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I'm SO glad you didn't bail out of stocks. It would have been a MAJOR mistake. That said, we could be in for more losses in 2009 AND 2010.

Typically, when the stock market recovers from a severe bear market, the first year return on stocks will approach 40%. The second year of the recovery will usually be in the neighborhood of 10%. And the third year will give 5%.

E.g. start 2008 with a $1000 portfolio with 65 stock /35 fixed income(FI)split. Stock portfolios lost an average of 45% in 2008 so now your port is worth $707. $357 in is stocks. $350 is in FI. Your split is now 51/49 stocks to FI.

Say you leave your present allocation alone. During the first year of recovery, you stock portion increases 40%--from $357 to $500. Year 2 it goes up to $550 and in year 3 it gets to $577.

At the end of the third year of recovery, you will have $927 in your port for a total portfolio loss of about 7%. You, I and everyone else who suffered from this very bad bear market can feel OK about this.

This is why one should ALWAYS have some FI in the portfolio no matter how young or aggressive an investor one is. IMHO, the minimum amouunt of FI one should have is 20%.
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