Dear Professor,

Richard T.

Sounds to me like Junior isn't the only one who needs convincing. Dad buys a financials fund, dumps it after one weak year, and now sounds as though he's turning against his S&P 500 index fund. The inability to stick with a struggling investment may be hereditary. 

We all naturally shy away from investments that are in the dumps. But I say fight nature and you'll be a more-successful investor. Read on to learn five things Dad, Junior, and the rest of us can do to survive--and maybe even thrive--through this tough market.

One: Don't Panic
The first thing investors should do is nothing--at least for awhile. 

Selling that S&P 500 fund while it's in the dumps means locking in the loss. As of March 2, the S&P 500 was down 9.6% for the previous 12 months. If Dad had bought the fund a year ago and sold on that date, the result would be as if he paid one dollar for every 90.4 cents he took out of the fund. 

I'm not saying that investors should never act when bears are on the prowl, but that they shouldn't do anything rash. My four remaining bear-market tips will help insure that when you do make moves, they're smart ones.

Two: Review Your Plan
One of the best ways Richard can restore his son's (and his own) confidence is to review their investment plan. That will remind them what they're investing for, and why their investment portfolio is appropriate for that goal. 

Use Morningstar.com's Asset Allocator to determine the odds of reaching your goal given your current portfolio.

Investors who don't have a plan: Create one. Identify your goal and the level of risk you're comfortable with. Then use Asset Allocator to determine whether your current portfolio will get you to that goal without keeping you up at night.

Three: Make Sure Your Portfolio Is Diversified
Of course, this activity follows from the second, but I make no apologies for repeating myself. Maintaining exposure to a variety of areas from big and small companies, to growth and value stocks, to foreign as well as U.S. issues, and especially to bonds and cash, is the best way to survive a bear market. 

Use Morningstar.com's Instant X-Ray to get a handle on your portfolio's current mix. 

What if your portfolio isn't as diverse as it ought to be? You could shift assets around to achieve your appropriate blend. But I hate to sell a fund when it's down. If you're like me, you use new money to add to the underrepresented areas of your portfolio.

Four: Review Your Investments
By giving your individual investments a good once-over, you'll increase your confidence that these investments are worth sticking with, despite the painful recent performance. "A Simple Year-End Fund Check Up" will tell you how to analyze your investments. 

Make sure your funds are still playing the same roles in your portfolio that they originally did. Check that they're still competitive with other funds in their category. 

Five: Go Shopping
It may seem like "go shopping" is my response to all market crises. But I still believe that a bad market can present opportunity. After all, the S&P 500 is down nearly 10% for the past 12 months, and a host of funds and stocks are off considerably more than that. That means a lot of good long-term investments are going cheap. Even my colleague Susan Dziubinski is eyeing tech funds after years of thinking they were overpriced. 

Of course, I did say "go shopping" months ago, and the market has been down since. Unfortunately, the only way to identify the market's low point is after the fact, when you've already missed the cheapest prices. That's why I recommend dollar-cost averaging for fund investors. By investing a set amount of money automatically each month, instead of wincing when your fund sinks further, you can console yourself that you're getting an even better bargain than you did last month. (For more on dollar-cost averaging, read this.)