Despite what you have been reading and seeing in the news, we are not approaching the end of the world. There’s no question that these are serious, confusing and distressing times. Sometimes it feels as if chaos has gained the upper hand.

Just like you, we do not know what the near-term future holds. The rapidly unfolding economic events this fall have baffled many of the country’s best brains. Entire books could be written to give us the perspective we need right now. But we don’t have time to write those books, and you don’t have time to read them.

Instead, we want to offer a little straight talk among friends who share common concerns. We have three basic messages. First, these are not the worst times that investors have experienced. Second, we have no reason to change the advice we have been giving investors for many years. Third and most important, there are steps you can take to make things better for yourself and your future.  

The bear market

The stock market is so volatile right now that it’s almost impossible to write anything that won’t become obsolete almost immediately. A case in point: This month’s issue of “Consumer Reports Money Adviser” contains the following sentence: “U.S. stocks appear to be on the mend after taking a beating over the last 10 months.”

It’s been just over a year since the U.S. market hit its peak in October 2007. As of today, the Standard & Poor’s 500 Index has declined 35.9 percent since then. The average bear market over the past 50 years has seen a drop of 32 percent.

We think there are four crucial things you should know. Here’s the first of them: It is impossible to recognize the bottom of a bear market until well after the fact. (This tripped up the writers at “Consumer Reports Money Adviser.”)

Here’s the second of four crucial things you should know: Past bear-market bottoms often have been followed by very swift recoveries.

In 1981 and 1982, a major recession pushed the stock market down 27.1 percent over about 20 months. Though nobody could recognize it at the time, the bottom came on August 12, 1982. In the next four and a half months, the market rebounded nearly 40 percent, gaining back with stunning speed all the ground it had lost. Investors who were on the sidelines during the bad times missed out on much if not all of this recovery.

The economy

Today’s economic problems can seem insurmountable. That’s nothing new. But our economy was in a lot more trouble in 1981 and 1982. Back then, the prime lending rate was more than 20 percent. People were taking out long-term mortgages at 15 to 20 percent. Banks offered five-year certificates of deposit paying 16.5 percent. As unemployment peaked at nearly 11 percent, it felt as if our system was coming unglued.

Here’s the third of four crucial things you should know: The stock market does not operate on the same timetable as the economy. The amazing 1982 recovery started in mid-August, even though the recession itself was not over until November. Furthermore, the end of any recession is not known or announced right away. Investors who waited for better economic news waited too long for the late 1982 rally.

Common sense

Our basic advice to investors hasn’t changed since this firm first opened for business 25 years ago. Then, as now, we advocated having a sound, long-term plan and sticking to it. Then, as now, we advocated thinking very carefully about how much risk you can tolerate and investing so you are likely to remain within your comfort zone. Then, as now, we advocated wide asset diversification.

Here’s the last of four crucial things you should know: Common sense has not become extinct. Common sense tells us that no matter how carefully we plan, things won’t necessarily follow our expectations. Common sense warns us against following fads and making rash, emotional decisions.

What you can do

Some things are simply beyond our control. Neither you nor we have much ability to influence macro-economic events. We can remain informed about them, but we can’t change them.

On the other hand, many parts of our lives are in our control. We can control how we invest and whether we diversify well. We control whether we have and follow a sensible long-term plan that recognizes the fact that things will go wrong from time to time. We can avoid the urge to panic when the market is falling and the equally compelling temptation to buy wildly when the market is rising.

Apart from our investment choices, we can control how much money we spend and how much we borrow. We can control what we expect and demand from the world. We can control the values by which we live our lives. This is especially important. In fact, our non-tangible assets may be our most important assets. Values like courage, compassion, patience, hope, determination and resilience can help a lot as we navigate challenging times as well as good ones. People who regularly nurture and express such non-tangible assets have an edge in life that cannot be erased by any bear market.

Our bottom-line advice to you is simple. Invest wisely, and live fully. If you do those two things, the future holds much that is worth looking forward to.

Sincerely,

Jeff Merriman-Cohen                        Paul A. Merriman
Chief Executive Officer                     Founder