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Don't get discouraged by market losses and temporary setbacks. Long term retirement saving is usually a winning game.

Question: I’m 34 years old and have been investing 10% of my income in my 401(k) for 11 years. My balance of $160,000 is less than it was a year ago, despite continued contributions and company match. In fact, the Standard & Poor’s 500 stock index fund where I have most of my money is at or near its level when I started investing. Given inflation, dividends and the fact that I’ve been contributing steadily over time, have I made anything? Or have I been a total fool for my diligence? —Darin Knight, Vancouver, Washington

Answer: A total fool for having saved for retirement? Not in my book.

If nothing else, you’ve managed to build a nice nest egg valued at $160,000 before reaching the age of 35. If that’s being a fool, I wish the world were full of fools like you. Most people can only dream that they’d gotten the jump on retirement that you have.

That said, I can understand why you’re disappointed in your 401(k)’s performance - although you haven’t done as badly as you seem to think.

It’s true that the past decade has been a dismal one for stocks. For the 10 years to July 1, the Standard & Poor’s 500 index has gained a measly 2.9% a year, almost all of that the result of dividends. As it turns out, inflation also cruised along at an annualized rate of 2.9% a year. So the real, or inflation-adjusted, return over that period was pretty much zero.

But remember. That’s not the return you’ve earned on all the money you’ve invested in your 401(k). While the dollars you invested in your S&P 500 index fund in July, 1998 returned just 2.9%, you earned quite a bit more on the money you invested in stocks after the market fell from its peak in March, 2000.

For example, the dollars you invested in stocks back in October of 2002, after the Standard & Poor’s 500 index had fallen nearly 50% from its peak, have actually earned an annualized return of roughly 9.5% - a figure that includes the recent decline in stock prices. And that 9.5% puts you way ahead of the 3.2% annual inflation rate over same period.

If you’re really interested in seeing how your 401(k) overall has performed over time, you can calculate a personal rate of return that takes into account all the contributions (and, withdrawals, if any) you’ve made during your career by using the internal rate of return function on a calculator or spreadsheet software such as Excel.

I mention all this not because I want to make you feel good or want to rationalize the anemic returns of stocks over the past decade. Rather, I do so to illustrate an important point - namely, that when you’re saving and investing over time, you’re earning a different rate of return for each contribution you make.

So although you often hear talk about stocks generating long-term annual returns a bit higher than 10%, that figure masks a lot of ups and downs. Over the course of a long career, there will be times when you’ll buy stocks after they’ve been beaten down and are more likely to generate above-average returns. There will be times you’ll buy them after their prices have been bid up to blimpish levels and their gain potential is more limited. And there will be times you’ll get them at prices that will give you roughly average returns.

Obviously, it would be nice if there were a Magic 8 Ball or some All-seeing-all-knowing Guru who could tell us at any given moment whether stocks will deliver above- or below-average returns over the next one, five or 10 years. We’d then know whether to buy stocks or avoid them. But we know no such device or investing sage exists.

So the best we can do is follow a reasonable investing strategy based on our experience of the past, the conditions of the present, reasonable expectations for the future and a little common sense as well. To me that means creating a diversified portfolio of stocks and bonds that’s appropriate given your age and tolerance for risk and, aside from rebalancing periodically, pretty much sticking to it.

So it seems to me that for a young person like yourself with many more years of investing ahead of you, your strategy of investing mostly (by which I mean anywhere from, say, 75% to 90% of your portfolio) in stocks makes sense, even if it hasn’t produced the level of returns you would like. There are no guarantees, but for reasons I’ve laid out before, the longer your money will be invested, the more likely it is that stocks will generate the highest returns.

Finally, while your apprehension about your portfolio losing value over the past year is natural, don’t forget that planning for retirement isn’t a sprint. It’s a marathon. And at age 35, with another 30 or so years of saving and investing ahead of you, you’ve only completed about a third of the race.

So I’d say it’s a bit premature to write off the performance of your retirement portfolio. What matters most is how you finish the race, not necessarily where you stand in the early stages.

As long as you continue to save and stick to an investing strategy that includes a reasonable mix of stocks and bonds, you should roll into the finish line of retirement in fine shape.