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The Act 2 Column: 5 years after stock market low, lessons learned

Through the end of February, the S&P 500

Through the end of February, the S&P 500 has shot up 175 percent and, including dividends, returns have more than tripled since the bear market low. Above, the Wall Street sign near the front of the New York Stock Exchange on Aug. 5, 2011. Credit: AFP / Getty Images

March 9, 2014, marks the five-year anniversary of the stock market's closing low. That trading day, the Dow Jones industrial average was at 6,547, its lowest level since April 15, 1997; the S&P 500 was at 676, its lowest level since Sept. 12, 1996; and the Nasdaq was at 1,268, its lowest level since Oct. 9, 2002.

Since then, U.S. markets have charged higher. Through the end of February, the S&P 500 has shot up 175 percent and, including dividends, returns have more than tripled since the bear market low. For the first few years of the recovery, ordinary investors were largely on the sidelines. The experience of watching a retirement account plunge by half prompted many to say they would never again put themselves through the pain. But over the past five years, many risk-averse investors have re-entered the market, though this time, hopefully a little bit wiser.

In a totally nonscientific study, I have seen the change firsthand. When I first arrived at CBS in April 2009, CBS stock had sunk to $3.50 a share. When co-workers found out that my previous career was as an investment adviser, they sought my guidance about their 401(k) plans. The typical exchange went something like this:

Joe: Can you look at my 401(k)? I thought I would retire in the next couple of years, but now, I don't think I will ever be able to retire!

Me: You have a pile of money in cash -- what did you sell?

Joe: Half of my money was in CBS stock, and then I split the rest between stocks and bonds. I sold the CBS because I thought it was going to zero!

I was startled by how many of my near-retirement- age co-workers had so much money in company stock. For years, I had counseled clients to keep allocation in company stock to no more than 10 percent of the total, especially those who were nearing retirement. But many of my CBS pals had 30 or 40 percent of their accounts allocated to company stock.

When the stock was flying high in mid-2007, at $35 a share, nobody imagined that within two years it would be trading at a 10th of that price. And when the stock did nosedive, many of them could not stand it anymore, so, like Joe, they sold.

Joe recently quipped, "If only I had the courage to hold on and buy more CBS five years ago!" I reminded him that five years ago, he was frozen with fear and the idea of assuming any risk was an anathema. In fact, back in 2009, it took a lot of hand holding to help him rotate the cash inside his retirement account into a more diversified allocation. He laughed and said, "I know . . . I would never want to go through that again!"

Of course, five years later, CBS stock is trading at $67 a share, which makes many employees wistful. "I never should have sold in 2009," or "If only I held on" are phrases I hear today. Oh, sure, if only . . . easy to say when the stock is worth nearly 20 times what it was five years ago!

The past five years have been instructive in the two main emotions that guide many investors: fear and greed. In 2007, when stocks were flying high and "financial crisis" had not yet entered the vernacular, many investors allowed greed to rule, piling into risky assets or having allocations that were heavy in company stock. Then at some point, maybe near the bottom in 2009, or even earlier in 2008, fear prompted many to sell.

Those who adhered to a more balanced approach were better able to keep those emotions in check. Yes, Joe would have been handsomely rewarded if he had kept his CBS stock, but the fact that so much of his retirement nest egg was vanishing before his eyes in 2009 made it more likely that he would not be able to withstand the pain.

A thoughtful, balanced approach that incorporates periodic rebalancing can help investors avoid the emotional decisions that greed and fear often prompt.

Jill Schlesinger is editor-at-large for She welcomes emailed comments and questions.

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