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Bad markets bring out "financial experts" in droves. Bad news is great for the media biz. All that confusion and panic. What a wonderful opportunity to "help" beleaguered investors understand what is going on.

What's the quality of the advice so freely given?

Historical data is not predictive, but at least it's factual. The musings of talking heads is often inaccurate, not predictive and rendered in a historical vacuum.

Here's some data that may help you sort out the mess we're in.

2000-2002 was the worst three-year period in the last thirty-eight years for both the large U.S. equity markets and the non-U.S. equity markets.

The aggregate loss for large U.S. equity stocks was 43.07%. For non-U.S. stocks it was even worse: 51.55%.

But look what happened from 2003-2007. U.S equity stocks increased in value by an aggregate of 65.57%. Non-U.S. stocks gained 109.92%.

Investors who panicked lost big. Those who stayed the course profited handsomely.

When you look at smaller sectors, the pattern is the same: Big losses were followed by big gains.

In 1973-1974, small U.S. equity stocks lost 50.8%. But in the following two years, that sector gained 110.2%.

In 1997-1998, commodities lost 49.8%. In the following two years, it gained 90.2%

In every major asset class, there has never been a sustained period of big losses where the markets have not recovered and rewarded patient investors with significant gains.

I can't predict the future. But it makes sense to understand the past.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books 2008).

This post is a follow-up to an earlier post by retirement expert Dan Solin on what you should do with your imploding 401(k) plan.

If you are retiring in ten year or less, I can understand how worried you are about the value of your 401(k) investments. Many employees tell me they can't bear to look at their statements.

Here's what to do if you are going to depend on your 401(k) for living expenses when you retire.

In the investing world, ten years is a long time horizon.

I looked at 481 monthly rolling ten year periods over fifty years, from January, 1958 to December, 2007. If you were fully invested in a globally diversified portfolio of stocks during that time period, how many ten year periods do you think you would have had negative returns?

How about never!

The average annualized returns of this portfolio were over 13%. The lowest returns were still over 5%.

I appreciate that historical data is not predictive of future returns and it may well be that it is "different this time," but those are pretty impressive facts.

If you are persuaded by this data, the asset allocation of your 401(k) should have 70%-100% stocks with the balance in bonds.

As retirement nears, you will have to make adjustments to your asset allocation, because your tolerance for risk will diminish. Here are some good rules of thumb.

When you are seven years from retirement, reduce the stock portion of your 401(k) to 60% or less. The average annualized returns for this portfolio were in excess of 10%. The worst returns were in excess of 2%.

When you are five years from retirement, reduce the stock portion of your 401(k) to 35% or less. The average annualized returns for this portfolio were in excess of 8%. The worst returns were in excess of 3%.

If you have less than 4 years from retirement, you have a dilemma.

The only way to keep pace with inflation and taxes is to have some exposure to the stock market. Many pre-retirees and retirees are understandably concerned about market volatility. They invest in "risk-free" investments like insured CDs and Treasury Bills. These investments currently pay low interest rates, virtually guaranteeing a loss after inflation and taxes.

Many financial planners believe that pre-retirees and retirees should have at least 35% (or more) of their portfolios invested in stocks at all times.

If you follow this advice, remember that you may have to hold on during stomach-churning bear markets like the one we are currently experiencing.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008)

Investors are scared. The value of their portfolios has plummeted. Now many are seeking safety instead of returns.

If you are one of those investors, you need to understand the different levels of security in the options available to protect you.

But first, ask whether capital preservation is really the right goal for you.

If you anticipate needing 20% or more of your assets within a five year period, you should not have any exposure to the stock market. You need the confidence of knowing your money will be there when you need it. You cannot afford the kind of market volatility we are experiencing that could cause you to sell at a loss to pay living expenses.

You have a number of choices outside the stock market. As with all investments, you are rewarded for taking risk. Remember: The most secure choices will pay the lowest interest.

The liquidity crunch is having unprecedented ramifications in markets that were traditionally regarded as very safe. Many financial experts now regard only cash and debt secured by the full faith and credit of the U.S. government as really safe.

Let's see if I can touch on your worst fears:

A collapse of the banking system and the insolvency of the FDIC is surely among them.

The Comptroller General advised the Senate Banking Committee that both were likely in April, 1991.

An "unprecedented" worldwide "economic convulsion" -- Newsweek used the quoted language in September, 1998.

A fundamental change in the world's economic condition. Fortune reported on that view in September, 1998.

The worst economic conditions since the Depression. Time made that observation in June, 1970.

Investor "shock felt round the world" was breathlessly reported by Time in November, 1987, complete with a story about a trader who withdrew $100 from his ATM because it gave him "a sense of security."

Pillars of the NYSE crumbling from the onslaught of a huge bear graced the cover of Newsweek in September, 1974.

The triple whammy of "inflation, recession and a frantic bear market" was reported by Life magazine on the cover of its June 5, 1970 issue.

The report gave WaMu three stars (out of five) and advised investors to "hold" the stock. Its three star rating meant "total return is expected to closely approximate the total return of a relevant benchmark over the coming 12 months, with shares generally rising in price on an absolute basis."

While the report noted that the risk of the stock was "high," it set a twelve month "target price" of $4 and justified its projection with some very sophisticated reasoning involving price-to-book multiples.

The analyst predicted an "increase in net margins in 2008" and noted that WaMu was likely to "... benefit from an improving yield curve, the addition of higher-yielding credit card receivables, and the repositioning of its balance sheet, which included the sale of low-yielding loans and securities."

On September 25, 2008 -- one day after this report was issued -- the FDIC seized WaMu and sold its banking assets to JP Morgan Chase (NYSE: JPM) for $1.9 billion.

WaMu closed yesterday at $1.69. It is likely shareholder value will be destroyed.

I am sure there are many instances where Standard & Poors and other analysts got it right. But the inability of its analyst to look a mere twenty-four hours into the future and see total disaster is a prime example of why investors need to fundamentally change the way they invest.

The concept of studying the markets to find inefficient pricing in any particular stock has little credible evidence to support it. Part of playing this game involves reading analyst reports, listening to the financial media and relying on brokers and advisors who claim to have a skill that does not exist.

This elaborate dance continues because there are so many financial interests that benefit from the process.

Unfortunately, yours is not among them.

Dan Solin is a Registered Investment Advisor and the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).

For the fifty million Americans with 401(k) plans, these are troubling times. The turbulent markets and steady stream of really bad news have caused assets in these plans to plummet.

So what should investors do to protect their retirement nest eggs?

This question, endlessly debated by financial pundits, indicates a fundamental misunderstanding of both 401(k) plans and investing.

By their very nature, 401(k) plans are long-term investments for the vast majority of those who have them. Distributions cannot be taken without penalty until you reach age 59 and a half.

The focus of plan participants should not be on what happened to the value of their plan assets on Monday. They should be concerned with the money in their plan when they will start taking distributions from it. For a 35 year old, this is more than two decades into the future.

Speculators react to short-term volatility by buying and selling. Long-term investors focus on their asset allocation and staying the course.

If you have the right asset allocation, and you are properly invested, the current unstable market conditions should not cause you to stray from your course.

In December, 2002, ten of the most prominent brokerage firms in the country agreed to a massive settlement. The charges involved well-documented claims that analyst reports issued by these firms were deceptive. The firms sold out their retail clients to curry favor with their underwriting clients.

Among the settling firms were Citigroup (NYSE: C), UBS (NYSE: UBS), JP Morgan Chase & Co. (NYSE: JPM), and Morgan Stanley (NYSE: MS).

Their conduct was so bad that former Attorney General Spitzer agonized over whether to indict them for criminal conduct.

The industry unleashed a massive PR campaign. It convinced you that it saw the error of its ways. They had "reformed." You could trust them again with your hard earned assets.

And you did. Money flowed back in the coffers of these firms and others.

That was the first time.

This is the part of a series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Your broker talks. You listen. At least that is the way it is for most investors. You assume (and she definitely assumes!) she has an expertise that will help you maximize your returns. Sometimes, you almost feel like you should be taking notes.

Based on my experience, this is often not the case. Brokers are not required to have any background in finance or economics and their training is focused primarily on sales.

I thought it might be interesting to turn the tables. Here are some questions you should ask them.

Question #1: What is the most important factor that will affect my returns?

Answer: Your asset allocation, which is the amount of your investments allocated to stocks, bonds and cash. Not stock picking; not mutual fund selection and not market timing. If your broker gets this wrong, get a new broker.

This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.

In these tough economic times the allure of the reverse mortgage salesman to senior citizens (over 62) is hard to resist.

You get cash for the value of your house, which you don't have to repay until you sell your house or die. You can take the cash all at once, monthly or as a line of credit. You can use the money any way you want. No credit checks required.

While reverse mortgages can be a valuable source of cash for seniors, there are a number of problems with them.

The fees are very high. Typical fees for a reverse mortgage on a $250,000 home can exceed $25,000. In addition, interest charges are added every year the loan remains outstanding. While you may not care as long as you get your money, you should realize that the diminution in the remaining equity in your home will affect the money you will receive if you sell your house and the amount of money your heirs will receive upon your death.

Because of these high costs, reverse mortgages are particularly ill-suited for those who intend to remain in their homes for a relatively short period of time.

This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.

Almost everyone has taken a big hit in this bear market. Many investors are tempted to take more risk with their portfolios to make up for their losses.

This is a bad idea.

Your asset allocation, the division of your portfolio between stocks and bonds, accounts for as much as 100% of the level of your returns, according to one prominent study.

Your asset allocation is determined by your ability to withstand market volatility. In large part, it is determined by the amount of time you can keep your assets invested without withdrawing a substantial portion (20% or more) of them.

The fact that you may have lost money in the current markets does not mean that you are able to take more risk. In fact, it may mean the opposite: Your ability to withstand market losses has diminished.

Remember that "risk" means "volatility." When you take on more risk, you are increasing volatility. Volatility is a two way street. It moves both up and down.

This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.

Is there a silver lining in the horrific number of home foreclosures we read about every day?

While having a home foreclosed must be traumatic for the homeowner, does it present an opportunity for investors and potential home buyers to pick up a bargain?

The answer may depend on the nature of the sale.

The classic scenario is the auction, where a home is literally auctioned off to the highest bidder, often right on the lawn in front of the house.

The basic problem with buying a home at auction is that you have no right to inspect the home and you have to pay the full purchase price by cash or bank check on the spot. There have been situations where buyers found serious problems with homes purchased in this manner, which would have been uncovered by a competent home inspector. Also, while not common, the homeowner may refuse to vacate the house. If so, you may be confronted with delays and significant legal fees to evict him.

This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.

You are drowning in credit card debt. Bill collectors are harassing you day and night. You just can't take it any more.

Should you consider filing for bankruptcy and starting fresh with a clean slate?

This is the issue confronting many Americans. According to the Consumer Federation of America, the size of the problem is staggering. There are over one billion cards in circulation. Most people pay only a portion of their credit card debt monthly, leaving an average balance of more than $10,000.

However, filing for bankruptcy is no panacea.

The new bankruptcy law that was passed into law in April 2005 makes it more difficult for consumers to discharge credit card debt. The new law requires debtors to pass a "means test" in order to qualify for discharge of debt or for payment of their obligations from existing assets. If a debtor does not pass the means test, they may still be permitted to file for bankruptcy, but they will be required to pay some portion of their obligations over a three-to-five year period.

This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.

I know it is tempting. With gas at $4 a gallon and your SUV making frequent stops to fill up, the cost seems overwhelming. But does it really make sense to sell your gas guzzler and buy a new hybrid?

We have been led to believe that the greater the miles per gallon (MPG) of a car, the more we will save on gas.

However, a recent study by two professors at Duke University concludes that measuring fuel efficiency solely by MPG is misleading and inaccurate.

Look at these two examples. Which do you think will reduce energy costs and emissions the most:

1. You replace a car that gets 16 MPG with one than gets 20 MPG; or
2. You replace a car that gets 34 MPG with a hybrid that gets 50 MPG?

This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.

If you fail to file your tax return because you owe more than you can pay, you are digging a deep hole for yourself. It will not be easy to climb out of it.

The IRS treats failure to file a tax return as a far more serious offense than filing a tax return and not paying the full amount of the taxes due.

If you fail to file a tax return, the IRS has the right to prepare and file one for you. The return prepared by the IRS may not give you credit for deductions and exemptions to which you may be entitled. Once the return is prepared, the IRS can bill you for the amount it calculates is due, plus penalties and interest.

While it is not the current policy of the IRS to criminally prosecute taxpayers who fail to file returns, it can happen. If you do not file voluntarily, or make arrangements to file, and you receive a notice from the IRS that you are under criminal investigation, you might run out of options and find yourself facing a criminal trial.

A far better option is to file your returns on time (or seek an extension) and discuss with the IRS the options it has available for making payments over time.

You may qualify for paying your taxes in installments, particularly if the amount owed is less than $25,000 including combined tax, payment and interest.

You also may qualify for an "offer of compromise," which will resolve your tax liability for an amount less than you might otherwise owe. There are a number of stringent requirements imposed by the IRS in order to qualify for an offer of compromise. However, the IRS has broad discretion to resolve tax liabilities if the taxpayer can demonstrate that "... exceptional circumstances exist such that collection of the full amount would create economic hardship...."

You should consult with a tax advisor to be fully informed of your rights in dealing with overdue taxes. But remember, the problem will not just go away. Failing to file your tax returns will only make it worse.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).

This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.

Lucky you. You have a fixed rate mortgage. However, the payments are a stretch for your budget and you have mounting credit card bills that you are paying off at a high rate of interest.

A friendly "debt counselor" suggests that you refinance your mortgage at a variable rate. Your initial mortgage payments will be less than your fixed mortgage and you will be able to pay off some of those high interest rate credit card debts with the cash you generate. As an added bonus, your mortgage payments are deductible, but your credit card interest is not.

Everyone's a winner. Right?

Not exactly.