Since the stock market bubble burst three years ago, investors have been on a roller coaster ride, with the market going up and down, but not really moving ahead.

It’s hard times for investors and business owners. How can you survive?

More than half of all Americans own some stocks and watching our net worth soar and plummet is enough to make anyone a little sick, even the professionals. The only answer is to understand why the market appears to be in a holding pattern and what you can do to protect your wealth.

In the 1990s, investing in the stock market seemed easy. No matter where you put your money, it returned a minimum of 20 percent per year. And then the bubble burst.

“What you had for a few years was a willingness to believe a bunch of bull and people were not careful,” says Ralph Wanger, of Libery Acord Fund.

All the irrational exuberance drove stock prices into the stratesphere. The steep decline in value since 2000 has frightened investors and confused money managers.

“The market trades on three things. It trades on operating fundamentals, it trades on valuations and it trades on emotion. Today, it’s trading on emotion,” says Joe Betlej, Advantus Capital Management.

Which means the stock market could stay in a small trading range but not really move forward. Wanger says that’s what happened in the 1930s and the 1970s.

“These things can go on much longer than one has in mind. It doesn’t match one’s personal aspirations at all,” Wanger says.

So how do you make money in a market like this? Carefully.

“Emotions have no place in your financial modeling and planning. And diversification and perspective as with almost any other thing in life are very important,” says Diana Joseph, Mesirow Asset Management.

“Focus on what you can control. Some of the things you can control are how you can divide up your assets, where you put your money to work and basic things like that,” says Kunal Kapoor, Morningstar Mutual Funds.

Divide your investing dollars between stocks, bonds and cash. Spread the stock dollars between small, medium and large companies. On the bond side, buy short, medium and long-term bonds.

“You need to give up some potential upside. People should never expect to be riding the top of the market if they’re probably diversified” Joseph says.

“It’s not an easy time to get rich fast,” Wanger says.

But over the long run, you will make money.

“If you look 10 years from now and say I made investments back in the early part of 2003, you’re going to look very good,” Betlej says.

Money Magazine

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