By Sherrill St. Germain
October 2008

Q: Every article I read says to stay the course and leave my money where it is through this crisis, but our retirement accounts have gone down a lot, and everyone I talk to is pulling their money out of the stock market. Quite frankly Sherrill, we're a bit nervous. While I know we're not supposed to panic - we are! So...my question is...should we be pulling our money out of stocks for some time? Please let me know. I know the stock market has always rebounded, but we seem to be in uncharted waters here.

A: It sure does feel like the world has changed a lot - and not for the better - in recent weeks. I don't blame you for being nervous and unsure about which move to make. As I write this, the Dow Jones Industrial Average is working on its seventh triple-digit loss in a row. The relentless daily battering is like nothing we've seen in our lifetimes, and there's no clear end, no clear reason for optimism in sight. Even if matters have improved by the time you read this, I would bet it will be difficult to shake the "deer in the headlights" feeling for some time to come.

But the thing is: It always feels that way in the middle of a terrible time, i.e. as if we're in uncharted waters and good times will never return. (9/11, anyone?) Bleak as it looks, I believe the markets will recover, just as a pendulum must eventually swing back in the other direction. At some point, investors are going to recognize there are bargain investments out there, & start a trend back toward buying.

I don't know how long it will take for cooler heads to prevail, but with retirement still a ways off, time is on your side. You've got a sufficient emergency fund, an investment strategy that matches your time horizon and risk tolerance, and, as we confirmed in your recent review, a portfolio mix that matches that strategy. Pulling all your money out of stocks right now will only ensure that you end up a "buy high, sell low" statistic, since it will be nearly impossible to predict when to get back in. Then you'll miss the upswing that comes with recovery, and have cemented your losses. And this is what tends to drive the investor behavior that results in worse-than-market returns.

So, as much courage as it will take to do so, I would recommend you not let panic make this decision. Instead, stick to your plan for all the reasons you made it in the first place, with full knowledge that markets go down -- sometimes by a lot -- as well as up, but that over time, they've always recovered to deliver a significantly better average return than any other investment -- that is, the kind of return you'll need to fund retirement.