By Todd Beard (Synchronicity)

DES PLAINES, IL (Jan. 13, 2000) -- Last week was SOME week, wasn't it? All of us who started mechanical Workshop portfolios just got a quick lesson on volatility.

For everyone who's new to investing, no, last week was not typical. Also, you're not alone. My RS-26 port had the following daily returns last week: +4.48%, -10.83%, -2.41%, -7.77%, +10.51%. Whew! There have been entire years with less volatility.

Some people couldn't stand that much excitement. Even in the Workshop, there were a few people who stared at their portfolio returns (20% losses in three days?!) and blinked. They sold part or all of their screen less than a week after starting, only to watch as the market zoomed back up on Friday.

In a way, last week was a good wake-up call, especially for new investors. If you haven't already, I HIGHLY recommend that everyone go back and read Moe Chernick's recent article on Euphoria. Given what we just experienced, it's an incredibly timely message.

Second, use last week's events as a chance to reassess your own risk tolerance. As we've mentioned before, a common mistake is to overestimate how much volatility you can stand. If you were a nervous wreck by Thursday afternoon, then sit down and rethink your strategy.

Finally, you have to look at your investments with a long-term view. Don't think of what your savings will be six days (or even six months) from now; look at where you want to be 20 years from now. To use an analogy, you're on the road to Financial Independence. Just like the road to your favorite vacation spot, this is probably a long drive. Also, it doesn't go in a straight line. There will be the occasional twists and detours, where you won't be heading in exactly the direction.

Before going on a long road trip, you do several things. First, you make sure that your car is in good shape for the trip (check the tires, get a tune-up) -- you don't want it to break down along the way. Before you start heading for Financial Independence, you should pay down your debt, make a budget, and start building up savings.

Next, you plan out your route. Unless you're an army commando driving an all-terrain vehicle, you're not going to take that dirt road over Perilous Peak at night in the rain after going 18 hours without sleep. Sure, you could get to your destination quicker. You might even have a friend of a friend who did that driving a minivan just like yours. Thing is, you're pretty sure there's a reason it's called Perilous Peak.

Instead, you plan out a route and a timeframe that fits your needs. Maybe you won't get to your destination as fast as Dangerous Dan, with his sports car and his No-Doze, but you know you'll get there, rather than have an accident along the way.

Here in the Workshop, we'd advise you to sit down and review the routes you can take (the various Workshop screens) and determine which ones you want to use. You should plan on using these strategies for many years, so be sure to look at costs and volatility, as well as the screen returns. Decide on the strategies that best fit your portfolio size (if you're starting small, don't use monthly strategies -- the commission costs are too high), personal preference, and risk tolerance -- and stick to them.

Just remember, especially in the middle of a week like last week, that you've got miles to go before you sleep, and objects in the mirror may be smaller than they appear. That hill up ahead may look imposing, but remember that mountain you went over a hundred miles ago? (Anyone remember what the market did on October 27, 1997? Or August 31, 1998? Hint: It wasn't pretty.)

Last year the road was more like an interstate than the path over Perilous Peak. It didn't always head straight toward our goal, but it generally took us in the right direction. Every now and then things will go like that, but that doesn't mean you can expect smooth sailing all the time. You must be prepared for the inevitable flat tire or other setback. Sometime in the next 10 years, your portfolio will drop by over 30%. Contemplate that a while.

Using Workshop screens is like being on cruise control; it reduces the amount of work you have to do. Combine that with good planning, and you'll arrive at your destination.

Please stop by the Foolish Workshop board to let us know how you fared last week. Until next time, keep your eyes on the road, your hands upon the wheel, and Fool on!