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A Tanking Market is No Cause for Panic

If your investments are solid, your best bet may be to do nothing.

WHO: Paul Sansonetti, 55
WHAT: Hospital facilities manager
WHERE: Pittsburgh
SYMPTOM: Falling stocks have Paul wondering if he should refocus his retirement funds.

Sick markets test the resolve of even the savviest investors. Paul puts 15% of his salary into a 401(k) plan, for which he receives a 3% employer match. Additional contributions from his employer go into a cash-balance pension plan now earning 4.5% interest, a sweet return on an investment that maintains a stable value.

Paul's job is also stable. No, call it critical: He and his colleagues keep the water, power, heating and cooling systems in order at the vast University of Pittsburgh Medical Center.

Paul has four children, the youngest of whom is just 3 years old, so he expects to work until he's 66. That means he not only has plenty of time to ride out this bear market, but he should benefit in the long run by investing at 2008's depressed share prices. He's down only 8% this year, a fair showing, but even that moderate setback has him wondering if his savings, all in mutual funds, are in the right places.


"I think I have a good mix," he says, including a position in Vanguard Energy and a 25% weighting in international-stock funds. But he admits to being nervous -- and if this straight shooter is wobbly, you probably are, too.

At issue is whether the market or Paul's specific investments are responsible for his recent losses. You can't do much about the market unless you want to play market timer. That's something most pros, let alone busy amateurs, have trouble doing well. But you can re-evaluate your investments to see whether you can improve on them.

One valuable exercise is to measure your funds against their respective categories. Paul has money in 14 funds, four in an IRA and ten in the 401(k). Only three have performed significantly worse than their category averages in 2008. Two of those -- Artisan MidCap Fund and T. Rowe Price Emerging Markets -- have sterling long-term records compared with their peers, so he should stick with them. Vanguard Institutional Index, a low-cost fund that tracks Standard & Poor's 500-stock index, is also a keeper.

Next, study your asset mix. Doing so can tell you whether investments in one or two disastrous categories are overpowering your efforts to diversify by company size, investment style (growth versus value) and market (foreign versus domestic). Paul has 30% of his retirement funds in large-company stocks, 20% in small and midsize firms, 25% in foreign stocks, 11% in energy and real estate, and the rest in bonds and cash. This allocation would be too aggressive if Paul were about to retire, but in his situation, it's fine.


Sure, Paul would prefer to lose nothing or even make a few bucks as the markets tank. So would we all. But as long as you don't need the money for many years, the right thing is to stay diversified and not lose patience with solid funds. That will leave you well placed for the next upturn.

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