There's something to be saidfor sticking your head in the sand and ignoring reality. (Photo:Shutterstock)

The 2008-2009 market downturn was the worst fall inthe memory of most investors. When they opened their 401(k)statements in the first quarter of 2009, many investors panicked.They committed the second-worst sin an investor can commit: Theysold low. (The worst sin is buying high.)

Are we headed for a repetition of this history? We are about tofind out (see “4th Quarter Fallout: Mistakes 401k ParticipantMight Make After Reading Their Latest Statement,”FiduciaryNews.com, January 29, 2019).

This might be hard to believe, but if we are to avoid theproblems of panic, we need to learn the lessons of 2008-2009.

Ten years ago, when participants opened their statements, they wereshocked. Their tidy nest eggs had lost nearly half their worth inroughly a year. In letting their emotion take control, theyinstinctively sold in the first quarter of 2009 – just as themarket was reaching its lowest point.

What was the consequence of succumbing to fear? They lost out onparticipating in the gigantic bull market bounce that began inMarch of 2009. As a result, it took them longer to recover theirlosses.

Indeed, some may never have recovered.

What folks avoided this mistake? The ones that didn't open theirstatements.

They saw the headlines. They knew what was coming. Rather thanconfronting reality, they instead decided to “go ostrich.” Theychose to bury their heads in the sand. Sure, they received theirstatements, but they never opened them.

That may sound like escapism. Yet, it might have been thecorrect decision. By ignoring reality, they never confirmed theirworst fears. As a result, they didn't experience that same rawemotion that caused their peers to sell in panic.

They kept their retirement funds in the market and rode theeventual rebound to greater heights than they ever experienced.

It's probably not ideal to ignore reality. It's better toprepare for it. And by “prepare for it” I mean preparing formultiple scenarios. You don't have to know which scenario willhappen. All you need to know is what to do when it does.

Think of it as if you're a quarterback running the option. Youdon't know what the defensive end will do. Your coach will teachyou, however, what to do given the two different actions thatdefensive end can take.

In scenario one, the defensive end angles out to contain yourability to run around him, in which case you give the ball to thetailback. In scenario two, the defensive end angles in towards you,in which case you keep the ball yourself and speed around theend.

You don't know which scenario the future will bring, but youknow exactly what to do once the future reveals the actual scenarioto you. And you act accordingly.

Wouldn't it be great if retirement plan savers were just asprepared for the future as option quarterbacks? And who is there tocoach those savers on what to do given any variety ofscenarios?

Without financial professionals coaching them, perhaps it's bestif retirement savers “go ostrich” this quarter.

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