Retirement Confidence Plummets

"There are reasons for these surveys to come back and show that confidence is really off the charts on the downside, because investors have lost significant savings in capital markets and real estate," he says. "But I think that confidence indicators are truly backward looking and one really needs to move forward now. This is not a time to disengage. It is a time to take action, get your financial house in order, and think of saving more, not less, in order to repair the impact of the market."

Kinniry advocates good old-fashioned investing in the stock market. "We know that the stock market has outperformed the bond market in most 10-year periods and even more so in 20-year periods," he says.

Granted, it is not going to be easy to get people to trust in the stock market, and according to Greenwald, belief in the efficacy of equities has a taken a huge hit this year.

But Kinniry says that one of the key lessons to take away from this downturn is the importance of nuts-and-bolts investing, "the kind of stuff we learned in investing 101." With the help of an advisor–and by and large, he says, advisors have done a prudent and careful job of getting their clients to diversify among different asset classes–clients need to get a savings plan in place, and that plan should include exposure to equities.

"The fact that so many people were surprised that stocks could drop so much surprises us because there have been other times when this happened," he says. "But we all have very short memories and right now, with confidence at an all-time low, it is very hard to have a memory that stocks rallied off the 2002 bottom by 100%."

Balancing stocks with a good dose of high-grade corporate bonds or Treasuries is the best way to go. Anyone who had done this would have seen that the mix held up far better in the downturn, and that bonds are by far the best diversifier for stocks, Kinniry says.

How can advisors keep their clients invested in equities, or get those who have gone to cash to return? Kinniry advocates a two-step approach: "We typically try to show how large the equity premium is to bonds at 4% and money markets at 6%. This compounds to significant wealth over long holding periods." Second, Kinniry would argue that equities, "while having very big down events such as 2008," nevertheless will continue providing a premium for equities within the capital market structure to those "investors who are willing to take" those risks.