Another investment strategy turned on its head is the search for safety in commodities. Morningstar's natural resource fund category was off more than 43%, and funds focused on precious materials have lost more than half their value. Investors in long-short funds haven't fared as badly as others, but they've still found themselves in the red, off 13.43%.

Even the investment-grade bond "safe haven" has proved to be otherwise. Total returns on long-term U.S. bond funds were off nearly 14%. Global bond funds did a bit better, losing 7.46%. Every category of municipal bond funds has lost money. And emerging market bond funds lost nearly a quarter of their value.

The only long position in Morningstar's entire fund universe that increased in 2008 was short-term government bonds, which were up 1.79%.

Broad View
When the subprime crisis initially hit the markets in the summer of 2007, many thought that we would be through the worst after a year. But clearly that timeline has changed. In October, the International Monetary Fund said "the world economy is entering a major downturn in the face of the most dangerous financial shock in mature financial markets since the 1930s." It believes that over the near term, "financial conditions are likely to remain very difficult, restraining global growth prospects."

Coordinated central bank intervention across the globe may have staved off the immediate breakdown of the banking system. However, Nouriel Roubini, a professor of economics at New York University's Stern School of Business who saw the crisis coming two years ago, worries especially about the collapse of the shadow banking system-broker-dealers, nonbank mortgage lenders, hedge funds, money market funds and private equity firms that borrow short, are highly leveraged and invest long. He thinks the failure to refinance "short-term liabilities may lead to widespread bankruptcies of solvent but illiquid financial and nonfinancial firms."

But not all assessments are bleak. Ron Sloan, fund manager of the $1.3 billion Aim Mid-Cap Core Equity Fund (GTAGX) believes that while volatility will remain, the markets have largely adjusted to the credit crisis and the ongoing recession. "We certainly don't have a crystal ball," says Sloan, "But our company-specific research does give us insight into what we believe are reasonable valuations under conservative assumptions."

Chen Zhao, managing editor of BCA Research, an independent advisory firm, thinks markets have been oversold. The worst may not be over, but he is optimistic. After the October blowout, he finds that "all the signs are pointing to a medium-term rally. But it is still unclear how sustainable this rally will be."

Strategies
Few managers are jumping wholesale back into the markets. But many are making specific moves.

Ron Weiner, CEO of RDM Financial, a Westport, Conn.-based independent advisor with $650 million of assets under management, recommends investors lock in tax losses and simultaneously swap into higher yielding securities of comparable quality to maintain market exposure. "This is a cautious way of generating real savings by sheltering profits you've already taken from capital gains taxes as well as up to $3,000 in ordinary income," explains Weiner.

Just as important, he believes in stockpiling losses, which can be carried forward without limit to offset future gains. He expects sheltering benefits to be even greater in the coming years given the likelihood that capital gains taxes will rise.