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2006: A look back - A look ahead  
  The stock market rocked between overbought and oversold in 2006, so we asked four experts for a view toward 2007.
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Dr. Don Taylor, CFA, advice columnistYou need a wad of money to retire

One of the worst things you can do after suffering a big hit in the stock market is sell your investments. If you do that, you lock in your losses and you don't know when to get back in.

Conversely, the best thing you can do is remain undaunted and keep on buying up shares of diversified mutual funds right through the downdraft.

It's not unlike driving through a rainstorm. Of course, you should take precautions by buckling your seat belt and driving more carefully -- the equivalent of taking a hard look at your asset allocation and selecting investments wisely. But with any luck, by the time you arrive at your destination, the sun is streaming through the clouds. If you're really lucky, you may even see a rainbow along the way.

The proof is in a recent study of 3.5 million 401(k) accounts held from the end of 1999 through the end of 2005. The average account balance increased 50 percent, from $67,785 at the end of 1999 to $102,014 by December of last year. That period includes the tumultuous bear market of 2000 to 2002, when stocks lost considerable value. A $10,000 investment in the Standard & Poor's 500 at the beginning of 2000 would have dropped to $6,223 by the end of 2002.

Notwithstanding the stormy ride, investors achieved a constructive result after six years, largely because they continued to shovel money in their 401(k) accounts consistently throughout the turmoil. Effectively they were buying when stocks were on sale. Then, when the market rebounded over the past three years, they were poised to benefit by the upward move. Over the last three years ending in 2005, the S&P 500 gained 50 percent, while the Russell 2000 soared 82 percent.

Boomers have more moola
The study also reveals that 401(k) balances grew along with the ages and job tenure of participants. The average account balances for boomers in their 40s and 50s were $91,848 and $127,766, respectively, last December. Folks in their 60s accumulated an average of about $141,000.

Participants in the study tended to have heavy weightings in equities, roughly 68 percent on average. Boomers tend to be better diversified than younger folks, which makes sense, and more people of all ages are making use of lifestyle or life-cycle funds -- a good thing.

So where do you stand? The fact is, these statistics don't tell you that. They may be somewhat helpful since we can gauge our own progress against the averages. But since we're not competing with one another, the information is of limited value.

We're all in this together, aren't we? We're plodding along through our work lives, attempting to make ends meet and yet save an adequate amount for various financial goals, particularly our retirements. But unless we know how much money we will actually need to see us through two or three decades, we really can't be sure how well we measure up to our own goals.

The first step would be to figure out your monthly income needs. How much do you need to pay all your living expenses? Take a look at your budget. If you think you might have your mortgage paid off by the time you retire, reduce your monthly income needs by the amount you now pay for principal and interest.

-- Posted: Nov. 1, 2006
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