Is It Time to Panic?

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I got a panicked email earlier this week from my very good friend, Maryjane, owner of a design agency in New York City:

"Lew, I had breakfast with a very savvy money pal the other night. She told me she decided to pull all of her money from mutual funds because she thinks it all may explode come September. YOU are in this market. I know you rode out other hysterical times and did O.K. when the rest of us got creamed.

"My broker told me it's volatile now. I am reading the papers and, geez, my stomach turns. The market is in the toilet, and I guess I thought I would have the stomach for it, but maybe I don't.

"I told my broker I would not touch anything for five years. I have a meeting with him next week to go over the portfolio.

What is your gut feeling about our bloody system? What should I do?"

Now, Maryjane is a bit emotional and she wears it on her sleeve. It's what I love about her. And I know her well enough to know that money is not her strong suit. I probably should have taken the time to call her, but I was traveling, so I responded by email:

"MJ, I really don't know how your money is invested so I have no way of knowing how YOUR money is doing. But in terms of the market in general, I am not changing any of my investing plans. I continue to hold diversified stocks in index funds and continue to buy a little more each and every month on the exact same day.

"Keep in mind, however, that I'm a long term investor with a 20-plus year time horizon, so I don't care if the market takes 10 years to work itself out. However, if I were a short term investor (five years or less), then I'd want to be more in cash. If I were not comfortable with risk, I'd also want to be more in cash these days because for the next couple of years, we could be in for a tough market."

How are the rest of you feeling? What would you have told Maryjane?

Lewis Schiff is the chairman and executive director of Inc. Business Owners Council, and the author of the book, The Middle-Class Millionaire. He can be reached by email, on twitter or by phone: (800)536-0046. @lewisschiff