Keep this in mind: For U.S. firms outside the financial sector, balance sheets actually look OK. Banks may have been borrowing like drunken sailors, but most of the rest of corporate America had a more conservative view. Aggregate balance sheets for U.S. companies outside finance were in the red a bit over a decade ago. Today, they're running a $1.2 trillion surplus. "They don't have the excesses that need to be cured by a typical recession," says Lincoln Anderson, chief investment officer at LPL Financial. That means companies may face a slowdown, but they do have a cushion to ride out tough times.
Another tip: Don't be the last one out of the market. Battered investors might want to go all cash right about now, but to reverse the damage most people have already suffered, that's exactly the wrong tactic. "Your average investor was probably invested the whole way down," says Christopher Orndorff, head of equity strategy at money manager Payden & Rygel. Stocks, he points out, are one of the only spots where returns are historically high enough to reverse the damage in a reasonable length of time. According to T. Rowe Price, a $1 million portfolio at the start of the 2002 bear market shrank to a frightening $611,358 in late September of that year. Scared investors who went to cash were still far underwater three years later, with a nest egg of $640,178. In contrast, the ones who stayed invested had $972,147 by late September 2005 and $1,254,093 by late September 2007.
Admittedly, that's exactly when the market peaked again and when the roller-coaster ride in stocks started all over again. As Wall Street works off its latest excesses, try to take the volatility in stride, keep a cool head, and remember that what goes down almost invariably comes back up again—someday. Now there's a history lesson for the grandkids.