Financial advisor E.W. "Woody" Young distinctly remembers the expressions of a particular fifty-something couple when they walked into his office for the first time a few months ago: They had "the proverbial deer-in-the-headlights look."

Young, co-founder of Quest Capital Management in Dallas, attributes the couple's panic-stricken demeanor to the fact that they were coming to grips with the idea that they didn't understand the markets the way they thought they did a year or two ago. Nor were they as risk-tolerant as they believed. They managed their own investments and thought it was easy, Young says. "They had gone through some anxiety in mid-2000, and toward the end of 2000 they started realizing, goodness gracious, things are happening, but quote unquote, 'They were in it for the long term,'" he adds.

By the time they came to Young's office, their overall portfolio-almost 100% in equities, which included primarily growth index funds and tech investments-had dropped 40% from early 2000. Like other investors, the couple was feeling the pain from the relentless, unyielding blows the market has delivered over the last two years. At one point in late July, the decline since 2000 in the bellwether S&P 500 reached 48%, surpassing the 1973-74 bear market in magnitude.

Besides the financial losses, the couple had relationship stress to cope with, too. The wife had pushed for them to get out of the market earlier, but the husband had told her they should stay invested because they "wouldn't need the money for five years." In Young's view, the discord was so bad they could have ended up divorced.

The couple, who did become clients, are working with Young on a plan to reposition their portfolio so it's more balanced. That means fewer growth investments, some value and small- and mid-cap funds, as well as some short-term bond funds, Young says. But it's not just their portfolio's asset allocation that the couple is readjusting-it's their thinking about the future. In the 1990s, they were looking at retiring at 55, but they'll need to wait longer now. Not only that, but they are considering whether they should downsize today or wait until they retire and move to a less costly area. They haven't decided yet which course to take, but they are starting to get a grip on their situation, Young says. "They feel relieved, because they have a plan and a sounding board," he adds.

Advisors across the country tell similar stories about people who are re-evaluating their plans and are seeking counsel from advisors. Bruised and battered by a bear market lasting 30 months and counting, investors' expectations have changed. Realistic or not, during the 1990s many were hoping for double-digit returns year after year that would lead to early retirements, bigger homes or better vacations.

Many advisors say they drummed into their longtime clients the importance of asset allocation and were able to temper the views of most overly optimistic clients. The diversification and conservatism, they say, has paid off for many clients who are now experiencing only single-digit or low double-digit losses in a period when others are seeing most of their wealth vaporize. And because clients had realistic plans, they may not have to make changes to reach their goals. Nevertheless, even clients whose long-term dreams won't be compromised by more traditional returns are concerned about the current market performance and are considering cutting back, even if it's not truly necessary for them.

"What we have all discovered is that no one objects when the market is way up. It's been interesting to see how little people tolerate the downside," says Peggy Cabaniss, owner and president of HC Financial Advisors in Orinda, Calif. "We've had a lot of people very scared and frightened, and they want to get out of the stock market. But when we tell them their portfolio is down 10% or 20%, they say they didn't know it was that little."

John M. Smartt Jr., principal of Financial Counseling & Administration in Knoxville, Tenn., has three dozen clients from North Carolina to California, and one of his largest clients turned out to be the most fearful about her investment portfolio as a result of the bear market and the aftereffects of September 11. She is a flight consultant for large companies and has to do a lot of air travel. She's in her forties, and her objective was to retire in six to eight years to be able to spend more time with her children, with whom she travels extensively.

"It's her belief it's going to take the market a very long time to get back to where it's been. She doesn't think we have to worry so much about corporate America, but the global situation. Terrorism is not an if, but when. She thinks another large-scale terrorist attack is inevitable. When it happens, it could destroy our corporate infrastructure or destroy financial and political locations, and it would devastate the confidence of Americans long term," Smartt says.

For now, his client is "staying the course," but she's talked about moving to a 50% stock allocation when she's back to even money, Smartt says. He previously consolidated most of her investments at Vanguard to reduce her costs, and he has recommended she stay with 80% in stock mutual funds and the rest in bonds and money market funds if she wants to achieve her retirement goals. He estimates she'll need to work four years longer than she otherwise would have to if she changes her stock allocation, he says. "Now is the time to be moving into stocks," he says, "but that's not something she's willing to do."

They still are reviewing her situation, but recently she's been talking about keeping a 12% money market reserve, 31% in bonds and 57% in stocks, including some REIT investments, he says.

"This one large, very talented client continues to feel a lot of strain," Smartt says. "My theory is she has to spend extra hours each time she goes out on a consulting engagement at airports, and she's been bashed in the face by the additional security."

Steven B. Enright, president of Enright, Mollin, Cascio & Ramusevic in Old Tappan, N.J., and Elmhurst, N.Y., also believes some investors may be overreacting to the bear market. "People are nervous, maybe even when they don't have to be," says Enright, whose typical clients have investment portfolios averaging $5 million and net worths of more than $10 million.

Still, there's no doubt clients' thinking has changed, he adds. "Two years ago, they thought it was a slam dunk to achieve retirement at an early age. Now, they are being a little more pragmatic about it," Enright says.

He mentions one physician client who was set to retire this year but now has decided to practice for at least two more years. Another physician client has sold his vacation home and cut back on travel. Not only are his investments down, but his practice is declining, too, and he may be forced to retire even though he doesn't want to.

The people who are more likely to be looking at extreme measures are new clients, many advisors say. For example, Enright says an attorney who recently became a client and had let his money ride with tech stocks has lost so much money he doesn't have a choice-his planned retirement is on hold, probably for five years or more.

Cabaniss mentioned one new client who consistently through the late nineties was taking withdrawals of 10% annually. His all tech-stock portfolio, which he managed himself, has dropped by more than 50%. He's continued to take the same dollar withdrawal, but instead of 10%, it's become more like 20% and rising, and that's not going to work, she adds. "We're discussing what he needs to do, whether he needs to sell his house. A lot of large homes have a lot of expenses-a pool, a house cleaner and more-just to keep it going," she notes.

The sheer size and scope of the high-tech industry magnified the impact of both the bubble and its demise for millions of Americans. Jerry Boisseau, president of Amherst Financial Services in Toms River, N.J., recently took on a new client who had been a senior officer at a start-up tech company. "When he retired two years ago, the value of the stock he held in that company was in the seven digits, and it's now been reduced 80%," and his overall portfolio is down 70%, Boisseau says.

Lou Stanasolovich, CEO of Legend Financial Advisors in Pittsburgh, agrees that the most intractable problems have arisen with new clients. "I would say it hasn't really been with our existing clients because they haven't lost much money, but with new clients coming in the door. Maybe they were 55 and planning an early retirement, but now they have to work until 65 or 70 because they had 50%-plus hits to their portfolio. We've probably seen dozens of those situations," he says.

Many advisors report most existing-client situations aren't as dramatic. "Where I have had a lot of questions is how it's affecting investments, and do they need to make a change. Some are on fixed incomes and are taking a regular draw on a monthly basis. It's prudent for us to look at it again and see if it's necessary to reduce the amount they are taking," says Boisseau, who has recommended reduced withdrawals for some clients. "I like to use 5% of whatever the portfolio is as a safe amount to take out on an annualized basis."

Also, clients who were on the fence about some decisions-such as whether to retire or buy a vacation home-are taking a wait-and-see attitude before proceeding. "When a person is reaching retirement and has had a job his or her entire life and they're getting ready to slide a piece of paper across a desk, it's a big decision. It's a stressful decision, even when the markets have been performing wonderfully," says Marsha LePhew, owner of LePhew Financial Services in Rock Hill, S.C. "It's more difficult to close the door and not reopen it when you're passing through a market that's not doing so well. It's more of a mental thing."

Stanasolovich notes clients who have diversified investments and have been more conservative have been better able to face the disappointing markets. He mentions one client family that had $5 million in stock options that by early spring had sunk in value to $200,000. "Most were not vested yet, so there was little we could do," he says. "They are in their early forties, and they thought they were on top of the world two-and-a-half years ago. But they had always looked at it as if this was bonus money if it ever happens. They are people who had a modest lifestyle, and they realized some of this money could supplement their long-term lifestyle."

Martin Shenkman, a tax expert and lawyer in Teaneck, N.J., advises clients on estate planning issues, and one trend he's seen as a result of the bear market is caution on the part of clients when it comes to giving. "People don't want to give away lots of money now because they're scared they aren't going to have money to live on," he says.

Nevertheless, clients still want tax savings. Grantor Retained Annuity Trusts (GRATs) are a useful way for clients to shift appreciating property, such as stock, to children but pay no gift or transfer costs. However, if the stock isn't appreciating or is losing value, it could end up being paid back to the grantor in the form of the required annuity, leaving nothing for the children and thus eliminating any gift-tax savings for the grantor. And with the bear market, many clients are concerned they will face just such a situation, he adds.

So instead, Shenkman is setting up family limited liability companies (LLC) or limited partnerships, in which mom owns 49%, dad owns 49%, and each of the two kids own 1%. Mom and Dad get most of the income, but when one dies, he or she only owns 49%, so their ownership qualifies for valuation discounts for estate-tax purposes. "That's a basic estate-planning concept," says Shenkman. "If you own less than 50%, it's worth less than a pro rata share," he explains. Because a 49% owner can't control decisions, it's actually worth something less than 49% of the partnership's value, he says.

Another change he's seen among clients since the market debacle: Not as many of them want to fund 529 plans. "Some people are saying, 'I'm going to hang on to the money and pay for college later.' There's nothing wrong with saving for college in your own name in case you need the money in an emergency," Shenkman says.

Some clients also are buying more term life insurance-at least temporarily-to cover any estate taxes, he says. "People are pretty confident estate taxes aren't going away, so they're picking up 10- or 15-year policies. It's not ideal, but they figure they'll fund the 529 plan next year and do the LLC instead of really giving stuff away," he says.

The message most advisors seem to be conveying to their clients is to keep the current market in perspective and not to panic. John A. MacIntyre, a principal in Armstrong, MacIntyre & Severns in Washington, D.C., says the firm sent e-mails or mailed letters to all clients in mid-July reminding them of all the bear markets since World War II and events through recent history that have impacted investment performance. The firm stressed that for clients who haven't retired, the bear market isn't all that bad because they can continue to invest and buy shares at lesser prices. Retired or not, this is a good time to re-evaluate and set goals that make sense, he adds.

The firm also asked clients to re-evaluate their risk tolerance. "There aren't as many people who think they are aggressive as when the markets went straight up," he says.

However, it isn't a good time to turn your 401(k) into cash. "I'm not saying this is the bottom of the market because nobody knows," he comments, "but what we are saying is that if you have some money, not 100% of an inheritance, but if you have some money available this is a good time to re-evaluate and look for opportunities."

Many advisors think the bursting of the tech bubble and the drop in the overall market is making it easier for advisors to get their message across and only wish it could have been conveyed successfully with less pain. "I don't envision people taking as much risk. I don't think it will be as hard for an advisor to talk about investing in stocks and bonds," Cabaniss says. "Some of our clients went along with that, but they didn't understand the benefit of having a reserve and owning bonds. You don't really understand the importance of diversification until you go through something like this."