The great hope of investors, including those who buy into mutual funds, is that they'll buy low and sell high. But many people get tripped up on the sell high part, especially during a big decline, when it can take an iron will to resist the urge to pull out of the market.

Weak-kneed investors joined the panic party the last few weeks, when growing anxiety about inflation and rising interest rates sent stocks falling sharply, including a 214-point, or 1.88 percent, plunge in the Dow Jones industrials on Wednesday, May 17.

Selling tends to feed on itself as a declining market raises fears of a meltdown, in turn persuading more investors to unload their shares. But investors who sell under those conditions may soon regret such hasty decisions -- investment analysts say people who hold tight to their mutual funds during a correction are usually better off in the long run.

"Individuals almost always do the wrong thing whenever there's an extreme movement in the market," said Charles Biderman, founder and chief executive of TrimTabs Investment Research, a Santa Rose, Calif.-based financial research provider. "If you're really a long-term investor, and you really think the U.S. economy is going to keep heading up, invest a certain amount of money every month and forget about it. Don't try to time the market if you're an individual investor."

Most people, it seems, do try to time it anyway. Biderman estimates that $500 million was withdrawn from U.S. equity funds on May 17 when the Dow Jones took its fall, and that wasn't an unusual or even an extreme reaction for a bad day on Wall Street.

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During the market correction between June 2002 and February 2003, Biderman estimated that investors redeemed $100 billion from U.S. equity funds -- roughly $5 billion less than the $105 billion that flowed into U.S. mutual funds during the first four months of 2000, when the market peaked.

It may seem shrewd to sell before your losses worsen, but doing so means you're running the risk of losing longer-term profits. And, if you're paying such close attention to the market's short-term gyrations, you're putting a lot more time and energy into your investments, which defeats the purpose of a mutual fund -- most individuals buy into funds because they're a low-maintenance investment designed to eliminate the need for obsessively watching the market.

"The vehicle was really created so that you'd leave the day-to-day decisions -- such as which companies to invest in and at what valuations -- to someone else," said Joseph Brennan, a principal in the Vanguard Portfolio Review Group.

"More important than timing the market, investors should have an investment plan that meets your risk tolerance, your time horizon and your goals in general. You can check in every few months and balance your portfolio appropriately, but mutual funds are meant to be a longer-term vehicle."

Another downside to selling in the midst of a correction is that it can be difficult to find the heart to get back into the market. That means you might miss out on gains as stocks rally again.

"The buy-and-hold strategy may still work, but once individual investors pull out, they don't come back. That's one reason why people are better off staying put through the down period. Even if they are able to time the sale, they never time the entry period right," said Brent Wilsey, investment adviser with Wilsey Asset Management.

"You have to realize that you shouldn't buy at an expensive time, when everyone else is buying. You want to buy when the market is down and it's uncomfortable to buy. The hardest thing to do is convince people to buy something when nobody else is."

The solution for many nervous investors might be to pick funds that are most likely to withstand a downturn, such as balanced funds, which are a mixture of stock and bond holdings. Another approach is to be sure your money is spread across as diverse a portfolio of funds as possible, and, as advisers suggested, stop yourself from looking obsessively at your balances.

Of course, there are no guarantees in the markets. If your tolerance for risk is almost nil, you might want to choose the safest route, such as certificates of deposits or Treasury bonds. But over the long term, you'll likely find that your returns aren't what the markets deliver.

Whatever you do, make sure you're well informed. Get yourself a good grounding in the market, or talk to a financial adviser to determine the best investments for you.

© 2006 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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