Buy? Sell? Hold Onto Your Plan

William Schaefer, who owns and manages a small apartment building in Chicago, admits he's "nervous" about the US stock market.

"The market's heading up, but it still doesn't seem to have a clear definition of where it might wind up" in the months ahead, says Mr. Schaefer, who is in his 50s.

He ponders selling several stocks, despite the hefty capital-gains tax he would incur.

Mr. Schaefer is far from unique in wondering what to do now, with the market roaring to new highs but looking a bit precarious.

"We've been in a long period of very favorable economic conditions," says Tim Schlindwein, who heads the financial consulting firm Schlindwein Associates in Chicago. If you're a long-term investor, he advises, stick with stocks or stock mutual funds regardless of short-term ups and downs.

That's what Schaefer is doing with the two mutual funds he owns - "sitting tight." One invests in small-company stocks, the other in overseas stocks and bonds. Still, when he looks at the 12 individual stocks he owns, he sees high-priced shares.

"The [baby] boomers are throwing everything they've got into the market through their 401(k) plans, without really thinking much about what they are buying," he says. If the market tumbles, these investors might panic and cause a deeper sell-off.

Mr. Schlindwein, who has an extensive background in mutual funds, says current investment moves should be guided by your time horizon: long-term (10 years or more) or short-term (10 years or less).

He offers these rules:

* The shorter your investing horizon, the more cautious you should be in having a diversified portfolio of both stocks and bonds. "Protect your principal," he says. You can steer clear of losses in a money-market fund, or by holding bonds or certificates of deposit to maturity.

* If you are a long-term investor and can absorb sharp market gyrations, "be not less than 50 percent in equities," and probably more, he says. "Go for growth." The wisdom of staying in stocks, not jumping in and out, is illustrated in the chart above.

* Meantime, all investors should examine their portfolios to see if they have veered from their original financial goals, he says.

A person who had intended to put 60 percent of her investments in stocks may now have 65 or 70 percent, because of price gains. He suggests that this is "a perfect time" to trim your holdings back to your desired mix of stocks, bonds, and cash.

What if you don't have as big a percentage of your assets in stocks as you'd like? Experts urge the concept known as dollar-cost averaging (see "The Basics" on Page B2), investing small amounts at regular intervals. That way you don't put all your money in at a market peak, but you also don't sit on the sidelines forever.

The environment for stocks looks positive now, says Sheldon Jacobs, who publishes "The No-Load Fund Investor," a newsletter based in Irvington-on-Hudson, N.Y.

He suggests diversifying - perhaps 10 percent of stock holdings in Europe and a small stake in Asia. He's wary of buying more real estate funds, given recent weakness in that sector.

Your moves now should be guided by your time horizon, says financial consultant Tim Schlindwein.

Correction

A chart on Page B6, March 23, incorrectly stated the year-to-date return for the stock of America Online. Adjusting for a recent stock split, it was up 42 percent through March 18.