Even though the market's down, it will turn around

A: I know what it's like to watch a nest egg crack, a savings account dwindle, a recession make work hard to find and a small business have a tough time surviving. During these uncertain scary economic and political times, it can be very difficult to get excited about investing when the wind has been taken out of your sail. But in spite of it all, markets change and we've all seen that firsthand the bull market of yesterday become the bear market of today.

In time, however, this market will turn too. And that's what Wall Street is looking forward to. The rub is, no one knows for sure when that will happen. Yes, prices can still go lower, but experienced investors know that the best time to buy is when prices are low.

Therefore, now might be a good time to look at your investment accounts, revisit how your monies are allocated, perhaps rebalance your portfolio as well as examine your goals and risk tolerance. Keep in mind, not everyone is losing money in this environment, some investments are paying off. Year-to-date through June 20, they would include gold funds, small-cap value funds, real estate funds, natural resources funds, along with a slew of world equity funds.

That's the practical answer to your question. But there's an emotional and sometimes illogical side to investing too that can impact our investment decisions. In fact, we can all be a little bit wacky when it comes to trying to build a nest egg. That's important to keep in mind too.

Behavioral finance folks tell us that we investors have a tendency to sell our winning positions, hold on to the losing ones and be overly optimistic about the kinds of returns the market will give us. In social gatherings, I've seen folks who would rather invest in a hot tip overheard from a bartender than one suggested by a pro. And the list of our investing behavior goes on and on.

Then there's what's going on in our psyches. In addition to the psychological wear-and-tear of a long-running bear market ( this one started in March 2000) the trauma of 9/11 shook our psyches to levels I don't think we've yet to fully realize or understand. On top of the market and that terrorist attack, add the jolt in faith in corporate America that investors have suffered since the less-than-honorable management and accounting practices of companies like Enron, Arthur Anderson and others have brought to light. Top that list off with the government's frequent warnings about future terrorists attacks and we've added plenty of salt to inner ---and outer--- wounds not yet healed. As a result, it's no wonder that investor sentiment is low or that you've lost some of your zeal for investing.

"It's important to note that investors are very nervous right now about the markets in general due to what's been happening with the economy, fundamentals, as well as external events such as the political situation, the war, Enron and accounting irregularities, " says Angela Kohler, portfolio manager of the Federated Large Cap Growth Fund (FLGAX). "But at the end of the day, everyone still has the same long-term goals and needs."

And she's right. People still need to keep investing for their retirement, in college savings plans etc. They also need to be reminded that investing requires discipline and returns run in cycles depending upon things as broad as the sector or investment style and as limited as an individual stock. Kohler, for instance, thinks that now is a great time to invest in growth stocks. "When the economy rebounds, growth stocks should out perform because they have more upside in that type of environment.... and they're (priced) at reasonable valuations today," she says.

Even in this less than exuberant environment, we all have future hopes and plans. So don't stop investing just because the chips are down instead do some homework and invest wisely. After all, tomorrow will be here before you know it and until then, all of your long-term plans and dreams still need tending to and funding.

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Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.