have obtained decent results. What are the lessons of the past decade? Roger Ibbotson argues that the case for owning stocks is still compelling. Even though bonds outdid stocks for, what, about 40 years, the returns of stocks are still worthwhile. But some advisors say that the lesson to be drawn is that investors need to take on less risk.

Dimensional Financial Advisors notes that from January 2000 through December 2009, other indexes performed well, such as the Russell 1000 Value Index (returning 27.62 percent) and the Russell 2000 Value Index (121.3 percent) ---and don't forget REITs; the Dow Jones U.S. Select Index rocked, returning nearly 128 percent.

Our long-time mutual fund correspondent Stan Luxenberg notes in It Pays to Diversify: "During the past 10 years, the S&P 500 Index dropped 1% annually, marking a lost decade of sorts. But while blue chips sank, other segments stayed afloat.

"Of the 55 mutual-fund categories tracked by Morningstar, 51 produced positive returns during the past 10 years. Top fund categories include natural resources, which returned 13% annually for the decade, and small value stocks, with a return of 8.6%.

Among overseas categories, only Japan mutual funds lost money. Latin America mutual funds led the way with returns of 16%, while European mutual funds returned 4.9%."

What do you think? Am looking for strategies and advice to offer our readers on this.

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