Although 2000 was officially the worst year for stocks since the 1970s, many investors were smiling at year’s-end. Why? Because the principle of asset allocation still works.
In the past few years, investors wanted only large-company growth stocks, especially technology stocks. In 2000, value stocks outperformed growth stocks while small- and mid-sized companies beat large companies.
Once again, investors learned that it pays to spread their risks over many different types of investments. Thus, in early 2001 you should hold both growth and value stocks in your portfolio. Growth stocks have outstanding future prospects while value stocks have relatively low prices; a mix of financial, energy, technology, and health care stocks can serve as a core for your portfolio.
In 2000, despite the broad selloff, the Dow Jones financial and energy groups were each up by about 20% while the health care sector was up more than 30%, led by a 75% rise in the stocks of heath care providers such as hospitals and HMOs. Not bad for a down year!
