Patience Can Pay Off, Analysts Say; Stocks Remain Up for '07

NEW YORK -- From an early age, people are trained to act quickly when they hear sounds of emergency: fire alarms, police sirens, even car horns. So while it might be difficult for investors who hear alarm bells on Wall Street, often the wisest reaction is to stand still.

The volatility seen in stocks and bonds in recent weeks no doubt triggered concern among some investors. The sometimes sharp pullbacks in the markets were reason enough to get out for some investors. But those investors who still have enough time before they need to draw on their investments are often better served by staying put.

With headlines about a slumping housing market and tight credit roiling Wall Street, short-term stock market returns have taken a hit. The good news: The major stock market indexes are up for the year to date.

"I think it would be something other than normal if someone saw what was going on and weren't concerned and weren't a bit confused about what to do," said Steve Schoepke, vice president of research and product development at AIG SunAmerica Asset Management. "In these times, you go back to the fundamentals."

While he said investors should question what is going on in the markets and consider whether their investment strategy still makes sense, long-term investors should take a wide view on their asset allocation designs.

"These strategies are not meant to be used based on a short-term horizon," Schoepke said. Instead, investors should first consider where they are invested and for how long.

Too often, he said, investors do not pay attention to their holdings until big moves in the market draw their attention. One of the smartest actions investors can take so they do not feel as compelled to take flight during market hiccups is to begin investing early and regularly.

The average balance American workers had in their 401(k) plans jumped 79 percent from 1999 through 2006 to $121,202. That was for those who stuck it out the entire time, including the decidedly negative years of 2000, 2001 and 2002, according to a new study by the Employee Benefit Research Institute, a nonprofit research center, and mutual fund trade group the Investment Company Institute.

Investors who get out of the market and miss only a few strong days can quickly fall behind other investors. Fidelity Investments, the nation's largest fund manager, found that someone who invested $10,000 in the S&P 500 from 1980 through early August of this year would have seen its value balloon to $299,215. But had the person missed even the market's five best days, the investment would be worth $77,039 less. Missing the best 10 days would cost $124,470 over that time.