Market roller coaster: What investors should do

Many financial advisers have the same advice for nervous investors unhinged by the stock market's wild mood swings in recent days:

Take a deep breath.

Come in off the ledge.

Don't panic.

"The worst thing somebody can do is to sell into a panic," said Alexander F. Cabot, an analyst for the Wiley Group, a Conshohocken wealth-advisory firm.

Thursday's 500-point Dow plunge, followed by Friday's whipsaw ride between positive and negative territory, might induce the risk-averse to head for the exits.

Where to go?

Treasury bonds? They pay microscopic returns. Gold? Fasten your seat belts. Real estate? Get real.

And banks? The Wall Street Journal reported Friday that the Bank of New York was now charging big depositors to hold their cash.

"The problem for investors today is deciding where you can put your money that's safe and gives you a pretty reasonable return on capital," said Jim Meyer, chief investment officer of Tower Bridge Advisors, a West Conshohocken portfolio manager.

"At the moment, I'd say there is probably nothing that fits all those criteria."

Rather, Meyer and other investment advisers say that times such as these reinforce the message to take a long-term approach to investments and to diversify a portfolio into a broad range of assets.

"You need to move in steps," Meyer said. "This is not a day to say: 'That's it! I'm getting out of stocks.' Those decisions are usually made at the bottom of the market."

The Vanguard Group, the giant Valley Forge fund manager, took the opportunity amid the market turmoil to repeat its "stay the course" mantra.

"Consistency may not be exciting, but experience tells us it's smarter than constantly shifting your strategy based on the latest market trends," Vanguard CEO Bill McNabb said in a statement posted Thursday on the company's website.

Fran Kinniry, a principal in Vanguard's Investment Strategy Group, said Friday that the steady-as-she-goes approach was based upon each investor's deciding on an investment strategy that made him or her comfortable and sticking with it.

" 'Stay the course' means you have a plan, a goal, an objective," he said. "There's going to be turbulence. ... It's not a passive strategy. It's different than a buy-and-hold strategy, which is like putting your head in the sand."

He and other advisers suggest that periods of market volatility are an opportunity for investors to rebalance portfolios to maintain a comfortable allocation between volatile stocks and more stable bonds.

"You should not stay the course if you're in the wrong asset allocation," he said.

Vanguard and other fund managers say investors in recent years have been shifting more money into balanced mutual funds that automatically maintain a set ratio of stocks and bonds, based upon the risk tolerance of investors.

Others hire experts such as Lydia P. Sheckels, Wescott Financial Advisory Group L.L.C., to sweat out the details.

"Emotions work against people when it comes to investments," said Sheckels, who is chief investment officer of the Center City firm.

Despite all the negative news - the anemic economy, stubborn unemployment, apprehension over the federal debt, and the solvency crisis in Europe - Sheckels said that many investors were overlooking positive signals.

Corporate earnings are robust, exceeding analysts' expectations, and companies are loaded with cash. She believes that consumers are poised to spend - the average age of a car is 10.8 years, the oldest in years.

"There's a lot of pent-up demand by consumers," she said. "Clearly, they're learning to live within their means, but that doesn't mean they won't spend again."

From Sheckels' perspective, stock prices look attractive after Thursday's plunge.

"This is the buy day," she said Friday. "This is the day I've been waiting for."