A year ago...

Yesterday marked the unhappy anniversary of the slide into financial panic. While the financial landscape may not be in great shape today, I think most would agree that things could be a whole lot worse. In fact, I'd guess that if we had taken a reader survey 50 weeks ago, many/most probably would have expected conditions to be worse today than they actually are.

Going into last September 15, conditions had been rocky for a while, and obviously the big-picture issues (like falling housing prices, bad subprime debt, leverage and derivatives) had been festering for quite some time. But it was the government's decision to allow Lehman Brothers to file for bankruptcy a year ago that marked the turning of the corner into a full-fledged financial panic. In the few days that followed, AIG would be taken over by the government, Merrill Lynch would be forcibly folded into Bank of America, and a money market fund breaking the buck would start an invisible, but very real, run on the banking system. (It's also pretty easy to make at least a reasonable argument that the Presidential election turned on the events of that fateful day/week as well.)

We've talked about many of these events and their implications over the past year, and while part of me would like to stop and revisit them, we've got a newsletter deadline staring at us at the end of this week. So our energies are required elsewhere for the next few days.

Still, I couldn't let the anniversary of this momentous shift in the financial system pass without a word. There are so many lessons to tease out of the events of the past year, but one stands out from the rest in my view. And that is simply the importance of investing with a long-term plan in mind.

If ever a case could have been made for chucking your long-term plan and reacting in the face of seemingly game-changing events, it would have been so this past year. And in fact, for the next several months after last September 15, staying the course looked like a decidedly bad move. But as we kept reminding readers, the key question wasn't where would stock prices be in a month, but where would they be in five to ten years?

Six months after last September, when stocks were bottoming in early March, it was hard to believe they could recover even within that time frame. Yet here we are, a year later, and our losses no longer look insurmountable. While the market itself is still off by double digits, Upgraders who stayed the course through thick and thin are back to "mild loss" levels. The SMI Fund (SMIFX), a useful proxy for newsletter upgrading, is down just -7.30% over the past year, according to Morningstar (through last night's close; note this link to the 1 Yr performance changes daily). The SMI Managed Volatility fund (SMIVX) is down just -6.69% over the past year, with significantly less volatility along the way.

If an investor didn't know how those particular 6.7%-7.3% losses were realized, they likely wouldn't even blink at one-year losses in that range.

And that's exactly the point. Losses like we saw last winter can materialize faster and cut further than anyone expects. And rallies like we've experienced the past six months can do the same thing, just in the opposite direction. Trying to time those moves is an exceedingly difficult exercise. Just ask the countless investors today with money sitting on the sidelines that was pulled out of stocks at some point during the past year.

It's been a wild ride for investors, enough to reveal to some investors that they really can't stomach the level of stock market exposure they had previously planned on. That's a reasonable lesson to take away from the events of the past year. With our losses back to levels that no longer seem so threatening, it's worth revisiting the events and accompanying emotions of the past year, in an effort to learn how we can better prepare for and handle future periods of extreme market volatility.

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Mark Biller is Sound Mind Investing's Executive Editor. Visit www.soundmindinvesting.com to learn more.