When the worm turns

Look back at history and you'll see that bear markets can last dozens of years or a few months. The most severe was the Crash of 1929 which began in October but didn't trough until June 1932 . When it did hit bottom, over 83 percent of its value was lost and it took until 1954, or 25 years, for the S & P 500 to get back to that 1929 high. Ouch. That's a lot of time. With any luck at all, this bear's turnaround will be much less severe.

"Obviously, the lower the market goes the longer it's going to take to get back to even," says Brian Beck, a financial planner and partner at The Wealth Management Group in Farmington, CT. "We've been telling our clients that if they had losses of 30, 40, or 50 percent, to look to break even in three to five years."

Beck admits that assessment is optimistic. But depending upon when the market recovers and the zeal--or lack of it---that follows, and the way your assets are diversified, he might be right. For those who are more skeptical, however, I had Ibbotson Associates run some numbers.

I asked that Chicago-based securities research firm how long it would take for an investment to get back to even if an investor had two back-to-back down years with 20 percent losses in each, followed by 10 years of positive 8 percent returns. Using those losses, amounting to 36 percent, it will take about 6 years to break even.( That 36 percent loss was figured like this: Take a 20 percent loss one year from a dollar and its value goes from 100 cents to 80. Then, take a 20 percent loss from that 80 cents, that equals 16, and the once dollar value of 100 cents is now worth 64 pennies which is equal to a decline of 36 cents or 36 percent.)

Let's look at another scenario: If your investment is down 50 percent, what percentage will it have to grow by to get back to even: a) 50 percent, b) 100 percent, or c) 150 percent? The correct answer is b, 100 percent. ( Most people think 50 percent is the correct answer. Fifty percent growth would only bring that investment up to 75 percent of its original value.)

Excluding the tech and Internet bubble-mania years of the late 1990s, gaining 100 percent in any kind of investment--- from individual stocks to mutual funds----historically, has never been a quick and easy thing to do easy. Within the mutual fund arena, for instance, there have only been four years over the past 20, in which stock funds posted over 100 percent gains, according to Lipper. They were in 1993, when four equity funds had returns greater than 100 percent; in 1998 when seven funds did; in 1999 when a whopping 309 equity funds were up more than 100 percent; and in 2000, when 5 funds ended the year up over 100 percent.

This year, only two funds have posted year-to-date total returns of more than 100 percent through August 1: the Rydex Dynamic Venture 100 fund, up over 118 percent, and the ProFunds: Ultra Short OTC fund, ahead over 116 percent. Both are bear market funds and while that kind of strategy has paid off, should the market turn---and remain---bullish through the remainder of this year, these two funds aren't likely to finish is plus 100 percent territory.

Having said that, if there's one thing both of those bear market funds can teach us is that to build a fortified mutual fund portfolio---one that can withstand but the ups and downs of market cycles---investors need to be diversified among both asset classes and investment strategies.

One way to diversify among strategies is to add funds designed to zig when the markets zag like the bear market funds do. Beck suggests putting up to 10 percent of your assets into funds, like Rydex's, noting that these types of funds are one way to protect some of the downside risks of investing.

But even with the aid of various strategies, investing always means taking risks. And, getting out from under the havoc that a few year's worth of market downturns has made on your holdings is going to take two things--- that old-fashioned remedy of time and patience.

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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.