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Okay, we get it.

This was “The Lost Decade” for stock investors.

Yes, since January 2000 the Standard & Poor’s 500 Stock Index is down, as of December 10, a painful 11%. We know this. We feel it in our portfolios.

But what should we do about it?

I suspect that the answer is “Invest the majority of your portfolio (or as much as you can manage while sleeping at night) in the fastest growing economies in the world. “ (That list doesn’t include Japan, the United Kingdom, the United States or the European Union.) And if you invest in slower growing economies (See list above) of the world pick the shares of companies with big sales in the fastest growing economies.

Want me to get more specific than that? Hey, I’m working on it a stock at a time but my crystal ball is flashing me a “Do not disturb until Groundhogs Day” message right now so the going is kind of slow. (I will have a stocks for the next 10-years post (or posts) out to begin the New Year based on my first but annual revision of the Jubak Picks 50 long-term portfolio.)

And I’m almost dead certain that the answer isn’t invest in the best performing asset category of the last decade: bonds.

Bonds killed during this past decade. Barclays Capital U.S. bond index was up 85% during the period when the S&P 500 fell by 11%.

But they won’t repeat that performance.

Why am I so sure when my crystal ball is on strike? Because you don’t need a weatherman to know which way the wind blows.

In 2000 the yield on a 10-year Treasury note stood at 6.03%. By December 14, 2009 that yield was down to 3.55%. It was that drop in yield, repeated up and down the yield curve, that powered the decade’s out performance for bonds. (Remember bond prices go up when yields go down.) Unless you’re expecting yields on the 10-year Treasury to fall another 2.5 percentage I don’t think you should be thinking about duplicating the last decade’s returns on bonds–or at least not on any bond issued by a developed economy—during the next decade.

Want to see what happens to bond returns when yields go up? You really don’t need to look any further back than 2009. The monthly low on the 10-year Treasury yield came in December 2008 at 2.42%. So while yields were still historically very throughout 2009, they were actually climbing. The move from a yield of 2.42% in December 2008 to the yield of 3.55% on December 14, 2009 knocked the stuffing out of bonds. The Vanguard Long-Term U.S. Treasury mutual fund (VUSUX) was up 22.7% in 2008 but down 10.3% in 2009 when yields were climbing from 2.42% to 3.55%.

Lots of investors have piled into bonds and bond funds this year chasing the out performance of the last decade. I believe they’re going to be disappointed.

Unless the bond performance they’ve been chasing are the bonds of the top tier of emerging market economies. Bonds from countries like Brazil and Indonesia have the potential to outperform the bonds and equities of developed economies. Developing countries that are seeing interest rates fall because of increased political stability and superior economic performance have a chance to duplicate the last decade’s out performance by developed market bonds.

So my advice is pretty much the same whether you’re looking for equities or bonds: Put a significant piece of your money outside the developed markets that you feel most comfortable with.

As I never tire of repeating, I’m not a bond guy.  I was once a mutual fund guy, however, and I’d suggest that if you don’t have any emerging market bond exposure think about these two funds to get started: Fidelity New Markets Income (FNMIX) and Pimco Emerging Markets Bond D (PEMDX). Both are widely available through the no-fee market places of online brokerage companies such as Fidelity and Charles Schwab. According to Morningstar, neither charges a load.