Investers were selling stocks if they thought had any risk and as such we saw the markets head into a tailspin. The downward spiral may have scared the indivdual investor to the point of them not returning to the market for some time. 

The small investors have seen the market decline for about a year now and are frustrated that everything they have been taught about the market has turned out wrong. It appears that diversification is not working and the buy-and-hold strategy has not been working as well.

Even in money-market funds, usually considered among the safest investments, after several funds suffered losses on short-term asset-backed securities, confidence has been shattered.

Investors who thought they were getting into stocks at cheap prices just a week or two ago are staring at the kind of double-digit losses that can make them think twice about buying again anytime soon.

After the worst week in the history of the Dow Jones Industrial Average, there could be more bad news and volatile markets ahead. The Chicago Board Options Exchange Volatility Index, or Vix, a measure of investor fear based on options trading, Friday hit its highest level since it was introduced more than 15 years ago.

Before the end of last week, traders had marveled that the stock market was posting big declines without signs of panic. That was replaced by wholesale dumping of shares late Thursday and Friday morning.

Still, there has been almost nowhere to hide in recent weeks. The average mutual fund in 68 of the 69 Morningstar Inc. stock and bond categories lost money in the past month. Even conservative strategies have taken a beating. Equity-income funds typically hold up better in a down market because they invest in dividend-paying stocks that should have stable finances.

The toll has been especially heavy on investors nearing retirement. Unlike the defined-benefit plans of previous generations, which were better equipped to weather downturns because new money continued to flow in, contributions to a 401(k) plan stop when an individual stops working, so losses can't be made up.

What is making matters worse, is that many advisors where telling their clients to hold a higher percentage of their investments in stocks as they approach age 65, because they could need their savings to last another 30 years. This lives millions of baby boomers vulnerable to big losses at a time when the economy could be in for a lengthy period of woes.