It's not all bad: There are things investors can do in trying times

— -- Markets like these make you want to retreat to your happy place, that spot in your mind where the Dow Jones industrial average always rises, banks pay 10% interest on CDs with no fees and the wee people stuff your pillows with fresh $100 bills every night.

In the real world, the stock market is awful, interest rates are a pittance and the only wee people you see are the ones whose tuition you'll have to pay in a few years.

Now it's time to survey the damage, look for opportunities, and revise plans. Fun? Nope. But it may not be as bad as you think.

The damage

Stocks. Where to begin? The Standard & Poor's 500-stock index peaked on Oct. 9, 2007, at 1565.15. Even after Thursday's explosive rally, the S&P 500 closed at 1206.51, down 22.9% from its October high.

International stocks. Many people view foreign stocks as a good diversification play. Unfortunately, going abroad made things worse. The MSCI Europe, Australasia and Far East Index has fallen 29.6% through Wednesday. The Lipper Emerging Market fund index has plunged 37% since the stock market's peak.

True, the value of the U.S. dollar has fallen against most major currencies since October, and a falling dollar boosts the value of foreign stocks held by U.S. investors. But most world markets fell even harder than the U.S. market did.

Cash. Investors who kept their money in bank CDs haven't lost money this year. On the other hand, someone who invested in a one-year bank CD when the bear market started in October earned about 3.6%. Prices rose 4.9% from October through August, meaning that most cash investors have lost money to inflation.

Bonds. The Merrill Lynch Master 1-10-year total return index, which measures a wide variety of bond returns, has gained 6.71% since the stock market peaked in November. Merrill's index of long-term Treasury bonds is up a stunning 15.9%, as investors have fled to the safety of government-guaranteed bonds.

Gold. Often considered a refuge when paper assets melt down, gold has seen both a boom and a bust. It sold for $736 an ounce when the bear market began and soared to an all-time high of $1,011.25 on March 17. But gold swooned back down to $740.75 this month before leaping back up to $893. Those who were able to keep their pacemakers working ended the period with a 17.2% gain.

Opportunities

If you happen to have any money left, you may be able to pick up some bargains. Areas worth watching:

•Mutual fund companies. Many mutual funds have been clobbered this year. So have the stocks of fund companies. The Lipper Management Company index, which measures the stock prices of the largest fund companies, has fallen 41% since October.

But these companies are money machines, typically sporting profit margins of 20% or more, and mostly haven't been affected by the credit crisis. T. Rowe Price should boost its earnings by about 14% next year, analysts estimate.

•Health care stocks. People need health care no matter what the economy does. And many big drug companies are cheap now. Merck, for example, sells for 9.4 times its next 12 months' earnings and offers a dividend yield of 4.9%. If you'd rather invest in a fund, consider the newly reopened Vanguard Health Care fund or iShares DJ Health fund, an exchange traded fund.

•Dividend achievers. In markets like these, stocks of companies that raise dividends regularly are a good bet. They're not only shareholder-friendly but are making an implied promise that they won't cut that dividend anytime soon. The SPDR S&P Dividend fund looks for high-yielding stocks of companies that have raised their dividends regularly for more than a decade. The exchange traded fund yields 4.4%.

The only thing to fear …

… is a face-melting worldwide depression. That's unlikely. But you can ease some of your worries — and some of your pain — by taking a few simple steps. Start with your 401(k) retirement plan, which is where most people have the bulk of their long-term savings:

•Spread your risks. If you had invested in a stock fund that follows the S&P 500, you lost 24.7% in this bear market through Wednesday. If you had 40% of your portfolio in a government bond fund, though, you're down just 7.5%.

•Look to the long term. If you have 20 years or more before you reach your goal, you can afford to keep most of your money in stocks. Over time, you'll earn more in stocks than in bonds or money funds

•Save as much as you can. Ultimately, the biggest determinant of how much you have is the amount you save. Consider increasing your savings before taking on riskier investments.

John Waggoner's new book, Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments, is available through John Wiley & Sons publishers. E-mail him at: jwaggoner@usatoday.com.