Lesson 3: Diversification works

By March 2009, few investments had come through the bear market unscathed. The crisis that began in the financial sector spread far and wide, taking nearly everything down with it.

Still, the fall was not uniform. In 2008, the S&P 500 lost 37 percent, but financial stocks sank 55 percent. Meanwhile, shares of companies that make essential consumer goods, such as toilet paper and cereal, dropped a more tolerable 15 percent. Merger Fund (MERFX), a member of the Kiplinger 25, lost just 2 percent by investing in stocks of already announced takeover targets. And some investments actually made money: Vanguard Total Bond Market (VBMFX) returned 5 percent, and SPDR Gold Shares (GLD), an exchange-traded fund that tracks the price of bullion, earned 5 percent.

Diversification can't prevent losses, but it can help slow the bleeding. And over longer periods, it has added to returns. Fund sponsor T. Rowe Price found that a simple mix of 60 percent large-company U.S. stocks and 40 percent high-grade U.S. bonds gained an annualized 4.6 percent from April 2000 through November 2013. But a portfolio with a broader mix of investments, including emerging-markets stocks and high-yield bonds, earned 5.5 percent annualized.

Lesson 4: Stocks are a portfolio's engine, but not the place for short-term financial needs

Although stocks have reached new highs recently, that's cold comfort if you had to pull money out of the market during the crash to pay the mortgage or send a child to college. In those cases, the bear market was a painful reminder of the potential downside of stocks. It also showed that as you think about your portfolio, your investment timeline has to be front and center.

Mark Luschini, chief investment strategist at brokerage Janney Montgomery Scott, suggests putting assets you'll need within five years in low-risk fare, such as money-market funds and short-term bonds. That way, if stocks tumble, you won't have to sell at the worst possible time.

But if you have a long-term horizon, stocks are the place to be. An investor who had $100,000 in an S&P 500 index fund at the market peak in 2007 would have lost more than half of his portfolio by March 2009. If he panicked, moved the portfolio to cash and stayed there for the next five years, the balance would still have been $50,100 as of the end of November 2013. But if he stayed with stocks, the portfolio would have not only recouped its losses but grown to $136,000 by the end of 2013.

To be sure, a 50 percent loss in 17 months was reason to panic. "But what helped was having the proper perspective of time," says Erik Davidson, deputy chief investment officer of Wells Fargo Private Bank. "In most cases, an investor's timeline is measured in years or decades, not months."

Lesson 5: Calling a top is just as hard as identifying a bottom

Investors have had plenty of reasons to doubt the current bull market's staying power. In 2011, a debt-ceiling crisis and S&P's downgrade of the U.S.'s credit rating helped trigger a 19 percent drop in the S&P 500. Still, the index eked out a 2 percent gain that year. In 2013, the budget standoff in Washington and the government shutdown looked ominous. But stocks registered a stunning 32 percent return.

You are no doubt wondering what will happen next. Kiplinger's predicts another winning year for stocks. But there are no guarantees. For most of you, the best course is to build a diversified portfolio geared to your time horizon and tolerance for risk and to stop worrying about when the bull will head out to pasture.

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