How the Best Investors Beat the Bear

With all the terrible news that you've heard about the economy, the financial markets, and money matters both close to home and around the world lately, it may seem reasonable to think that your dreams of financial security will never come true. But if you still have some years left before you need to take spending money from your portfolio, don't panic -- you have plenty of time.

Thrown for a loop
The bear market crash we've gone through since last summer has fundamentally changed the way many people look at their investments. For years, you could count on your portfolio rising slowly but steadily over time, giving you the feeling that you were making real progress, and making you confident that you'd reach the finish line on your terms.

Now, like a marathon runner seeing Heartbreak Hill for the first time, you're being put to the test. With doubts rising about market stalwarts like General Electric (NYSE: GE  ) , and the markets plumbing the depths and touching lows we haven't seen in more than a decade, people are simply losing confidence in stocks.

While allocations to better-performing assets like bonds, combined with the savings you've added over the years, likely mean that you haven't lost quite as much ground as you could have, you're still faced with the psychological damage of seeing years of hard work and savings effort disappear before your eyes. How can you keep moving forward in times like these?

It's not the first time
It may not make you feel any better, but you're not alone. Not only are millions of people in exactly the same boat you are right now, but similar episodes have struck investors just as hard in the past.

For instance, consider the 1987 stock market crash. Prior to the crash, stocks had been on a five-year bull run that saw the S&P more than triple in value. Yet in just three short months, stocks had given up a third of their value, and many individual stocks had done even worse:

Stock	Return, 8/25/1987 to 12/4/1987
IBM (NYSE: IBM  )	(36.8%)
Intel (Nasdaq: INTC  )	(40.8%)
JPMorgan Chase (NYSE: JPM  )	(41.3%)
Boeing (NYSE: BA  )	(34.2%)
DuPont (NYSE: DD  )	(40.2%)
Wal-Mart (NYSE: WMT  )	(48.8%)

Source: Yahoo! Finance.

If you'd had an equal-weighted portfolio of those stocks worth $300,000 in August 1987, it would've dropped to less than $180,000 by early December -- wiping out years of savings, and making you wonder whether you'd ever be able to retire.

What happened next, though, was remarkable: Stocks recovered extremely quickly, and it wasn't long before they hit new highs -- and kept climbing for years. And in just two years, not only had that portfolio of stocks recovered all its losses, but it had also added almost $25,000 on top, even if you never added a cent of savings during that period.

This time it's different -- but not that different
Obviously, this crash has behaved a lot differently from 1987. For one thing, while the 1987 crash was extremely quick -- it took just a few months to go from top to bottom -- the current bear market has taken a lot longer in playing itself out. Even if the lows we hit earlier this month end up holding -- something that's far from certain at the moment -- it will mean that it took a year and a half for all the market's losses to come out.

With the longer length and deeper losses in this market decline, it's fair to expect a recovery to take longer than it did in 1987. But you have three things on your side:

• An existing asset base that will continue to generate income and gains.
• New savings that will add to your net worth.
• A fresh awareness of what levels of risk you're comfortable with.

So while it may take years for you to recover your pre-crash net worth, don't give up. You can get there eventually, as long as you avoid big mistakes and maintain the confidence to keep following your investing plan.

For more on retiring well, read about:

• Where smart investors put their money.
• Is this your plan B for retirement?
• It's not really time to cash out -- is it?