Who Could Have Guessed?

April 7th, 2008 at 09:34am Brent Brodeski

 Brent R. Brodeski, MBA, CPA, CFP®, CFA, AIFA® 

After reviewing the year-to-date asset class returns for 2008 through the first week in April, I was set back by something that at first glace seemed unreal.  As you are all aware, the stock market has struggled this year due to challenges from the ongoing subprime and credit crisis.  This began in 2007 as result of the bursting of the real estate bubble.  Increasing defaults in real estate has caused a general malaise that has frustrated global equity investors so far in 2008. 

I was not at all surprised that nearly all stock asset classes are in the red this year.  Still, one area stuck out as a big exception.  This stock asset class has actually has done very well in 2008.  Where you ask?  Believe it or not, Real Estate Investment Trusts (REITS) are up big time so far this year.  How could that be?  Especially when real estate has been the big fat culprit that has left investors and even venerable firms like Bear Stearns in shambles?  I double checked the numbers and was not dreaming this up. Consider the following returns YTD through April 4, 2008:

Global Stock Asset Class                     YTD as of April 4, 2008

REITS (Real Estate)                            +8.3% (gain)

US Large Stocks (S&P 500)                -6.1% (loss)
US Large Value Stocks                        -4.1% (loss)
US Small Stocks                                  -6.5% (loss)
US Microcap Stocks                           -7.6% (loss)
Int’l Large Stocks (MSCI EAFE)        -4.5% (loss)
‘Int’l Small Stocks                              -3.8% (loss)
Emerging Markets                              -6.0% (loss) 

Source:  Dimensional Fund Advisors 

The lesson here?  Market timing is just simply impossible.  While no one saw the demise of Bear Stearns coming, everyone knew real estate was troubled.  Yet, investors in Bear Stearns saw their stock fall from $150 to $2 (before it recovered to $10).  And REIT investors have earned almost an entire year’s return in just the first three months of this troubled year.  This is a testament to the importance of diversification.  You never know which stock is going to go bust nor which asset class (i.e. REITs) will do the best at any given time.  Stay diversified!

Entry Filed under: Asset Protection, Financial Planning, Investments