When You've Taken A Financial Hit

In the last year Americans lost $4.6 trillion in investment wealth. Financial adviser Ray Martin told CBS News Early Show Anchor Bryant Gumbel that everyone's portfolios and retirement pension plans have been hit.

"When the market goes down, stocks and bonds, the entire market, every investment pretty much goes down," said Martin. "These retirement plans, particularly for individuals who are supposed to be so secure...how did this happen?"

Martin points out that 401(k) plans have been around for now 20 years. "Employers added nine, ten, 11 different investment choices and employees looked at the choices and said, 'I'll pick the hot fund.'...They're chasing hot returns from the prior years."

Martin recounted the story of a 62-year-old woman who called her financial representative to see how her portfolio was doing. She hadn't been reading her quarterly statements, and wanted to take some money out.

"The prior year, she had $400,000 in her account," said Martin. She talked to the rep and was shocked to learn that her account now was worth $200,000. She lost half."

A lot of people are now in that boat. What do people who have lost a huge chunk of money do?

"What you have to do now is make sure this doesn't happen to you again. Markets will go up and they will go down. They're not always up. A bad year in the market isn't just a 10 percent return. A bad year is down 20 percent, 30 percent. You need to spread your investments around — particularly if you're gearing for pre-retirement — among three major assets: cash, bonds and stocks. You need to be what's called diversified."

What about those people who have portfolios that have taken a big hit? It is awful late in the game to tell them to diversify. Should they start selling off?

"You always should be diversified," said Martin. "If you're not, you saw what the damage could be. The alternative is to tell them, hang in there — that canned answer — hang in there and it will come back. If your investments are down 50 percent, they're going to have to go up 100 percent just to get back to even. And everyone is saying, look, going forward, the expectations for investment returns are a lot less. Just to get back 100 percent back to where you were at a 7 percent rate of return is going to take 10 years.

"You need to have cash for two to three years of expenses, particularly if you're in retirement. You need bonds as an anchor for your portfolio. A stock portion should only be for money invested for ten years or longer out there."

What else can people do to secure their retirement at this point?

"They need to look at their investment portfolio and make sure they have enough cash on hand for the next year or two," advises Martin.

"Make sure they're not concentrated in an aggressive area," such as technology, science, medical areas.

"Be broadly dversified, in the stock portion, among stocks of large companies and small companies, even international," said Martin.

He says people nearing retirement with a lot of money invested need strategize every year.

"This is a process...you've taken a responsibility for your investments to try to pay for your retirement. You've got to revisit the process at least once a year, maybe several times a year and react to it," he said.

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