2008 was a reality check millions of investors would rather forget. But some learned valuable lessons about money, and life. Here’s one couple’s story.

As Wall Street was crumbling a year ago, Ellis Richard and his wife Carolyn watched their mutual funds tumble about 40%.

But the two U.S. Park Service veterans, who have been married for 20 years and live in Moose, Wyo., in Grand Teton National Park, decided to ride out the storm. They stuck with the traditional investing advice that advocates taking the long view.

Now, more than a year later, the couple says they’ve made “reasonable progress” recouping their losses.

“We didn’t liquidate any of our stocks when the market was way down,” said Ellis Richard, 61, a retired U.S. Park Service manager. Carolyn, 51, is a park ranger at Grand Teton National Park.

The Richards’ investment portfolio is roughly 90% stocks and 10% bonds – an aggressive mix but one that’s not overly so, given their risk tolerance and time frame. And while last year’s losses were difficult for them to sit through, the couple has been rewarded for their patience. By contrast, investors who panicked and dumped shares got stuck with huge losses.

“It always strikes me as telling that everyone knows the traditional wisdom of 'buy low and sell high,’ and yet most people seem to do the opposite,” Ellis Richard said. “They panic when the market sinks, and sell to cut their losses.”

He noted the trillions of dollars in paper losses that investors suffered “are only (actual) losses if people sell.”

Of course, if the Richards had a less-aggressive portfolio to begin with – for example, with double the bond holdings and a small piece of their portfolio in cash – they would have suffered less-significant losses.

Still, experts said the Richards’ decision to hold their ground reflects one of several pieces of traditional financial advice that have been validated during the past year. They include:

The risk of market timing

The bear market of 2008-2009 underscored why it’s risky to bet on market peaks and troughs.

“Everybody who panicked and sold before the March 9 low in the market is regretting that mistake today. They locked in their losses,” said Fred Taylor, principal at North Star Investment Advisors, a fee-only investment advisory firm in Denver.

Taylor noted such stock market losses amount to about 60% from the October 2007 market high. “Every day the market marches higher is killing them,” Taylor noted, referring to investors who sold.

Why is it so difficult to time the market?

Big gains in stocks often come in short bursts, according to data compiled by Fidelity. Looking back at the S&P 500’s performance from 1980 through September 2008, an investor who missed just five of the best-performing days in the stock market would have ended up with a portfolio worth 26% less than a person who stayed fully invested.

“We don’t believe timing the market on a short-term basis is possible,” said John Riddle, principal at BRC Investment Management, a fee-only advisory firm near Denver.

Ellis Richard and his wife didn’t even try. They rarely looked at their investment portfolio during the market’s swoon. “It’s such a roller coaster,” Ellis Richard said. “If you worry over your losses you tend to get anxious and sell.”

He wasn’t particularly nervous about their retirement holdings. “I felt discouraged. But we didn’t need the money immediately,” said Richard, who doesn’t expect to begin tapping his retirement funds for at least a decade.

Have a diversified plan

Experts said a financial plan also can help you weather a market crisis, though it should be recalibrated periodically to match your age, stage of life and life events such as retirement, marriage, divorce and so forth.

“A disciplined plan trumps emotion every time,” said Ned Sundermann, president of Sundermann Capital Management, a fee-only investment advisory firm near Denver. “You need to have structure and a roadmap so you know where you’re going.

“If somebody had relied on their plan to make them hang in there, they would have done better than selling at the bottom based on emotion,” he added, referring to the 2008-2009 market swoon.

Sundermann notes that investors should revisit their plans – say, every two to five years, or when you have a major life change – to make sure it meshes with your circumstances. Some experts say annual reviews are worthwhile. To a certain extent it depends on your goals – and your personality.

But experts agree any disciplined plan should revolve around the time-tested strategy of holding a diverse mix of stocks, bonds and possibly other securities in your portfolio. 

The advantages of diversification were reaffirmed during last year’s market turmoil, even though stocks and certain fixed-income investments, including corporate and municipal bonds – which often move in the opposite direction of stocks – all suffered losses  in 2008.

A diverse portfolio would have limited your losses, Fidelity data show.

From January 2008 to February 2009, an all-stock portfolio would have lost nearly half its initial value, or 48.2%. But a diversified portfolio of 70% stocks, 25% bonds and 5% cash would have lost just over a third of its value, or 33.9%.

“It shows diversification didn’t fail,” Fidelity’s McDermott said.

If you haven’t made any changes to your portfolio during the past year, experts said you should sit down and do so, with a financial representative if you want the help.

Make sure you understand what’s in your portfolio, review your risk tolerance and review your financial goals, such as retirement, or saving for a child’s college education. 

“We have to understand what our goals are and what kind of rate of return will get us there,” said Gregory Anderson, chief investment officer at GRAnderson Wealth Management Group, a fee-based investment advisory service in Denver. “If your portfolio isn’t going to get you where you want to be, you need to re-adjust it.”

Back in Wyoming, Ellis and Carolyn Richard are grateful they stuck to their long-term plan, saving regularly, periodically rebalancing the mix of investments in their portfolio, and shedding unproductive funds. It’s a strategy they’ve followed for years.

“What we are is an example of two people with middling salaries in government jobs who saved something every payday — until we had a strong nest egg built up,” Ellis Richard said.

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