Investing Alert: It's Officially a Bear

If it walks like a bear and talks like a bear, it's a bear, right? (Our apologies to the duck usually mentioned in this analogy.)

We all knew we were in the midst of a bear market, but at least the talking heads on TV can be happy now because it's "official." With the Dow Jones Industrial Average falling below 11,000 for the first time in two years, we are indeed in a bear market.

Over the July 4th holiday weekend, we were asked by friends, family and listeners to our weekly national radio show if this bear market is merely a cub or a full-fledged Mama grizzly.

I replied (Daria here) with the rhetorical question…"Does it really matter?"

Here's a little Straight Talk on bear markets: It takes a while for your portfolio to recover, so if you're not willing or able to wait it out, you shouldn't be investing in stocks.

For example, the last bear market from 2000 to 2002 cost stocks 49.1% of their value in a 31-month period. Ouch.

Going back even further, the bear market of 1973-74 was caused by many of the same problems that we are facing today that brought on a recession: high inflation and spiking oil prices. That bear caused stocks to lose 48.2% of their value….and during that period there was no credit crunch or housing mess to deal with!

As a rule, it takes 3.3 years to get back to where you started after a bull market resumes. Can you afford to wait this bear market out THAT long?

What To Do Now

How you answer that question will determine if you really can afford to start investing, stay invested or head for the exit.

Dolan Straight Talk Tip: If you can wait 3-5 years for your investments to recover, go ahead and invest if you're comfortable in this volatile market. But you absolutely must stick with your plan. Too many people invest their money, see stock prices continue to fall, panic and then sell at the bottom. If you invest now, stick with it and wait patiently for the next bull market to kick in.

At this stage in our lives, Ken and I don't want to wait three or more years, so you should know that we are not investing in stocks right now. If you can't wait for this market to turn around or just aren't comfortable with the volatility, we recommend you avoid stocks as well. Instead, consider safer alternatives such as Certificates of Deposits (CDs), short-term bonds and bond funds, U.S. Treasury Inflation-Protected Securities (TIPS) and asset allocation funds such as those offered by Evergreen or Ivy.

And don't forget one of our 10 rules of investing: Know thy sleep quotient! If you're staying awake at night worrying about money you have invested in stocks, you're better off playing it safe and getting a good night's rest.

For more specific advice on what to do now, read Your Recession Survival Guide.

Want more advice to help you Invest Wisely? Read the following articles: :

• How to Choose the Right Money Market Fund
• Don't Fall for These Investing Myths
• 10 Simple Rules of Investing
• Take Shelter in These Rock-Solid Investments