The Bermuda National Pension Scheme is one year old (June 1, 2000 start for most firms) and for many Bermudians subscribing to this pension through their employer, it has been their very first exposure to capital markets, and what an extraordinary lesson it has been!

Almost all of you went through the required education sessions held by your pension provider; in some cases, that was at least year ago, but you thought you knew what you were getting.

You have been used to fixed deposits, watching your interest compound, knowing with certainty that at the end of a time period, you will have more than you started with. What you did not expect to see was the value of your pension investment drop right along with the downward slide of most global markets. You know that these assets are locked in until you retire, and you are still not entirely comfortable with that, as more and more of your hard-earned money keeps getting put in the same situation.

What you do know is that right now you do not understand what is happening, and you are not the least bit happy with those quarterly statements. This isn't the way they said it would be; at least you don't remember your sessions that way. If anyone did tell you that you could earn anywhere from 12% - 20%, you most probably have forgotten the second statement, that past performance does not guarantee future results. There are no guarantees when investing in capital markets. Much confusion surrounding pension investments still exists; it is important to note that it has only been about five years since currency control was lifted. Prior to that, most residents didn't have any other options - if you were on a budget - except fixed deposits. And wasn't that 7% - 7.5% rate terrific; little risk, great return. Life then seemed more certain, today is not, and things have changed.

Interest rates are down, and may stay that way for a while. Even if you could pull your pension investment out, where can you invest that will even outpace inflation? This is a good time as any to revisit some market basics.

Volatility is here to stay.

To mentally prepare for this volatility, it is helpful to understand market history. In the past 70 years, the stock market has averaged an 11% return annually. In the last ten years, it has averaged 18% annually, in the last five years, it has averaged 20% annually. Using the mathematical rule of 72, if you have invested $10,000 five years ago, it would have doubled in only 3.6 years. How? Divide the interest rate of 20% in to 72 ( 72/20). So, what good is this old information now? It is very valid. History is all we have to go on, your pension has been invested in the market only one year. In true terms of your total time horizon, it is a very small time. Your education in the stock market process is just beginning.

Will my investments recover? What goes up (bull markets), must go down (bear markets), only to correct itself again. Since 1953, there have been 14 down (bear) markets where the Dow lost more than 15%. Bear markets occur when investment values drop into negative territory, trading slows, and economies stagnate. Being bearish means being in a short position looking to capitalise if the market drops. Just as an aside, the derivation of a "bull" market being long and owning assets and a "bear" market not owning the assets but bearing the liability to give the asset back (being short) when the market is going down and the asset can be replaced cheaply because prices have fallen, is lost in time.

"Bearish" may originate from trading in pelts when bearskins were sold before the bears were even caught. Simply put, you (the trapper) got your pelt money up front ($10 a pelt); if thousands more trappers flooded the market with bear skins later on, and the trader had to sell them at a price ($5 a pelt) lower than what he paid you, that was his problem. That's the deep woods version of selling short.

Of course, these terms and the entire market situation today is derived directly out of the United States, the most dominant market of this century. I have actually had people harass me about discussing the US; even my husband says, stop talking so much about US investments. I cannot avoid it; the US market drives the world. It would be no different if I was in London, Germany, Hong Kong, Japan; all eyes look Westward to Wall Street first. Your pension investments most probably are held in US dollars, the safest in the world; and even though, I have seen eight or nine of the pension plans in any depth, I am betting that more than half of mutual funds choices are US managed, US stock holdings, or the offshore version of a US mutual fund twin.

How Long Is This Negative Situation Going to Last?

Historically, down markets have lasted an average of eight months, and took an average of 13 months to recover 100% of the money. The worst bear market to date was 1973-1974, when the Dow lost 48%. It lasted 21 months and took 64 months to recover.

Generally, the theory is that you can recover from most losses within five years. We have already seen signs (and portfolios) that have recovered to par or better. Comments have been made to the tune of "what kind of people are handling my money?" Don't vent your frustrations on the fund manager. Your pension funds are invested with experienced professional global fund managers, and even very good ones have an occasional bad year. All investments are subject to market risk, when volatility is rampant. Good fund managers running well-diversified portfolios can minimise the risk of the downside, showing a lesser loss than the pack, and a quicker pickup as markets turn upwards. Because you are dollar - cost averaging, your contribution is invested every month; you are picking up cheap shares right now, ultimately giving you a larger bounce later.

Revisit your Pension Portfolio Choices Take a look at your risk tolerance again. Do you remember what you filled out when you initially chose your risk profile? People tend to be very exuberant when the markets are flying, stipulating that they want only aggressive choices; they want to make some real money! Did you choose moderate or aggressive? Are you extremely uncomfortable with what is happening to your pension now? To thine ownself, be true. This I am afraid is the now the moment of truth, you are not an aggressive investor, you are most probably a conservative investor with very little tolerance for risk. You need to have your asset allocations changed at the next opportunity to a less aggressive portfolio mix, understanding that you will not see any 80% returns (or 80% losses) in the future. Revisit your time horizon.

Risk diminishes over time, how much time do you have before retiring? Five years to go? You should be positioned for more preservation of capital (shorter-term bonds, money market funds, money funds), but you still need a minimal portion in equities. You are going to be in retirement a very long time, in some cases longer than your entire career. Ten years to go? . Your proportional investment position can carry more equities than a five-year to go employee. Time is on your side, you want to capitalise on these remaining years. Typically, your last five to ten years are your best earning years; save as much as you can, these fund managers can and should do a better job than you can on your own.

Twenty Years to go or more? You should be heavily invested in equities. This is your chance to accumulate a significant portion of your life savings. Go for it.

Last Caveat: Each of you is an individual. It is not possible to give specific advice because I do not financial profile. Always keep in mind that your pension positions must be taken in context with your overall financial position. If it only represents 10% of all your assets, you may be able to afford to be more aggressive. On the other hand, if it represents 50% of your total asset situation, you must invest very, very carefully. You don't have to tell your pension provider your entire financial history, but you may, of necessity, have to take a pretty conservative approach.

Do you know the composition of the mutual funds in your portfolio?

Bet you, you don't, find out now. Take the time to read the annual report and see exactly what the fund manager invested in (your total portfolio holdings are listed there). If you feel comfortable with the stocks, recognise the names, then you know, that your investment, over the long-term, will be a contributory part of your retirement lifestyle.

And lastly, if you are still laying away at night concerned about your investments, you may not be able to stop the worrying, but you can sure start learning. Increase your investment knowledge base now. If you still don't like what you see, or understand, then it is time to consult your pension provider.

Martha Harris Myron CPA CFPO, is a Bermudian, a Certified Financial Planner O, holds NASD Series 7 licence. She is Education Director for the Financial Planning Association of Bermuda. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or any other investments. Readers needing specific assistance should seek advice from an experienced professional financial advisor.