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Lately, the market has knocked the stuffing out of an number of individual stocks and even mutual funds---and that's good news.

That's because there's nothing like a stock market correction to bring investors back to the reality that the market has three sides--- up, flat and down. It's that latter one they often fear the most and will try to wish away or deny.

But after watching the net asset values on some of the biggest funds around, like The Fidelity Aggressive Growth Fund or Putnam's New Opportunity Fund drop over 22 and 19 percent respectively or those on smaller ones like the Potomac Internet Plus fund drop over 49 percent during the past four week period ending April 13, it becomes crystal clear to everyone involved that stock prices don't only and always go up.

Occasionally being reminded that bear markets do happen is the best lesson shareholders can learn about equity investing. Provided they don't panic, turbulent markets are perfect times for fund investors to rethink the reasons for which they've invested in the first place, to see whether those goals are still in place and to assess whether their investments the appropriate ones for their risk tolerance.

It's also a fine time to take another look at stock market history.

The Forum for Investor Advice, a Bethesda, Maryland nonprofit organization dedicated to educating the public about the role of full-service money managers, has comprised a list of historic bear-market facts. Here are a few of them:

  • A Dow Jones Industrial Average (DJIA) decline of 15 percent or more typically occurs about once in every two years. A decline of 20 percent or more historically have occurred once every three years---but we haven't seen once since 1990.

  • On average during the 20th Century, the DJIA declined 5 percent or more three times each year.

  • The most notable bear markets of the 20th Century were 1929, 1973-1974 and 1987.

  • It can take months or years for the DJIA to recoup setbacks from a bear market. The 1929 crash took 16 years. The 1987 crash took 23 months.

  • A diversified portfolio can cushion the blow of a bear market. In the bear market of 1973-1974 a portfolio fully invested in stocks lost an average of 48 percent of its value. A portfolio of 60 percent stocks and 40 percent bonds lost an average of 29 percent.

They also publish a brochure titled, "Bear Essentials. What to do During Market Declines." It's free and can be yours by calling 301-562-4101, or, by visiting their web site at www.investor.org.

Of course "down", as in bear markets, doesn't necessarily mean "out" in the mutual fund world. That's part of the beauty of investing into a professionally managed portfolio of securities.

"We're experiencing some very difficult markets and I would rather have the day to day experience of professional managers making most portfolio decisions than to see people individually trying to do that, " says A. Michael Lipper, chairman of Lipper, Inc.

Lipper thinks the best ways to invest under turbulent or tame market conditions is to keep things simple.

"Few people possess timing skills so what I think they need to do is diversify their fund holdings and develop a periodic investment plan," he says. "That way they have the opportunity when and if markets come down to participate more fully than when things are screamingly going up."

If you're beginning to think about making some fund investments now, Lipper suggests the first move ought to be into money market mutual funds. After that, his blueprint from which to create a portfolio of funds includes growth and value, large and small cap, and domestic and international funds.

"Then as you gain experience and capital, you may want to have more than one fund in each of those categories, " he says. "At some point you may even want to get very narrowly based funds."

Bottom line: After you've read the history and reviewed your reasons for investing, etc., if the gyrations of the market still causes you to loose sleep or makes you crazy, perhaps investing in stock funds isn't for you. The market's not for everyone, you know. And learning that could be good news too.

To read more articles, please visit the column archive.

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