Don't Panic!

If you're nervous about the recent market declines, the best advice I can give you is to avoid the media, both in print and especially on TV. The media just feeds your anxiety and makes it worse. For example, this morning, Jim Cramer said anyone that has a 5 year or less horizon should sell all of their stock because he didn't want to see people get hurt. However, everyone's situation is different. There's no one-size-fits-all advice, so generic comments like Cramer's make no sense and just cause people to panic.

First off, anyone with a 5 year or less time horizon, who needs the all of their cash at that time, should not be invested in the stock market in the first place. That's why my daughter's college fund is invested in fixed income, where the principal is protected, and not in stocks.

For retirement, yes, things look bad now and people have seen their account value drop. However, I bet nobody plans to cash out their entire account at retirement. They'll withdraw a portion of it each year and will probably live another 20-30 years beyond retirement. So if retirement is 5-10 years away, you have another 25-40 years of investing. That's plenty of time for the market to recover.

During retirement, I plan to focus on income generation and not on capital appreciation. This way I can live off the income without cashing out the principal. Then it doesn't matter what the value of the principal is, as long as it continues to generate enough income.

I've been investing since the 80's and have seen my share of market declines. In all cases, the markets eventually recovered and went on to new heights. This too will pass, eventually. We may have further to drop and it may take many years to get back to the level we were at a year ago, but we'll get there.

I plan to stay the course in all of my portfolios. I have an investment plan and I'm going to stick to it. The worst thing people can do is panic. I did that once, and learned a valuable lesson. Fool me once, shame on you. Fool me twice, shame on me.