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This Is a Market Test: Can You, and Your Strategy, Hold Fast?

Ann Keely is the kind of small investor who inspires a chill along Wall Street.

After watching her stock mutual fund steadily slide last week, she sold it, declaring she no longer had the "stomach" for the market's volatility.

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The market tumbled last week as the Federal Reserve nudged interest rates higher and looked ready to nudge them again.

"That such a small increase in the interest rates could have caused the market to drop like that, is in itself a sign of instability," says Ms. Keely, a writer living in New York.

And the market continues to look shaky. Despite a small rally after the earlier sell-off, the Dow Jones industrial average has been unable to recover lost ground, still about 7 percent off its high of March 10.

Millions of small investors lost hundreds of millions of dollars in paper assets last week. If the majority pull out like Keely, analysts see a disaster for the markets. So far, most small investors appear to be willing to stand pat.

"We sensed a little bit of nervousness early in the week when we saw a pick up in the number of redemptions," says Tracey Gordon, spokeswoman for Charles Schwab, the discount brokerage house. "But since then, it's been flat, with the same number of people buying as selling."

An estimated 50 million small investors help fuel the markets, putting their savings into mutual funds and stocks. That's double the number in 1990.

Millions only know 'ups'

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And many have never experienced a bear market.

"I think it's an important experience to genuinely understand how the markets work," says Kenneth Janke, president of the National Association of Investors in Michigan. He also thinks only the most extended bear market will frighten away most individual investors.

"The 1973-74 market decline lasted 21 months and every time you bought stock, it was more of a bargain the next month," says Mr. Janke. "That could be really quite devastating to the individual investor. But if they stayed in, they recovered "

Indeed, many experts favor the long-term view. Some suggest that investors check the price of their investments once a week or, preferably, monthly, unless they're thinking about buying.

NBC News correspondent Fred Francis is one of them.

In it for the long term, he's calls market corrections healthy.

"Bear markets don't last very long, and if you're diversified with a variety of investments, you ride it out," says Mr. Francis, who lives in the Washington area.

He spends at least seven hours a week reading The Wall Street Journal, the financial pages of three other major newspapers. He also reads Money Magazine and listens to a business radio show during his commute to work.

Swearing off stocks

Ann Keely, in contrast, has neither the time nor the inclination for that much study, and she's decided never to invest in stocks again.

"Many of us remain naive and uninformed investors in handling our retirement money, and that's a volatile combination," she says.

Stanley Perlman, a Long Island real estate developer in New York, calls virtually all his investments a "catastrophe." He now favors only investments he knows about, like real estate investment trusts, known as "REITs."

"I know that Kimco [Realty] has great shopping centers, and they're growing," says Mr. Perlman. "I trust their stock, but I won't invest in a gold stock in Calgary. I already did that, and I lost a lot of money."

Analysts say most people reacted to last week's uncertainty much like Toni Fridae, a department manager at Brookhaven Labs in Long Island.

She reminded herself she was "in it for the long term" and so did nothing.

But it was harder than in the past. "I'm getting closer and closer to retirement," Ms. Fridae says. "I have to admit, I felt a little bit more queasy than I have in the past."

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