Crash Course: 4 Investing Lifesavers for the Next Perfect Storm

It’s been five years since Lehman went broke, but more stormy weather could be on the horizon.

An employee of Lehman Brothers Holdings Inc. carries a box out of the company's headquarters building September 15, 2008 in New York City.
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Both strategists agreed that this does not mean you can ignore your portfolio entirely. It's important to rebalance your holdings regularly to avoid holding positions that are too large in any given asset class, including those most vulnerable to a fall. In any big market downturn, there will be lasting damage. That's another "teachable moment" from the 2008 crash. The bank stock sector is still about half the level it was before the crash based on the KWB Bank Index. Also, you can't ignore broad trends in the market that threaten large chunks of the assets you hold. For example, the prospect of rising interest rates in the coming months suggest that you should hold more equities and fewer bonds.

4. If it sounds too good, you probably don't know everything you should.

Mortgage securities fans were aggressively buying those toxic assets ahead of the crash to get an attractive yield with surprisingly strong credit ratings. They forgot to ask why those ratings stayed high when home loans were going into default. "Just because it sounds like a great investment doesn't mean that it's a mistake," Bayer says. "But it does raise a red flag." Watch out for suspiciously high returns, opaque accounting, securities that can't be traded and stories that are "too unique," he says. Some good investments might fit those criteria and turn out OK. But if you are not sure what it is that makes them so hot you run a risk of getting burned. Right now, highly specialized investments such as private, non-exchange-traded securities and others related to "crowdsourced" funding are becoming popular, but they require some serious due diligence.

[Read: Why You Need to Beware of 'Safe' Investments.]

What Went Wrong, and What's Still Wrong

It helps to understand what went wrong with Lehman and the banking system. A simple picture will do: Wall Street was like the run on the Bailey Savings & Loan in the movie "It's a Wonderful Life" when Bedford Falls folk sensed trouble and got scared. The 2008 crash was not a panic of individual investors, but of institutions and professionals who lost their trust in banks. There are still doubts about the financial underpinnings of major financial institutions, and the crash showed they can't always sustain risk without government help. Despite regulatory responses, systemic risks could still threaten the market and economy. In the next such crises, no one can assume the government will bail out any bank large enough to threaten the financial system.

When no one came to the rescue for Lehman five years ago, a stampede began as investors started dumping nearly every security on every market in the world. In hindsight, we know not all of those stocks deserved to go down so much and most have recovered. But volatility will likely be the market's one constant. Advisors say it's best to keep your sails trimmed for any kind of weather.