Another week, another selloff, another nauseating bout of volatility: The Dow Jones Industrial Average suffered its fourth straight week of losses, and Friday marked the tenth session this month featuring a 100-point swing. What's the average investor to do?

Revisit Your Strategy

Take a deep breath and revisit the reason you invested in stocks in the first place. If you are in your 20s, 30s or even 40s and seek long-term growth for retirement, you may still be in the right place. Take the opportunity to get a better sense of your tolerance for this level of volatility, advises Michael Farr, manager of the investment firm Farr, Miller & Washington, and author of the new book "The Arrogance Cycle."

"I think 'stay the course' is suspect advice -- somehow 'don't panic' rings truer," Farr notes. "Outline your goals and define what sort of investor you are. Step back from the field of fire and recognize you need to navigate something that's going to be difficult at times and enjoyable at others. But the goal is to make returns that are superior to that of banks, and get you to your retirement nest egg while taking on the least amount of risk you can."

Farr says 401(k) investors who've seen minimal growth over the last decade have a right to be frustrated. "They are unlucky enough to find themselves in one of few aberrational periods where stocks underperformed," he says. "But you have to recognize as you look back over the past 150 years that this was an aberration. The years following these periods have been pretty good. You don't want to be the guy who buys at the top and sells at the bottom because you can't stand it anymore. Over time America will grow and expand."

That's the philosophy of Ted Archer, 34, a Sacramento-based consultant who is married with two sons, a 19-month-old and three-week old. After a brief stint working as a broker during the dot-com bust, Archer shifted his entire portfolio into stock index funds, aiming to keep pace with the market at low cost. He rebalances annually to stick with his strategy, but his returns have been essentially flat over the last decade.

"It's painful to watch, but it's retirement money," says Archer, who boosted contributions from the end of 2008 through early 2009 as stocks swooned. "My belief all along is that the American economy will persevere and grow, and stocks will outperform other assets in the longer-term. As long as I get growth by the time I'm 60-plus, the mission will be accomplished. If we can't get the debt under control and the American economy is going to collapse, we all have bigger problems than my retirement portfolio."

Plan Your Exit

If you don't have a handle on your risk tolerance or portfolio, consider meeting with a fee-only financial planner who charges by the hour; you can find one at garrettplanningnetwork.com. But if you really can't stomach any more of the markets churns, exit in a methodical way, based on a written plan, says Christine Fahlund, senior financial planner with T. Rowe Price.
For instance, sell 10% of your stake in that stock fund or target-date fund in your 401(k) and move the cash to a money market fund. Wait two to four weeks, and then liquidate another 10%.

"Eventually, the market will rebound or you will find the emotional hype is gone and you are starting to feel comfortable again," says Fahlund. "In that case you should stop liquidating and use the same process to get into the market once you're feeling calm about it. Set up a written procedure so you know that every time you get panicked, here's how you're going to handle it."

The methodical, unemotional approach rings true for Myrna Mitnick, a 53-year-old CPA in Baltimore, who manages her own diversified portfolio of mutual funds. "I'm doing a cautious dose of buying, but keeping more cash out of the market than in at this point," she says.

Mitnick also resists the temptation to watch the market's hourly twists and turns. "You go to the finance page and there's always a rationale for what the market is doing -- but who knows why the market is doing what it's doing?" she says. "All the talking heads are saying different things and they can't all be right. And they all have an agenda; with brokers the agenda is to keep their clients invested with them and get more clients because that's how they make money. So you can gather all this information but it may just be a waste of time, because nobody knows what the future has in store."

What to Do If You're In or Near Retirement

Investors who are close to retirement have several options. Continue to work but start traveling and indulging in the activities you had planned for retirement, suggests Fahlund. "Think about practicing retirement rather than leaving the workforce," she says. "If you're thinking about buying a sailboat, it's better to buy it with a salary than taking big bite out of your nest egg on the first day you retire."

If you're already retired, consider a part-time job. "Doing something that pays $20,000 a year is analogous to having saved another $500,000," Fahlund says, based on the strategy of drawing down 4% of assets annually. "It won't go on forever but that's another creative way of replacing what you don't have. Because the minute you go into retirement you aren't focused any more on the size of the nest egg but how much income you can get out of it."

In addition, delay taking Social Security as long as possible. "Any mutual fund is still going to go up and down but Social Security doesn't depend on market conditions," she notes. "If you wait from age 62 to 63 your benefits will rise by 8%. The difference between 62 and 70 is about double. Even if you throw in the towel at 67, you're now in much better position."

Joe Thompson, 68, delayed taking Social Security until age 66, when he retired. He has pensions from two past employers, as well as his own investment portfolio; his wife also has a pension. Thompson just put a budget in place for the first time in years.
"We are just watching every penny," he says. "Not that I was a wild spender when I was working but I didn't worry about it too much." He maintains a conservative strategy designed to preserve capital, so his investment returns have been meager. A continued decline "could mean the difference between living well and surviving," he says.

Keep n Eye on the Bigger Picture

While he awaits a market upturn, Archer looks for the other opportunities in the economic dislocation. He bought a foreclosure in 2009, a custom home on a golf course, and this week refinanced into a 30-year mortgage at 4.125%. "I don't know where the market will be long-term but our mortgage interest rate is something we can control," Archer says, adding, "I have two healthy sons and a wife who's happy when she gets enough sleep. There are other aspects of wealth."

Mitnick agrees. "My faith guides me to believe that we are not the ultimate power and there are limits to what we can control, so I focus on making the best decisions and then trying to let go," she says. "I try not to get obsessed with the world of finance. It's a click away to see what's going on, but I tune it out and get centered on my own life. Life is deeper than the little ups and downs of one index or another."

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tj1108

The market started its gyrations in 2007 and my wife and I got out then. The Dow was just under 13000 then. I have watched it go way down and back up but knew it would start back down due to world instability. Until a reset of world economies happens and theres alot in that has to happen good and bad we are going nowhere. The market going up to 12-13000 and then back to 10000 or 8000 or lower will continue. Small investors should get out. This up and down by 10-20% is just wringing money out of small investors. The little guy should save save save and save some more. Plan on working until early 70's. Early retirement is now for the rich. Unless somehow we get rid of 75% of our Government so business can start happining the good old days are over.

August 22 2011 at 9:06 PM Report abuse +1 rate up rate down Reply
cabo79

Close to 90% of all trades on the exchanges are "FLASH" trades, the only recourse for folks using the stock market for their retirement is to buy when the market drops and buy only stocks that pay dividends. Get at least 5%. The flash traders can only make money when the market moves, the greater the moves the more money they make. Your Professional Politicians allow this.

August 22 2011 at 11:54 AM Report abuse +2 rate up rate down Reply
1 reply to cabo79's comment
BRUCE

High frequency computer trading creates market volatility and only benefits the professional traders. A transaction tax needs to be instituted for these types of trades. The tax money would be a great source of revenue for our nation.

August 22 2011 at 1:02 PM Report abuse +4 rate up rate down Reply
gramps180

The wall street crooks know how to bleed money out of the general public and have been doing so for years.

August 22 2011 at 11:17 AM Report abuse +2 rate up rate down Reply
billcac

The boys on Wall Street are having a Gret Time at the expense of their own country!

August 22 2011 at 10:31 AM Report abuse +4 rate up rate down Reply
gritzsl

Here we go again another dead cat bounce. They Street is pushing out that its time to jump back in. If they can get a few percent up tick they will then dump the market AGAIN. Do not get sucked back into the market. Its a money pit for the common guy.

August 22 2011 at 10:01 AM Report abuse +3 rate up rate down Reply
jwmgrand

This is the REAL Problem ... Bill has a company he hires illegals he lives large and does not pay insurance or take out taxes on his illegals. The illegals wives had had ALREADY 10 FREE Pregnancies costing the REAL taxpayers 2.5 Million dollars and the free schools have cost additional 10k dollars, not to mention the FREE housing and FREE Police and Fire...... the State and Federal Government tax dollars are being depleted by the illegals LIKE LOCUST ON CORN ...... and EVERYBODY looks the other way . IF WE DONT STOP THIS ... YOUR KIDS WILL BE DOOMED to POVERY and minumium wage jobs . How can the state or fed promote growth while being systematically ROBBED at the same time .......and ITS AGAINST THE LAW on top of that !

August 22 2011 at 9:16 AM Report abuse +3 rate up rate down Reply
rslpilot

The rich ARE the problem. Not the conserative entrepanuers that provide goods and services, and provide jobs and thus payroll taxes. My boss is extremely rich, and God bless him for the thousands of people he has provided with jobs, food on the table, shelter, and money for the greedy Dems in DC. It's the Goldman-Sachs, Freddie and Fannie, and George Sorros types who are the problem. All of these organizations are operated by ultra lefty, Kenyesian, liberals. They make their money, not by providing goods and services, but by manipulating makets, and government influence. They run up the markets, and when the mom & pop 401K investors throw their money in, they clear the table. They, also, are showered with billions of taxpayer dollars through regulation and bailouts. They are leaches on society, they return nothing--and are aided in doing so by far left Obama-ites. Don't tax them. Thow them in jail for theft of the grandest magnatude.

August 22 2011 at 2:37 AM Report abuse +5 rate up rate down Reply
Fred Stocking

Maybe they should try working for a living.

August 22 2011 at 2:24 AM Report abuse +2 rate up rate down Reply
Richard Keane

please investigate the article and movie

Wall Street Fails To Deliver google it and report that huge story

August 22 2011 at 1:20 AM Report abuse rate up rate down Reply
gritzsl

Looking back on the past 150 years... What is happening now is an abberation" What BS. It is not logical to look back at the last 150 years based on the high speed computer trading taking place today. All the rules have changed. The "OLD BUY AND HOLD" idea does not apply. That is true is you are 20 or 60. The only difference is that if you are 20 or 30 you will see a number of 30 to 50 percent declines in the market. In the past it happened perhaps once a generation, not it happens every few years and it will happen even more ofter in the future. You must lock in profits when you have them. Then at the first indication of a reset get out and wait it out.

August 22 2011 at 1:02 AM Report abuse +2 rate up rate down Reply