Protect What You Need, Risk What You Can

The Congressional Budget Office reported in October that 15 months of stock-market losses had bled $2 trillion from retirement savings. Then, before the month was over, the Dow Jones Industrial Average had two of its best days ever.

These are confusing times for investors. Even those now buying stocks are saying worse may lie ahead. Yet despite expectations of recession-driven losses, market pros are getting positioned for long-term gains. And you can, too. We spoke with a handful of experts to help you stop worrying and start creating your own economic recovery plan.

Fight Your Fear
In September, Warren Buffett, ranked by Forbes as the world’s wealthiest man, with $62 billion, began snapping up shares of U.S. companies. He wrote about the initiative in The New York Times: “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”

Though new investments might start off sinking, you have to stay in to win. Stocks grow faster than bonds—eventually.

Your own long-term plan for growth should dictate how you invest, but if you recently dumped some or all of your stocks, start thinking about when to get back in. John Hussman, who runs the mutual funds that bear his name, and who spent most of a decade saying stocks were outrageously expensive, by late October saw the S&P 500—the market’s bellwether index of large U.S. companies—poised for annualized gains of 8 percent or more over the next decade. “Depression talk is hyperbole,” he says.

David Bach, author of the bestselling "Start Late, Finish Rich," agrees. “Stocks are trading at their lowest valuation in 30 years,” he says. That makes it a perfect time to make like Warren Buffett, and be greedy.

Get In—and Stay In
If you’ve gotten out of the market, “take 20 percent of your money and come up with a diversified portfolio,” says Bach. Broad-based index funds are a good, cheap way to invest, he says. “That way, you’re getting the whole market and not guessing what stocks to buy.”

When you feel conditions are right, venture another 20 percent. Though your investments might start off sinking, don’t lose courage. You have to stay in to win. Want proof? University of Michigan finance professor H. Nejat Seyhun analyzed stock-market movements between 1963 and 2004 and found that fewer than 1 percent of trading days accounted for 96 percent of earnings.