Market Gyrations Are Reminders Of Difficult Choices Ahead How Long To Hang On, And What Are The Implications Of Selling Or Shifting?

Like an airplane struggling through stormy weather, the stock market hit enough of a downdraft Thursday to upset the tummies of some investors. It didn’t crash, but it provided a sharp reminder of certain awful possibilities.

The Dow Jones industrial average went into a vertical dive shortly after 3 p.m. Thursday, and descended more than 215 points before rallying to recover a chunk of that and finish down 140 for the day.

Gyrations like that are plenty scary, but whether it’s time to bail out remains a tricky question. Investors need to examine their own situations carefully, financial advisers say, because goals, time frames and taxes are all important considerations in investment choices.

And even if you do get out, that’s only part of the problem. If you sell, when do you buy back in?

Very few people have been able to spot market highs and lows well enough to buy low and sell high consistently, so most investors today do better with a well-thought-out long-term strategy, advisers say.

If you don’t have one of those, Thursday was an unpleasant but effective incentive to draw one up, the way chest pains might remind you that you need a will.

Such a plan - which spells out your goals, the amount you need to accomplish them, the time you have and the investment returns required to achieve them - enables you to design an investment portfolio rationally. That in turn helps you decide what to do in times like these.

If you have a long time horizon and substantial needs, you have little choice but to hang in there. For many people today, the returns offered by less volatile investments aren’t enough to provide a secure retirement or other large long-term needs.

However, if you’ve been aggressive, have done well, and are nearing you goal, it may be time to pull back, and move some of your winnings into more stable vehicles.

“It’s not too late or too early to put your portfolio into proper allocation,” said Mary Malgoire of Malgoire Drucker Inc., investment advisers and planners in Bethesda, Md.

“If you have been greedy, if you’ve been more on the equity side, and had it all in high tech, and (the stock portion of) your portfolio has grown, you probably should have been starting to cut back a little or shifting into things that are a little more stable, with a good dividend yield, say,” she said.

But she cautioned: “I would let the market settle a little before beginning the process … It’s not a good idea ever to do this in a panic.”

Keeping a portfolio balanced compels you to do some selling as the market surges because otherwise you end up with a higher percentage in stocks than you planned. Likewise, if the market slides, you will be compelled to buy or the stock portion will shrink.

“It’s called buy low and sell high,” said Malgoire. “That’s the whole idea.”

Rising interest rates, while causing alarms in the stock market, do make bonds more attractive.

Thirty-year Treasury bonds are now yielding more than 7 percent, while inflation continues to hover around 3 percent. That’s a spread that even after taxes provides for real though modest growth.

Analysts are expecting further increases from the Fed to slow the economy, and if that happens rates will then slide back. Thus, some advisers suggested that investors who hold bonds or are adding them might consider going with somewhat longer maturities to lock in higher rates.

Finally, remember taxes. If your main investments are in tax-deferred vehicles such as 401(k) plans, you can get in and out of various investments with no tax consequences and probably low or no transaction costs. But if your holdings are taxable, taxes can eat up close to a third of your gains.

A balanced diversified portfolio is your best hedge against uncertainty, the experts say. You buy good stuff and you keep good stuff, and don’t lose your sense of humor.