Investors who started putting their money into equities at the start of 1993 must have wondered why they had waited so long. Every week the prices seemed to go up and the increase in the value of your portfolio provided you with the smug satisfaction of knowing you had done the right thing. If you were lucky and chose the Far East your investment probably doubled during the year. If you were unlucky and chose Europe then you probably only made 50 percent.

Investing was obviously a real no-brainer and you could make money just by throwing darts at the financial pages.

Investors who started putting their money into equities at the start of 1994 must have wondered why they had risked leaving the security of a bank account.

Every week the prices seemed to go down and the decrease in the value of your portfolio provided you with confirmation that you had done the wrong thing. If you were unlucky and chose the Far East your investment probably fell 20 percent during the first quarter. If you were lucky and chose Europe then you probably broke even. Investing was obviously best left to the experts and you could lose money just by reading the financial pages.

Whether we consider the whole of 1993 or the first quarter of 1994, we are looking at a very short time frame as far as investing is concerned. Of course, it's nice to double your money in twelve months, and of course it's horrible to lose 20 percent in three months, but we should be looking at four to five years at a minimum. When planning for retirement you need to look at 20 to 30 years.

Since the Federal Reserve's quarter point drop in interest rates at the start of February the Dow Jones index has dropped approximately 10 percent from its all time high of just under 4,000 to just under 3,600 at the time of writing.

Yet if we look back at a ten-year chart of the index in a few years' time this drop will be merely a blip on the line. If the future echoes the past then the line will be steadily rising over the years with the occasional drop just to keep us on our toes.

Despite this, only a very small percentage of the population actually invests.

The reason is short-termism. Few of us would buy a house expecting to make a profit if we sold it after six months. We would tend to hang on to it and when we moved, after five or ten years, we would hope to get more for it than we paid. Certainly, a house is more difficult to buy and sell than a mutual fund (and provides a service in that it keeps the rain off us). But more importantly it is impossible to determine what your house is worth on a regular basis as it is unique commodity. For mutual funds, a quick glance at the Financial Times will give you its value each day. (This gives us the opportunity to update our portfolio and congratulate or berate ourselves accordingly.) It is a sad fact that the typical private investor buys into the market when it is approaching a high and sells out when it is approaching a low. It is easy to get sucked into investing when all of your friends seem to be making money hand over fist and the newspapers expand their coverage of the subject, and it is just as easy to lose heart and panic when there seems to be no end in sight for the falling markets. The solution is three-fold.

Firstly, always invest for the long term. Holding a stock for five years enables you to ride out the wild gyrations of the market and hopefully come out well ahead. For mutual funds, holding them for five years means that you can treat the 5 percent front end fee as 1 percent per annum rather than 10 percent per annum for a fund held for six months. And don't get caught up in valuing your funds every day or every week. I provide my clients with a monthly valuation which is quite frequent enough for long term decisions to be made.

Secondly, take advantage of a statistical phenomenon called dollar cost averaging. This states that if we invest a small amount each month rather than a large amount each year we should end up with more shares. This actually works best when prices are falling, as they are now, and recover later. As an example, suppose a mutual fund is currently quoted at $100 and falls by $1 a month for two years, then rises by $1 a month for two years. If we invest $1,000 at the end of each month then the results will be as shown in the table above.

It demonstrates that if we have in invested $1,000 a month for four years, ridden out a bear market that suffered a 24 percent loss and, despite the fact that the fund price hasn't increased, we have made a gain of $6,889. As the average amount of money invested was $24,000, this is equivalent to a gain of 28 percent, or 7 percent per annum. It is not always practical to invest on a monthly basis, but the results would be similar had we invested $3,000 each quarter or $6,000 every six months. In every case, the return is better than that obtained from investing the whole $48,000 at the start or at the end of the period.

Thirdly, diversify. In a falling market the majority of stocks will tend to lose value, but individual stocks tend to be more volatile than a diverse portfolio. The easiest way to diversify is to invest through mutual funds, especially when you want to add money on a regular basis.

So don't be afraid of a bear market, just invest accordingly.

Andrew R. Doble is president of Ardent Investment Management Ltd., a founder member of the Bermuda Association of SEcurities Dealers.