TAKING LESSONS FROM A YEAR OF ECONOMIC LOSSES

       Early last September, most of us could not imagine how bad things were going to get.
       But the failure of investment bank Lehman Brothers a year ago is seen as the catalyst that sent stocks into a free fall that lasted months and wiped out nest eggs.
       The market appears to have hit bottom in March, with the Dow Jones industrial average rising more than 45 per cent since then.
       We are less afraid to open our 401(k) statements. And many of us are adjusting to the new reality that we will have to work later into our golden years, save more and spend lass.
       This is a good time to reflect on what investment lessons the past year provided. Here are some:
       DIVERSIFICATION WORKS, MOSTLY
       So many asset classes lost ground last year that some people proclaimed diversification dead. But the obituary was premature.
       "We learned last year that diversification doesn't solve all the problems," said David Wyss, chief economist for Standard & Porr's.
       For example, stock markets around the world move more in tandem with our market than they used to, so diversifying among them offered little protection.
       Annually rebalancing your portfolio would not have prevented losses last year, but the exercise may have limited the pain.
       "Rebalancing is absolutely critical to manage your portfolio should be in stocks, bonds or cash, based on when you need the money (and your stomach for risk).
       NEVER BE HANDS OFF
       Target-date retirement funds have been an answer for investors who do not want to make the tough choices. You select a fund with the date closest to you expected retirement, and a professional manager makes the investment decisions for you based on that time frame.
       But as stocks tanked, many older workers suffered steep losses and discovered the funds held more stocks than they realised.
       And we learned that funds with the same date held wildly different stock amounts.
       You do not have to give up on targetdate funds, but it is clear you cannot just pick one by the date.
       You need to look at the fund's mix of stocks and bonds, how that will change over time and whether the strategy fits your appetite for risk.
       KEEP IT SIMPLE
       Even Wall Street firms got burned by investments they did not understant. Avoid complex investments that can disguise high fees or risks, said Bill Reichenstein, an investment professor at Baylor University in Waco, Texas.
       "If you don't know what it is or how it makers those returns or understand the strategy, then get out of it," he said.
       BE SCEPTICAL
       Investors felt so lucky to invest with Bernie Madoff that they never asked questions, such as how he managed to achieve consistently high returns when no one else could.
       Even regulators dropped the ball on Madoff, who pulled off a huge Ponzi scheme and now sits in prison.
       WORK LONGER
       Retirement experts for year have advised workers to delay retirement, because of longer life spans. Workers are now heeding that advice.
       The Employee Benefit Research Institute's annual "Retirement Confidence Survey" released in the spring found 28 per cent of workers in the previous year changed the date they planned to retire.
       Most are postponing retirement because of the weak economy or to make up market losses.
       MAINTAIN LESS DEBT, MORE SAVINGS
       Consumers have long lived beyond their means with the help of easy credit.
       The financial crisis is turning us into savers.
       The personal-savings rate reached 5 per cent in the second quarter, up from 1.8 per cent in the same period two years before.
       And July marked the 10th consecutive month that consumers reduced creditcard debt, the most recent figures show.
       IT IS ONLY ONE YEAR
       Do not assume 2008 is the new norm and that you should change your investment strategy for decades to come based on a singly year, said Stuart Ritter, a financial planner with T Rowe Price Associates in Baltiomre.
       What works one year might not the next.
       BAD THINGS CAN HAPPEN
       You diversified and rebalanced but still took a hit last year from events out of your control.
       "Sometimes you can do all the right things and something bad happens. It doesn't mean what you did was wrong," Ritter said. "That's a lesson for life."

       "Sometimes you can do all the right things and something bad happends. It doesn't mean what you did was wrong. That's a lesson for life."