The Longer You Wait, the More It'll Hurt  

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Were you one of those kids who hated to have the Band-Aid taken off your boo-boos?

I sure was. I'd wait, and wait, and wait, filled with absolute dread at the prospect of the shocking awful pain I'd surely suffer as Mom ripped it off my knee or whatever.

Johnson & Johnson (NYSE: JNJ  ) offers lots of different kinds of Band-Aids these days. But back in the 1970s, when I was a kid, there were only a couple of different kinds -- and the kind my parents bought had an interesting property.

The longer you left them on, the stickier they seemed to get.

I don't know what it was about them, because everyone knows that Band-Aids tend to fall off eventually -- like, when they get wet. But these seemed (from my 6-year-old's perspective) to practically weld themselves to my skin.

Which meant that the longer I waited to have Mom or Dad pull it off, the more it would hurt. Not only would I have the added psychological suffering of worrying about it, but it would actually sting more when it finally got yanked off.

Why am I writing about Band-Aids? Let me put it this way: Have you looked at your retirement portfolio recently?

Taking a hard look at where you're at now
If you've been hiding your statements under a pile of papers on your desk, I understand. You're not alone. But you and I both know that the first step in repairing something is to understand how badly it's broken. And let's face it, knowing is almost always better than worrying about an unknown.

So grab a soothing libation, have a look, and ponder these points while you do.

Are your reasons for owning the stocks you own still valid?
There were arguments for buying into stocks like homebuilder Toll Brothers (NYSE: TOL  ) , office-furniture maker Knoll (NYSE: KNL  ) , or if you were brave, even General Motors (NYSE: GM  ) last spring. Back then, many observers thought the recession wouldn't be too harsh, and that the bear would pass. Those arguments are a little harder to make now. And there are always stocks, like undies-makers Hanesbrands (NYSE: HBI  ) that may have deteriorated because of more mundane factors, like increased competition or eroding margins. Don't get caught up in the trap of "waiting for it to come back": If you wouldn't buy it at today's prices, sell it.

Are your holdings still in line with your overall plan?
You do have a plan, don't you? An asset allocation model? If not, get one -- your employer's 401(k) plan sponsor probably has a Web-based tool that can help you put together a decent one. (If not, or if you'd like to see some really good ones, check out the model portfolios offered by the Fool's Rule Your Retirement newsletter.)

Are you still comfortable with your plan?
An aggressive 100%-stocks plan that seemed great three years ago might not make you feel warm and fuzzy now. If in doubt, go back to that Web-based tool, and do the questionnaire again with your current risk tolerance in mind.

It's possible you'll find that your plan is still valid, your holdings are still in line with it, and the damage you've taken is consistent with the overall market decline. But if you're no longer fine holding what you've got, at least you know the problems. Now it's time to think about the solution.

Making repairs
This might be a once-in-a-lifetime economic crisis, as the pundits say. But I know two things for sure: The stock market will recover, and there will be another bear market someday. Here's what to do now to be ready for the future.

1. Get into the best investments you can
Pick the best funds -- and the ones that best fit with your plan -- available in your 401(k). If you have sizable accounts other than your 401(k), remember that your asset allocation plan covers all of them, as one unit. Look at the best options in your plan -- whatever they are -- and see whether it makes sense to buy them and use your other accounts to meet your overall allocation goals. 

For IRAs or taxable accounts, look at stocks that still have a compelling long-term growth story, like explosive metals specialists Dynamic Materials (Nasdaq: BOOM  ) -- or which pay fat recession-resistant dividends. Johnson & Johnson comes to mind, as does oil-transporter Teppco (NYSE: TPP  ) , which currently sports a whopping 15% dividend yield. At the same time, if you're feeling rattled by the damage your portfolio has taken, move some of your allocation into more conservative investments -- but be smart about it.

2. Keep investing
Keep making those 401(k) and IRA contributions. Whether the markets go lower from here or not, they're sure to go higher eventually, making today's prices look like bargains. And yes, "eventually" might be a few years or even more. But as retirement-focused investors, we can afford to take the long view.

3. Stay informed, and don't be afraid to ask for help
Whether you're looking for asset allocation guidance, help choosing the best options in your 401(k), strategies for getting through the downturn, or just some reassurance that you're doing the right things, the Fool's Rule Your Retirement newsletter service is an excellent resource for retirement investing in challenging times. A free trial gives you full access for 30 days, with no obligation.

Fool contributor John Rosevear has no position in the stocks mentioned. Dynamic Materials is a Motley Fool Hidden Gems selection. Teppco and Johnson & Johnson are Motley Fool Income Investor recommendations. Try any of our Foolish newsletters free for 30 days. The Fool's disclosure policy will kiss those disclosure boo-boos good-bye.

Read/Post Comments (7) | Recommend This Article (31)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 25, 2008, at 4:57 PM, BorgoMoney wrote:

    It looks to me like we are in for a long period where the overall market will be flat, like the 70s. The policies being followed in DC will simply prolong and deepen the recession while perhaps making the slope a bit less steep right now. Don't be fooled by short termups and downs, as we are nowhere near a recovery economically.Since stock prices, ultimately, depend upon earnings, and the overextended consumer is tapped out, things will not get better anytime soon.

    Even during flat markets, there will be individual stock success stories, though, it's just that finding them gets harder.

  • Report this Comment On November 25, 2008, at 5:35 PM, FinancialFellow wrote:

    I really feel like not enough attention has been put on the fact that this bear market should only minimally impact those with long term investing horizons. Admittedly, if you are in your 60's a couple years from retirement and have 100% of your portfolio in stocks you have reason to be concerned. But for those of us who are decades away from retirement it is not nearly as big of a deal.

    John provides good, solid advice. Use this opportunity to take good look at your 401k plan. Above all don't let this down market deter you from contributing to your 401k plan. Here's a related article:

  • Report this Comment On November 25, 2008, at 6:15 PM, BorgoMoney wrote:

    Contibuting to your 401k is not the issue. The issue is what your 401k buys withthe money. Buy stocks now, and you'll be sorry later, and maybe you will be sorry for a decade.

  • Report this Comment On November 25, 2008, at 7:28 PM, snickerdoodle9 wrote:

    After contributing the max to my 401k over several years ; forunately I got out of stocks a year ago . I have other money outside of my 401k that have been battered by the market but I'm not worried about that money because that's not the money that I'm going to be dependent upon to survive during retirement . With my 401k , a company paid pension between $25,000 & $30,000 a year , social security , and paid healthcare I should be in pretty good shape financialy in my golden years. Although I got a later start in saving money in my 401k by learnining how to manage my own porfolio ; within ten years I have amassed a six-figure savings cushion . I did this while paying down and off $67,000.00 of debt and living within my means . With jobs going by the wayside , the condition of the economy , credit being tight etc , I didn't see the present day conditions coming . I'm just glad that I got rid of my debt and saved my money . I will continue to invest in business with a good reputation and integrity with money outside my 401k but I'm not gonna " shoot craps " with my lifesavings .

  • Report this Comment On November 25, 2008, at 9:24 PM, 1PaganLady wrote:

    After almost 20 years with a full-service broker, I still have so much to learn. Granted, when times were good, I pulled out enough profits to pay for my home in full, but I haven't seen such relatively easy gains for quite some time. I've become totally frustrated with the poor performance of my portfolio over the last few years, and just became a member. I look forward to reading the informative articles and interesting posts, and hope to absorb enough to help me make some wiser investments!

  • Report this Comment On November 26, 2008, at 1:40 PM, TMFMarlowe wrote:

    Kahuna, thanks for stopping by and for sharing those thoughts. Where do you see the bottom on this one? S&P 600ish? Lower?


  • Report this Comment On November 27, 2008, at 5:50 PM, macker007 wrote:

    Just curious.......will the impending retirement of the baby boomers not have a significant impact on the markets going forward through the next 5-10 yrs.?

    What happens to all the money they pull out of the market.....perhaps some of them are even doing that now and making the situation worse then it normally would be?

    I'm new to this stuff, so please go easy on me. :-)

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