Wall Street's deepest losses since the 1930s ravaged the fund nest eggs of millions of Americans. There was almost no place to hide.
It was worse for foreign stock funds, which for five straight years through 2007 had posted much bigger gains than domestic funds -- in turn luring an avalanche of money from U.S. investors.
Last year, the average foreign stock fund crashed 44%.
The math is awful from here: If your fund fell 36%, it will have to rise 56% just to get back to even.
In harrowing times like these, you may well question every rule you've ever heard about stock investing -- including whether it's worth the risk at all.
Many professional financial advisors concede they've had to deal with some clients who wanted out of the market completely as share prices plummeted in recent months.
"Some people just pulled the plug and said, 'I can't take it anymore,' " said Emerson Fersch, a partner at Capital Investment Advisers in Long Beach. But most clients, he said, stayed put.
Yet may investors understandably fear that this bear market is far from over. The economy fell off a cliff beginning in September, taking stocks with it, as the credit crisis mushroomed.
Although the market has edged up since late November, President-elect Barack Obama is warning that there's no fast fix for this economic mess. Some experts say a recovery might not come before 2010, with ominous implications for corporate earnings, and share prices, between now and then.
How best to approach stock investing at this fateful moment in history?
Here are four questions that may help you focus your thoughts and decide what, if anything, you should do with your fund portfolio:
Should you keep more of your assets in cash, period? The conventional wisdom is that cash doesn't pay in the long run. It sure isn't paying in the short run: The average money market fund yield now is a mere 0.7%.
But how many people only wish that, six months ago, they had sold some of their stocks and boosted cash holdings?
It may feel too late to be selling stocks or other investments now, of course. Yet there's a practical matter here that trumps the investment orthodoxy that cash is trash: If stocks fall further, having a larger cash buffer -- a sum that you know won't lose principal value -- would give you much more peace of mind about your ability to survive financially.
The old rule of thumb was that people should have enough in cash to pay for three to six months of living expenses. But in these hard times that may not be enough, said Norman Boone, head of Mosaic Financial Partners, a San Francisco advisory firm.
His advice to many clients now is to have enough cash to cover up to a couple of years' worth of basic expenses. The bigger the cash cushion, the less likely investors will have to draw down their core portfolios, he notes: "It gives them more of an opportunity to be patient with the market."
Building up that kind of cushion may be difficult for younger investors, however. If all or most of your investments are in a 401(k) or other tax-sheltered plan, to accumulate cash you might have to invest less in the plan and commit yourself to stashing the extra pay in a bank account or money market fund.