Investing during downturns: when markets slide, use proven investment strategies. (Investment Insights).

Experts point out that continued careful investing during bear markets is critical to building wealth because no one can predict when the markets will rally. In fact, historically, buying on market downturns has been an effective long-term strategy. There's no knowing if that will continue to be true, but many advisors are cautiously optimistic. "Our firm had been expecting an economic pickup in 2002," says Darric N. Boyd, an associate portfolio manager and financial advisor with the investment firm Legg Mason in Baltimore. "Now, there is more uncertainty about investing. However, the irony of equity investing is that just when uncertainty is the highest and stocks the least appealing, that is when the potential returns are highest."

Now might be one of those times. In March 2000, the markets started on a consistent downward slide, but having hitting their lowest points after the September 11, 2001, terrorist attacks, the markets bounced back 16% by November.

Indeed, some of ingredients for a recovery in 2002 seem to be in place. "Bad economic news has been coming out since early 2000," says Boyd. "In 2002, corporate earnings reports may be better than they were in 2001, although the attack on the World Trade Center might depress profits for a while. Also, the Fed has been cutting interest rates so much that money market funds look less attractive." With such funds only paying between 2% and 2.5%, investors may be more likely to put money into stocks and drive up prices.

Like many investors, Wayne M. Devonish has fought the urge to bail out of the market. His portfolio, which includes mutual funds and shares of Dell Computer (Nasdaq: DELL), AT&T (NYSE: T), Carver Bancorp (Amex: CNY), and General Electric (NYSE: GE), had taken a beating before losing another 20% after the September 11 attacks. "I've lost too much principal, so I've got to hold tight says the 31-year-old housing developer for Neighborhood Housing Services, a nonprofit organization, in New York.

But holding tight doesn't mean doing nothing. When the market dipped in September, Devonish bought shares of Microsoft (Nasdaq: MSFT), and, periodically, he places some of his after-tax income in a money market account at Merrill Lynch bearing 2% interest, "so that I can have something to use just in case of an emergency." By accumulating cash, Devonish also feels he can minimize losses while he researches other stocks that may do better in 2002.

Kenneth Little, author of Bear-Proof Investing (Alpha Books, $21.95), says Devonish's approach is a sound one. "I'd advise investors to do the same thing they should always do: invest in quality companies with good fundamentals and good prospects for the future. Historically, good, solid companies have always bounced back after market downturns," he says.

Little also says that investors with 401(k) plans, "should continue to put money in them and not waver from investing. And use dollar-cost averaging. By placing a fixed amount into a mutual fund, when the market is down you'll buy more shares, and when it's up you'll buy less, but in the long run, that's your best bet to improve your portfolio."