%image_alt%The average American consumer is 45% poorer because of the financial crisis, according to a survey released by the Federal Reserve. How did this happen? Consumers suffered losses due to the falling values of their homes, cars and financial assets like stocks and retirement accounts.

How bad was the damage? According to , here are the major hits to household net worth — assets minus debts — during the recession, which officially ran from December 2007 to June 2009:

The median family’s net worth fell 23.2% from $125,000 to $96,000;
The S&P 500 fell 57%;
The S&P/Case-Shiller index of housing prices in 20 cities dropped 32%.

Of course, that net worth decline hurts. But if you have a job, at least you can pay your bills. Unfortunately, 8.9% of Americans don’t have jobs right now. And for those who do, median income has fallen 8.1% in the last decade. Meanwhile, gasoline is up 70 cents a gallon in the last year as rising food prices — including 12.2% stealth inflation — take a bigger bite out of declining paychecks.

Net worth declines are particularly painful for those expecting big bills — like a $52,000-a-year college tuition or paying for retirement. And with such a big drop in net worth, the urgency of regaining lost ground could hardly be greater.

What Can You Do About It?

My best advice is to buy stocks. That’s because of stunning corporate health. In 2010, profits hit a record $1.66 trillion. And 2011 revenue growth prospects of 7% for the S&P 500, with near-record 19.8% operating margins, bode well for earnings potential. All this profit growth has not yet been factored into stock valuations, which currently trade at a P/E of around 15 — far below the P/E of 19.7 typical of previous bull markets.

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Those who have been burned by stocks over and over will, no doubt, be reluctant to place that bet. Unfortunately, however, there is not much else to turn to if you hope to make up for lost ground since “safe investments” like money market funds are, in fact, yielding far less — about 0.03% — than the 1.7% rate in the last quarter of 2010.

Moreover, with the possibility that the Fed could raise interest rates to control inflation — which it may do if wages start to rise — bonds are a bubble poised to pop. When interest rates go up, bond prices drop.

I find the most efficient strategy for investing in stocks is to buy an S&P 500 stock index fund that has a low expense ratio. Since few mutual funds can regularly beat the market averages, you have a pretty good chance of keeping up with the 26.5% average annual rise in stock prices we’ve enjoyed since January 2009.

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