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Coping with the stock market decline

Posted: September 22, 2008 8:41 p.m.
Updated: November 24, 2008 5:00 a.m.

Stock market declines are an inevitable part of investing. We have all heard of strategies to stay the course and stay on track.

Yes, we know them, but it is the last thing you want to experience. Especially if you are already retired and your income assets are shrinking when the cost of living is increasing.

While you never know when a decline will occur or how long it will last during these turbulent times, how you react will play a crucial role in your long-term investment success.

Is this time different?
One of the challenges in dealing with a decline is that we have no way of knowing whether it's just a slight dip or a longer, more serious correction.

Personally, in 45 years of financial planning, I have never seen such a mess of our financial sector caused by mismanagement, greed and cheating. One trillion dollars is a whole lot of money and it won't be fixed overnight. And, of course we the taxpayers will pay the price to fix it.

Hopefully, Congress won't forget whose money it is working with.

History of the market
Past market declines taught us three important lessons, which you might use to reassure your position.
n No one can predict when the market declines will happen. We know specifically why this one is occurring, but generally there is a correction every few years.

n Since 1982, market declines have been usually brief, and for the long-term investor, relatively painless. After the 1929 crash, it took 16 years for the index to be restored to its previous high. In 1987, it took less than 23 months, in 1990, it took less than eight months. In 2000, it took almost five years, but then the mitigating circumstances of 9/11 compounded the recovery.

n Successful market timing during a decline is extremely difficult because it requires two near perfect actions: Getting out at the right time and getting back in at the right time.

Financial adviser role
The role your financial adviser plays is helping you understand the principles of successful investing during turbulent markets, and to help you not to make decisions based on emotion rather than logic.

Periodic review of your portfolio with your adviser will help to reassure you that your financial and retirement goals are viable, and possible changes for current events are addressed.

This way, you are comfortable that you have made the best decision for you and your family's future planning needs.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investment, located in Santa Clarita. His column represents his own views and not necessarily those of The Signal.


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