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What You Must Do to Survive the Downturn

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Wall Street has let you down.

Investors like you played by the rules. You saved what you could, putting it aside in 401(k) plans at work or brokerage accounts of your own. You invested for the long haul, in companies that had attractive future prospects beyond the next quarter's earnings report. Many of you relied on mutual funds to do the heavy lifting for you, trusting hired experts to oversee your life savings.

In return, Wall Street did everything it told you not to do. It overleveraged itself, becoming too dependent on freely available credit. When the music stopped and credit dried up, century-old firms found there was nowhere to sit. And your portfolio has paid the price.

You can't rely on Wall Street anymore. So what should you do?

Going back to basics
This month's brand-new issue of Rule Your Retirement, which is available online this afternoon at 4 p.m. ET, talks about some of the old lessons that many investors either never knew or forgot -- and are now relearning the hard way. When times get tough, beginners and experts alike go back to the fundamentals, so these reminders of basic wisdom are both timely and timeless.

One of the things Fool retirement guru Robert Brokamp talks about in this month's issue is just how wrong Wall Street was about the financial crisis. At first, many experts believed that housing overall was safe, and that any damage would be limited to the subprime sector in the nation's most overheated housing markets.

Yet as problems got worse, they also spread. The nation's largest banks proved vulnerable as mortgage delinquencies increased. Weak housing also rotted out the core of mortgage-backed securities, leading to the destruction of several venerable financial institutions. Among the dwindling list of survivors, Morgan Stanley (NYSE: MS  ) and Goldman Sachs have transformed themselves in an effort to move on.

Some of Wall Street's finest failed to see the risk and protect their investors from that cataclysm. A cast of all-star managers, including Bill Miller of Legg Mason Value Trust and John Gunn of Dodge & Cox Stock, owned big portions of falling financials. That mistake brought their once high-flying returns crashing back to earth.

So what's new?
Yet the most surprising thing about these bad calls is why people didn't see them coming sooner. For years, Wall Street analysts have made plenty of mistakes about stocks. Just take a look at these recent stock missteps:

Stock

No. of Buy/Sell Recommendations 3 Months Ago

3-Month Return

BP (NYSE: BP  )

5/2

(24.4%)

Dell (Nasdaq: DELL  )

16/2

(29.2%)

Deere (NYSE: DE  )

10/1

(32.4%)

MasterCard (NYSE: MA  )

11/0

(32.5%)

Research In Motion (Nasdaq: RIMM  )

23/1

(41.8%)

Mosaic (NYSE: MOS  )

7/0

(49%)

Source: Yahoo! Finance, Motley Fool CAPS.

With Wall Street's credibility running at a new low as Congress continues to debate a rescue package, it's time to take control of your own financial destiny.

The best person to count on
You can't afford to rely solely on brokers and analysts to make it through this crisis. Stepping up and getting a better understanding of your investments is essential if you want to avoid the market's pitfalls. With experience, you can even benefit from Wall Street's mistakes.

Informing you about your investment options and suggesting new strategies is what Rule Your Retirement is all about. Every month, you'll get timely advice on how to prosper in good times and bad. In the newest issue, for instance, you'll find in-depth analysis of whether index funds are still a smart move in this bear market, as well as a close look at why small-cap stocks have outperformed bigger companies, and much more. Although Rule Your Retirement is a paid service, you can see the new issue free -- along with back issues and everything else the service offers -- with a 30-day trial.

Wall Street hasn't lived up to your expectations. So expect more from yourself and take a closer look at your investments. With a handle on your finances, you'll feel a lot better about the future.

Fool contributor Dan Caplinger took control of his finances 20 years ago and has never looked back. He doesn't own shares of the companies mentioned in this article. Dell is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy helps you survive.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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