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Is There Light at the End of This Tunnel?

My colleagues told me not to do it, but I went and did it anyway.

It was mid-October when I worked up the nerve to peek into my portfolio and check the damage. My colleagues could only say "I told you so" when, after facing a sea of red, I let out an audible gasp and closed the Web page, trying to forget what I'd just seen.

It's ugly out there; we all know that. It's especially ugly for the many people who were hoping that this would be the year they'd begin their golden years of retirement, only to watch their savings dissolve.

To them, I say: I'm with you
Several family members and friends of mine were hoping their carefully planned retirement coffers would stretch much further than they are at this uncertain time. Now that they've lost a hefty percentage of their returns, they're finding themselves faced with pressures and stressors that they couldn't have dreamed about a year or so ago.

It's a small consolation to hear phrases like "prime buying opportunity" and "lock in now for long-term gains." You're already nearing, or even in, retirement, and much of your savings has already gone down the drain. You're not looking for prime buying opportunities; you just want to preserve what's left. What do you do now?

It's easy to panic. Don't.
Fool retirement expert Robert Brokamp sat down with Larry Swedroe, director of research for Buckingham Asset Management, in the November issue of Rule Your Retirement to talk about what investors can do now to pick up the pieces of their portfolio. Swedroe's advice? "Even smart people make mistakes; only fools keep repeating them. So if you didn't have a well-thought-out plan in the first place -- that made sure you did not take more risk than you have the ability, willingness, or need to take -- then you should sit down immediately and write that plan."

But what does that mean in action-oriented terms? In a nutshell, Swedroe says, if you sell everything now and try to convert what's left to cash, you're making those losses permanent. What you should do instead, even though the short-term pain may be intense, is stay on course with your plan -- or if you have no plan, sit down today to develop one. Now is no time for panic:

The only way you get the returns that stocks have provided over the long term is you must be there for the entire time. You have to be like a deer hunter. You can't just leave your house at 6:02, shoot a deer at 6:09, and go home. You have to be there for hours waiting patiently for the deer to show up, and that is the key for investors. Patience is a necessary ingredient.

And now, an illustration
Sure, the losses of the past three months have hurt. But let's back up for a moment. If you'd invested in these companies before Black Monday 1987 and held through this fall, you would have done quite well:

Company

Oct. 1, 1987 Price

Sept. 2, 2008 Price

Gain

Pfizer (NYSE: PFE  )

$1.69

$18.84

1,015%

Johnson & Johnson (NYSE: JNJ  )

$4.07

$71.14

1,648%

General Electric (NYSE: GE  )

$3.04

$28.15

826%

Microsoft (Nasdaq: MSFT  )

$0.40

$26.92

6,630%

Wal-Mart (NYSE: WMT  )

$4.07

$59.39

1,359%

Bank of America (NYSE: BAC  )

$2.72

$31.28

1,050%

Apple (Nasdaq: AAPL  )

$13.33

$166.19

1,147%

Data from Yahoo! Finance. Prices adjusted for splits and dividends.

It's true that history doesn't predict future performance. But severe losses in the market have hit us before -- the above sampling encapsulates not only Black Monday but the S&L crisis, Persian Gulf War, Nasdaq/dot-com bubble, and 9/11 -- and the market has been resilient. (Indeed, while I cherry-picked the stocks in the table, the S&P 500 gained more than 500% over that time frame. Not too shabby.)

I'd be willing to put what's left of my red-stained portfolio on one prediction: They'll rise again.

Not tomorrow, or even next year. But hang tough. Sit tight. And remember three keys:

  1. Get a savings/retirement plan (or stick to an existing plan).
  2. Practice patience and perspective.
  3. Don't abandon equities.

It's tough to see, but there's light at the end of this tunnel. The pain we're feeling now won't last forever. As Larry Swedroe says, patience and perspective are necessities.

Of course, the first thing you need is a solid plan -- something you may be lacking. If that's the case, or if you need retirement tips, calculators, and specific stock and fund ideas -- then I encourage you to check out our Rule Your Retirement service right now. You can sample the entire service with a free 30-day trial by clicking here.

Hope Nelson-Pope is online coordinating editor at The Motley Fool. She owns shares of Microsoft and Apple. The Motley Fool owns shares of Pfizer. Microsoft, Wal-Mart, and Pfizer are Motley Fool Inside Value recommendations. Pfizer, Bank of America, and Johnson & Johnson are Income Investor selections. Apple is a Stock Advisor pick. The Fool's disclosure policy can't bear to peek in on its portfolio.


Read/Post Comments (24) | Recommend This Article (66)

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 December 23, 2008, at 9:03 AM, pedorrero wrote:

    You can never be sure if the light at the end of the tunnel is not an oncoming freight train! Many market mavens (the historians, pessimists?) point out that a serious bear is not over until p/e are much lower than present ... or dividends up. Some are expecting a bottom of around 4000-5000 DOW. Ouch.

  • Report this Comment On December 23, 2008, at 12:38 PM, Slipswitch wrote:

    Unlike most market mavens, Buffet is usually right and he isn't making predicitons based on PE and other measures that are hard to get your arms around. He says the market is attractive based on total market cap to GDP. I'm with Buffett, in spirit anyhow....

    The problem with comparing now with 1987 is that 1987 was in the beginning of an almost 20 year bull market and we're in a bear market that I'm starting to think began in 2000.

  • Report this Comment On December 23, 2008, at 2:30 PM, BlueLakeVentures wrote:

    I completely agree with your article. And the exact same thing will happen with real estate, although the cycle there will be much longer, as I wrote in a blog two years ago.

    http://bluelakeventures.blogspot.com/2007_10_01_archive.html

  • Report this Comment On December 23, 2008, at 4:50 PM, skippress wrote:

    After the scandals, incompetence, and rabid infighting of the new administration and its supporters take hold, I expect things to start to turn around in 2010 after the November elections, when chastened Republicans and blue dog Democrats ease back into control. That will be about the time the real cost of paying the piper at the current bailout ball will start resonating in the minds of our native criminal class in Congress. Real estate will probably start having a bit of a run mid-2009 because a lot of people aren't broke, even though they're diminished. I liked the article, though, because it was basically saying bet on America, which a lot of people have forgotten to do in the current atmosphere.

  • Report this Comment On December 23, 2008, at 6:02 PM, PALH wrote:

    Fascinating. Scandals, incompetence and other imaginary failures of the new administration will lead us back to the good old days of GOP control which led us to the sinkhole we're digging out of now. Brilliant.

  • Report this Comment On December 23, 2008, at 6:43 PM, Bucks2407 wrote:

    The reason why so many retirees and morons like me are looking at a portfolio down almost 40% year over year is that we have been fooled by the financial community, including many well intended people like yourself. If we would have been smart enough to move 50% of our nest eggs into cash or T-bills in the summer, this would be much easier to stomach.

    Funny thing is, when I told my investment professional that I wanted to to get as defensive as humanly possible in late June, his response as most advisors was to do nothing. And that is why we are where we are. The model that the financial planning community has used for the past 20 years has completely blown up.

  • Report this Comment On December 23, 2008, at 7:24 PM, LadyA wrote:

    Back in July 2007 , lookrd at my portfolio ,held in a high rated group of mutual funds.. When I realized that the value of my portfolio had nothing to do with the true value of stocks , I dumped and went to CD' and money market funds. Some CEO sneezes ,the market goes down,when a couple of companies report a smaller LOSS than the street anticipated the overall market goes up. .No rationale in this.

    When you go into a card game with strangers and have no idea what the rules are ,you are stupid to get in the game.

    As an investor,stay away from mutual funds and advice from a brokers.,Examine companies and see if thir marketing policies make sense. Do not buy stock in a buggy whip company when you see cars on the road .

    Andrew

  • Report this Comment On December 23, 2008, at 8:49 PM, chero1 wrote:

    I have to say, that I too had said to my wife , back in Aug. '07, I feel like we should sell 1/2 to 3/4 of our port. and go in cd's or m.mkt, because I felt like the mkts. were rising too high, too fast. The two reasons I did not were, I'd only been trading for myself for a yr. or two, and I thought that everyone would think I was nuts ,as I had very little trading and investing under my belt.Unfortunatly, I did nothing. Thank goodness, I had invested in 12-15 good Div. paying stks.over the next yr. as a hedge. I also dumped my Fin. advisor ,mid yr. I figured I could do as good as he, if I did my research, and save a commission.

  • Report this Comment On December 23, 2008, at 9:31 PM, pepperzero1 wrote:

    i have been buying good stocks on dips(Mo, GE, BAC, YHOO, CX) and have been doing well so far. I add so much each month to my portfolio. sometimes i take a profit and wait for a pullback. Beleive me, it is not easy but I am acculating good stocks.

    I leave the GM and F to others although I did gamble a bit and bought GM as I knew the deal would go through. I sold it on that day.Thank God!!! I believe it will be in Chaper 11 along with Ford.

    I am looking at 2-5b years and will continue to add to my portfolio as I know the good stock will be good to me . Only 6 more years and I will be 65. Maybe then I can cash in with a huge gift.

    I also have been buying SIRI in hopes it pulls up its pants and pays me off in a few years. Looks awfully cheap. If I loss, I consider it a tank of gas gone up in smoke. Just maybe it will be a new car insread.

    Keep Smiling and Merry Christmas!!!!!

  • Report this Comment On December 23, 2008, at 10:50 PM, omt68 wrote:

    It is seductive to think about the various scenarios that would turn the current financial slump around fast. This recession is different from the depression in the thirties because the market place is much more open know than in the thirties. Using a positive outlook, the larger open market should help getting the wheels moving faster. Also, in the thirties there were no economic locomotives similar to the Chinese and the other Asian markets, that may help the US economy get going.

    I personally don't yet see the light at the end of the tunnel. It should be of no surprise to see at least one more gyration of the stock market before there is a stabilization. After that we must see solid profits; that is the basis for growth and increase in stock prices. Now somebody append a timeline and we will be all set.

    Of course, if the cup is half empty instead of half full; skip the timeline. I don't want to know.

  • Report this Comment On December 24, 2008, at 6:27 AM, titanicdwn wrote:

    Did you see Investor who lost $1.4B to Madoff kills himself (AP)! I do not think watching,"It's A Wonderful Life" would have helped. I am also sure that investor was very positive when he invested that money and not cared to listen to anything I would say since I am such a

    'pessimist'. Here is some more food for thought. Not only will Christmas 2008 taste awfully sour, Christmas 2009 a total bust, Christmas 2010 will just be a date on the calendar. In fact, 2010 is when life gets really exciting. I see 1000 auto workers(at $80.00 an hour)will forever lose their jobs in Dayton, Ohio. I live in Ohio and the loss of tax revenue is coming at the worst possible time. Not just for police and firemen, but homeless shelters too. Do I have a financial plan? SURE! First of all I realize this planet was around before the USA and it will be around after the USA is in ruins. Second is to get my CIS degree at Devry University and move to a country on the upswing from all this mess. Contrary to popular opinion, once you make the adjustment of living without ATVs and McDonalds, life is good.

  • Report this Comment On December 24, 2008, at 7:18 AM, FirebirdMan wrote:

    In your comparison from 1987 to 2008, why didn't you use the current stock price (12/23/08) instead of the stock price from Sept 2, 2008? One other thing I want to point out, my 401K that I started in 1987 didn't give me the option of buying any of those stocks. The 401K I'm investing in today from a different employer won't let me buy any of those stocks either. I'm hog tied! And I was going to retire in 2014 but now it looks like I'll be working until 2024? I guess that's why I've become a Motley Fool, so I can retire in 2014. RIGHT?

  • Report this Comment On December 24, 2008, at 9:39 AM, ReillyDiefenbach wrote:

    Why would anyone accept a 40% loss? That's just plain not paying attention. Oh, your advisor/pundit/Fool told you to hold on? So sorry!

  • Report this Comment On December 24, 2008, at 10:01 AM, FullOnPbody wrote:

    FirebirdMan is on to something. We should all have a plan, but the author's intent is in question by the choice to use Sep. 2 instead of today. There is a huge difference!

  • Report this Comment On December 24, 2008, at 10:48 AM, Bucks2407 wrote:

    In response to Reilly, my point is that most of the advice here on Motley Fool is no different than what most financial planners were/are giving. "Hang in there! If you get out, you miss the upswings! The market has returned 10% over the last 100 years"...blah blah blah.

    Oh, BTW, my guy called me last week, literally in tears. He quit Merrill Lynch without another job. This was a 15 year professional, highly educated and a good, solid family man. The financial services industry is going to consolidate big time.

    With all the tools available now, why trust someone else? I'm focusing on building cash, paying off my mortage and funding my 401K. We'll see what happens. I'm not planning on retiring for 20 years anyway. I guess the best case scenario is that we survive this mess with our jobs, fund our 401K's while the market is in the tank and in 15 years, everything turns around and cranks for the 5 years before I retire.

  • Report this Comment On December 24, 2008, at 12:55 PM, Battlefieldbuff wrote:

    Will the last person out of the tunnel please turn off the light?

  • Report this Comment On December 25, 2008, at 12:30 PM, jrj90620 wrote:

    The only sure things are death,taxes and fiat currencies declining.Never seen this much expansion in supply of fiat currency by country's worldwide as is happening today.You can do a lot to take advantage of the third by investing in gold stocks NOW.

  • Report this Comment On December 25, 2008, at 7:13 PM, Brunomat wrote:

    An investor looses 1.4 bil. and offs himself ? he should have done the world a favor and knocked off Madoff first.

  • Report this Comment On December 26, 2008, at 4:59 PM, crawlfish wrote:

    I am covered by a define benefit government retirement plan so it is not so emotional for me. I have invested in a defer compensation plan since 1991. When I started the plan after looking at the stock market over the last 100 years, I decided to invest each week into stock mutual funds riding the market up and down. Over the long run history shows good long term returns. My response to this down turn was to increase my deferral by finding any spare money in my budget and put it into defer compensation. I am about seven years away from retirement.

  • Report this Comment On December 26, 2008, at 6:43 PM, tonester2k wrote:

    The common thread here is everyone tells you to buy and hold, but never when to sell. Any monkey can pick a reasonable good stock, but I pay advisors to know (or at least try to learn) when the crap is going to hit the fan - heck, some of the advisors I know are BIG bankers and they didn't see this coming? Or didn't want to?

    Now is the time to BUY they all say. OF COURSE it is! Jeez, if only most of the investors still had some cash! I lost some value on my bank stocks (small local commercial lender banks) which I will hold on to - why sell and fix losses? And I will carefully pick some bargain, safer, stocks to average into over the next year or so.

    It's like the pre- 9/11 intelligence reports being ignored. The people involved in the illegal or immoral acts that led to the current state should not only be arrested and thrown in jail (not their penthouses...), but should pay back ALL the money they have - if they have any left - until they are on the streets like many of their clients, after their jail sentences are up....

    Tony

  • Report this Comment On December 26, 2008, at 7:18 PM, kryotex wrote:

    The market is psychological. When people are scared, they tank and people flee, providing great buying opportunities for those lucky and brave enough to pick stocks that will go up. Picking the right small CAPS will provide a much greater return (high risk) for those, again, lucky enough to buy them when they're low, and lucky enough to sell them at their high.

    Nobody can predict the market. I personally am guessing that the market will stay relatively volatile and provide 0% yields, just like the decade after the Great Depressison. Signs of rallies, but in reality, it took over 10 years for the people to regain confidence in the markets. Is there a light at the end of this tunnel? You bet - for those people willing to risk their retirement savings for higher yields.

    I was considering transferring 60% of my retirement savings into the market this July. If I would have done that, I would have lost money for sure. Instead I chose the safe government-insured bonds at low yields that barely keep up with inflation. But that's my light at the end of this tunnel, that we at least get to keep our principle plus enough to keep up with inflation. I'm young (30) and have been a saver all my life, always in government-backed bonds earning only 5-8% interest. But I've never lost a penny. I just keep adding to my savings, 15%/year (instead of buying venti starbucks drinks). I enjoy reading the fools articles and comments, but find the factual articles at sites like http://www.chrismartenson.com/ much more realistic of what to expect.

    Oh - we can all turn to God - that's always a light at the end of any gloomy tunnel.

  • Report this Comment On December 27, 2008, at 2:54 AM, zoodriver wrote:

    I LOVE MY JOB! I LOVE MY JOB! I LOVE MY JOB! I HAVE A JOB!!!! I HAVE A JOB!!!!

    I HAVE A JOB!!!

    I am just starting out in anything having to do with investing. As I ,as a NEWBIE see it , anything that can help enviromentally, is going to be a Big Plus for the new beginning! We will always need oil production, but we will also need to invest in other ways of survival. I DO NOT have a clue, but to put what I can (which is not much as a school bus driver) into several feasable alternative and experimental investments, will always bring you out on top! If it does not, it is no worse than putting your trust in our government. And you can feel good about the fact that you are contributing to finding our way out of the darkness!! And yes, I was planning on retiring this year, after 34 years behind the wheel of a school bus! BUT, I HAVE a job, and I know that some that can't say that!! How About You?

  • Report this Comment On December 27, 2008, at 8:39 AM, biophile6 wrote:

    I too have lost 40% in my 401k that I cant really control. Like most here, we all know that blows just like Hope says. Sad. True.

    However, in defense of my own IRA strategy whose stock distrubution is more effectively controlled compared to the 401k group, it was a wise move to slow my investing in it while things were in a down turn, and then when the indices hit 8000, put in (SLW, NXG= 80% ROI) and put in and out of Ford (F) while the speculation and analysis were shoving it up (25%).

    SLW is of course a CAPS pick, thanks guys, that saved me. NXG is related and the F move was my own choice. So the account under my control has only lost 15%, rather than 40, and thats almost palatable.

    Probably I will connect to more Fool wisdom, this is as great a financial advice site as exists without paying. I love it.

    Good luck everyone. There /is/ hope. This /is/ a trough. Dont give in, put into panic battered stocks with good fundamentals.

  • Report this Comment On December 27, 2008, at 5:32 PM, doctorsnyder wrote:

    why is it that the "pro's" tell amatuers to "stay and hold" when they themselves trade daily?

    think about it. if you want to get the benefits of a Pro then you must act like a Pro. if i live my life based on my medical advice i expect to live longer and healthier. so the same goes for a financial pro. live your own advice and let's see what the real advice is.

    i was killed by the buy and hold strategy and am now totally out. and thanking my lucky stars too. since i dumped the market dropped another 10%.

    who told me to do this? common sense.

    live like a Pro.

    doctor snyder

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