For many investors, the bear market of 2008 was a game-changer. Up until then, a market decline of staggering proportions was ancient history. Few remembered the Great Depression of the 1930s, and those who did were unlikely to have been old enough or affluent enough to be dabbling in stock investing.

But the stock market decline of 2008-2009 is not lost in the mists of time. It wiped out a decade's worth of investment growth and changed the face of Wall Street forever.

What did we learn? Here are the five top lessons worth remembering.

Risk Matters

The decline of 2008 taught us that once-in-a-lifetime events can occur. Possibly more than once.

Key Takeaways

  • Diversification is important. Don't go crazy for one hot stock.
  • Trust but verify. Experts can be wrong.
  • 'Buy-and-hold' doesn't always work. Pay attention.
  • Esoteric investments are for the pros (and the suckers).

Clearly, it should have taught us to pay careful attention to the amount of risk that we should take as an investor.

We've also learned that diversification means something beyond a mix of stocks and bonds. The simultaneous decline of stocks, bonds, housing, and commodities is a stark reminder that there are no sure bets.

A cash cushion could save the day when times get tough. The blind pursuit of profit with no thought to the downside is a strategy that failed spectacularly.

Be leery. Protecting what you've got is as important as trying to get more. Keep one eye on risk and the other on growth.

Experts Can Be Wrong

We put a lot of trust in experts, including stock analysts, economists, fund managers, CEOs, accounting firms, industry regulators, government, and a host of other smart people.

They all let us down.

You can't time the market. If you hope to retire soon, move to safety to preserve your capital.

A great many of them lied to us, intentionally misleading us in the name of greed and personal profit. Even index fund providers let us down, charging us a fee for the privilege of losing 38% of our money.

While the collapse of the hedge fund Long-Term Capital Management in the late 1990s clearly demonstrated that genius does fail, the lesson was seen by all but felt by few.

The crash of 2008 was the complete reverse. Few saw it coming but everybody felt its impact. If we've learned anything from the experience, it should be that blind trust is a bad idea and that nobody can predict the market.

Past Performance Is No Guarantee

Market projections such as those seen in the hypothetical examples included in 401(k) enrollment kits regularly show an 8% return per year, on average doubling your money every eight years. Those pretty pictures make it easy to forget that markets don't move in a straight line.

All of those projections are based on the notion that investors should buy and hold. But 2008 showed that the strategy doesn't always work, particularly for investors who are approaching retirement when a downturn hits.

Next time the markets start to take a dive, people on the cusp of retirement should pay more attention to the threat that a severe decline will damage their odds of leaving the workforce any time soon.

If you see the train coming, get off the tracks.

Don't Buy What You Don't Understand

The marketplace is filled with complex and exotic offerings that promise outsized returns to investors. Derivatives, special investment vehicles, and other esoteric investments too complex for the average investor racked up huge fees for financial services firms and huge losses for investors. Not to mention the most notorious of them all: The mortgage-backed security that turned out to be backed by sub-prime mortgages.

"Don't buy what you don't understand" is a trite but true sentiment that may be the biggest lesson of all from the recession.

You Can't Delegate Your Future

Far too many investors operate on the "set it and forget it" plan. They dutifully make their biweekly contributions to their 401(k) plans and let the years pass, hoping for magic by the time they retire.

Anyone on that plan who expected to retire anytime soon after 2008 was in for a rude awakening. Even some target-date-funds, which are supposed to automatically move assets to a more conservative stance as retirement approaches, didn't do the job investors expected them to do.

Moving forward, "pay attention" became a better mantra than set it and forget it.

The 5 Action Items

The five lessons above come with five action items to take:

Know When to Fold

If the markets have fallen as far as you can stand, take what you have left and get out. You should know your own risk tolerance and how much damage you have the stomach to take. When you hit your limit, there's no shame in crying uncle.

Don't Be Passive

It's your money, so manage it. Even if you delegate your investment management to an expert, educate yourself so that you understand what your money is buying, what your hired expert is doing, and what course of action you will take if things don't go your way. 

Don't Take Untimely Risks

Expect the worst. If you're nearing retirement age or you have any other reason not to take big risks, don't. Concentrate your hard-earned money in safer investments so that you can't lose big at the wrong time.

Buy What You Know

Keep it simple. If you don't understand an investment opportunity, don't put money into it. There are thousands of straightforward choices out there. All of the information you need to research them is online. Choose the ones that make sense to you.

If your investments are doing well and you've had a good run, rebalance your investments to remove risk. That means selling some of the investments that made the most gains in order to lock in that profit and investing the proceeds in safer choices.