By Dolores Kong
The Boston Globe

James Spriggs and his brother, a retired financial
services executive, get together every month to talk
personal finances over a leisurely lunch at a nice

But this month, with a $20,000 loss on his mutual fund
statements fresh in mind, Spriggs and his brother
decided against ordering a meal at Rebecca's Cafe.
They just had coffee instead.

"It's good you can laugh about it," said the
53-year-old federal employee who works in downtown
Boston. "You can't take it too seriously."

Jon Symonds, 33, an account executive at First Call, a
Thomson Financial company in Boston, also sustained a
five-figure loss in his 401(k) and technology stock
portfolio. "Yeah, I definitely got burned, but I think
going forward, I'm pretty optimistic about the
future," he said.

And Andre Atemasov, 26, who's in direct marketing, saw
his retirement plan and tech stocks drop an overall 30
percent last year. "It'd be completely silly to sell
them. It'll rebound sooner or later - hopefully
sooner," said Atemasov as he checked the markets at
lunchtime last week at the Boston Stock Exchange's
street-level TV screens.

Spriggs, Symonds, and Atemasov - like millions of
other investors around the country - are feeling the
pain of the first down year in the stock market since
1994. Instead of the annual double-digit returns
ranging from 20 to 85 percent that investors had grown
accustomed to, the Standard & Poor's 500 index shed
more than 10 percent of its value last year, and the
Nasdaq Composite index more than 39 percent.

With year-end statements from mutual funds and
brokerages landing in investors' mailboxes with a thud
just about now - and with more Americans investing in
mutual funds and the stock market than ever before -
there's plenty of pain to go around.

How investors, especially first-timers, react to that
pain could be the key to their own long-term personal
wealth as well as to the health of the financial

Will people pull their money out of equities and run
for cover in the form of money market funds and
certificates of deposit? Or will they stay the course
and buy more stocks or stock mutual funds, now that
those investments have been knocked down from their
lofty heights?

A mutual fund industry group, which is concerned that
investors might panic in down markets and spark a run
on funds similar to the Great Depression run on banks,
has been studying those very questions.

The good news, according to the studies by the
Investment Company Institute: Mutual fund shareholders
tend to be in for the long haul within such asset
classes as equities, especially after prices fall
suddenly and steeply as they did last year.

"A good number of investors do take a longer-term view
of investing and are in programs like IRAs or 401(k)s,
which encourage regular and systematic investment,"
said John Rea, chief economist for ICI.

Rea based his comments on fund data from 1994, when
the markets dropped in reaction to such disruptions as
increasing interest rates, the bankruptcy of Orange
County, Calif., and the devaluation of the Mexican
peso. People continued to invest through mutual funds
in those years and did not take money out wholesale;
the data on what investors do during extended bear
markets are less clear-cut.

But a study released last week appears to contradict
those results by concluding that investors tend to
hold individual funds for only a few years at a time,
hurting returns in the process.

Done by Boston-based Financial Research Corp. for
Hartford-based Phoenix Investment Partners, the study
of data from January 1990 through March 2000 found
that the average mutual fund investor reduced his or
her average three-year return one-fifth by getting in
and out of individual funds at the wrong time.

So instead of matching the average mutual fund's
three-year return of 10.92 percent via a buy-and-hold
strategy, investors gained only 8.7 percent in that
period because they bought high and sold low,
according to the study.

"Investors are jumpier: They're chasing performance,"
said Jack Sharry, president of Phoenix Investment
Partners' Private Client Group. "It should be buy low,
sell high."

"There's a lot of back-and-forth trading that tends to
be disadvantageous," agreed Gavin Quill, senior vice
president of research studies at FRC, who conducted
the study based on ICI data.

So, are mutual fund shareholders long-term investors,
as the ICI studies suggest, or are they fair-weather
fund owners, as the FRC and Phoenix study suggests?

It turns out the studies don't necessarily contradict
each other after all.

The ICI studies look at how mutual fund shareholders
behave within an asset class such as equities, while
the FRC/Phoenix study looked at how investors behave
on a fund-by-fund basis. So while investors may stay
in equity funds generally through thick and thin, they
may switch from one style of equity fund to another,
say from an aggressive growth to a value fund,
depending on past performance. And that's when
investors could hurt their returns.

"People may be buy-and-hold long-term equity
investors, but there's an awful lot of activity going
on" from equity fund to equity fund, said Sharry of
Phoenix Investment, a money management company that
has both institutional and individual clients. "We
don't think it's healthy for the investor or for the
mutual fund company."

For investors who may be reeling from the shock of
opening their year-end mutual fund and brokerage
statements, ICI's Rea had this to say: "Over a 10-year
or 20-year investment horizon, the stock market has
outperformed other financial assets. It doesn't go
straight up, and it doesn't stay down forever."

Rea used last year's downturn as an opportunity to
boost investment in his own nonretirement accounts. "I
don't think it's a great idea, quite honestly, to try
to time the market. One never knows whether prices are
too high or too low," said Rea. But for him, "It
looked like a good time to add a little more than
normal, not that I'm necessarily recommending that for
everyone. The most important thing is to establish a
regular program for investing, and sticking to it."

While those year-end statements have been painful for
Spriggs, Symonds, and Atemasov in recent weeks, none
of the investors is running scared.

"All my funds were down," said Spriggs. "The only
thing that made money was my money market fund, about
6 percent."

Nevertheless, he wants to see the federal government
raise the Individual Retirement Account limit from
$2,000 a year to $5,000, as is now being discussed, so
he can invest even more.

"I'm in for the long haul," said Spriggs.