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What will you say to buy and hold investors if we do actually slip into a broad regional war in the Middle East?

In my workshop I tell our guests, "If you follow my advice I guarantee you will lose money." And that is the advice any financial advisor should give. If investors understand that substantial losses are part of the process, they can then take the steps to limit those losses in the worst of times.

The easiest way to limit losses is with the addition of an amount of fixed income securities or bond funds to bring losses down to your limits. In "Fine tuning your asset allocation" there is an important table that shows the expected losses of many combinations of equity and fixed income asset classes. That is the best guide I know to give an investor what they need to prepare for what you have suggested is a "worst case" situation.

There are dozens of things that could happen to cause the market to go through another serious decline. I don't wish the trauma of a war on anyone. Nor do I wish them the financial destruction of a terrible bear market. But I believe both are likely to happen again in my lifetime. My job is to convince different kinds of investors to structure their portfolio with the knowledge that there will be destructive bear markets and probably for reasons that weren't anticipated.

Our firm lost very few clients in the 2000 through 2002 bear market. And all of our clients lost money. The key to their ability to stay the course, and profit from the 2003-2007 bull market, was careful guidance in the asset allocation decision. We try our best to understand the limits of loss our clients are willing to accept. If we help them get that right I think their probabilities of long term success go up 10 fold.

We have other clients who are not comfortable with an investment discipline that is without an exit strategy. For those people we use active risk management strategies that attempt to exit before the damage is beyond their risk tolerance. In both buy and hold and active strategies our goal is to limit losses based on the needs of each client.

The do-it-yourself investors who read our articles are hopefully applying the same approach as we are for our clients. If our articles have not moved them to action, and they need help, I hope they will find another teacher who can give them the confidence to move to action. The truth is most investors need help to do it right. It can be an expensive lesson to learn this after the damage is done.

IMPORTANT DISCLOSURE: The specific content of this message is intended strictly for informational and educational purposes. Such content is not based on knowledge of any reader's individual needs or circumstances and should not be construed as investment or tax advice. Any investment or tax decisions made are ultimately the responsibility of the individual.

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