Imagine if this were you. You worked very hard for the past 30-plus years at a manufacturing company that alternated over the years between big raises and barely enough of a raise to match the increase in the cost of living, between loads of overtime to having hours cut to three days per week, between mandatory vacation to vacation black out periods. But over those 30-plus years, this hard employer of yours stayed committed to one thing: helping you save for your retirement. Every dollar you invest to a maximum of 6% of your salary is matched by $0.50 to a maximum of 3% of your salary. Not a bad plan and in spite of all of the ups and downs over the years, you stuck to that program because the company was actually giving you something for free.

And here you are, five years or less before you can retire. Your investments have accumulated, not a bad little nest egg for someone working at a manufacturing company, whose weekends are spent with family; spouse, children and, gasp, grand-children. And in those five years or less, you know you will be able to devote even just a little more time those things that matter to you most -- the family.

Except the domestic banks, all of a sudden, announce that they are essentially insolvent. They need money from the government. And all of those investments that saw you sacrificing so many luxuries over the years are slowly depreciating. At first, you watch 10% disappear -- poof! -- in thin air. But you have seen magic tricks like this before and before long, that 10% loss will turn into a 30% gain.

But it doesn't end at 10%. In fact, it doesn't end at 20%. It doesn't even end at 30%. And whenever you turn on the television or pick up a newspaper to find out what is going on, you hear about this economic situation being worse than anything since since the Great Depression. You hear that countries are insolvent (sure, they are small countries, but everyone has heard about Iceland). And if one country can go broke, why can't ours? And if our country can go broken, what about that nice little nest egg, now down by 40% or more?

So we see, then, just how easy it is to fall into the trap of selling on the low end. Fear dictates our behavior. But that behavior seems extremely justified because whenever we hear someone on television or the radio or read something in the newspaper, we feel like we are idiots if we do not see just how "real" our fears should be.

Over all of those years, as we made our investment purchases, we knew that we needed to sell once prices rose. But we never counted on being forced to sell... when things were at their lowest. That greed that kept us invested turned on us.

It's obvious to you: you have to cut your losses because if you don't, you can't retire. And besides, if you pull out now, maybe you can lock in at for some petty little interest rate. Sure, it's low, but at least it's positive not negative like that 40% loss on those investments.

Logic has a funny way of convincing us of things that are illogical. Remember that. Because if you had waited, that 40% loss would have made itself up by now in what ended up being a rather "short" economic contraction compared to all of the others (in terms of actual time).