The Analyst: Cash to spare? Then jump in and buy

Many investors expend great effort trying to predict which way stock markets will move from one day to the next. I believe they are worrying themselves unnecessarily; in my opinion, "time in the market" and not "timing the market" is the best philosophy.

Statistics from the fund manager Fidelity show that missing just the 20 biggest daily market rises over the past 15 years would have cut your returns in half. Ironically, these best days often happen during the toughest periods. For example, on 12 March 2003, the UK market fell by more than 4 per cent, but the next day it rose by more than 5 per cent.

This is not the time to let fear rule your decisions. I have seen words such as "crash" and "disaster" used in the media recently, but my advice is to step back from the emotion and look at fundamentals. Those with some cash to spare can now buy many shares or funds 10 per cent cheaper than they could a month ago; perhaps you should treat it as a summer sale.

So what has caused the recent market problems? Much of the blame has been levelled at US sub-prime mortgages – loans to people on low (or no) incomes – which have seen a sharp rise in defaults.

The resulting difficulties are an example of how everything is connected in the modern global economy. Financial institutions across the world have taken on a share of these loans, so the damage has been spread over a wide area. Total losses are estimated at about $250bn, but in the context of world money markets, that is actually not a large sum. The problem comes because institutions have borrowed on the back of these loans, and now need to sell other investments in order to meet their liabilities. In a short space of time, the atmosphere of the market has gone from confidence to uncertainty.

A similar problem was encountered in 1998, when markets faced the twin problems of a major hedge-fund collapse and the Russian government being unable to pay back its debts.

In my opinion, the current situation is nothing like as serious as that. Most stock markets look cheap by historic standards. In the UK, the largest companies seem particularly good value; they have healthy cash balances and strong earnings, but have been overlooked by investors for five years. I won't attempt to predict the bottom of this current shakeout, but I would suggest that markets remain attractive on a long-term view, and I suggest that investors consider buying on the weak days.

I am also a great advocate of drip-feeding money into markets. The obvious way is to set up a monthly savings plan, taking the emotion out of investing. Your pension is probably already being invested this way and regular payments are an excellent way of saving for children or grandchildren.

But which funds are worth attention? In the UK, I would look especially at funds investing in larger companies, such as Schroder UK Alpha Plus, Artemis Capital and M&G UK Select.

On the equity income side, I would stick to the big guns such as Invesco Perpetual Income, Artemis Income or Jupiter Income.

The financial sectors have taken a pummelling in recent weeks, but I think they will also recover the fastest. For that reason, I believe the Jupiter Financial Opportunities Fund could be a good choice.

The manager was expecting some difficulty and had a large chunk of the portfolio in cash – and I'm sure he will be putting it to good use on the market's weak days. For Asia and emerging markets, I believe that Aberdeen, First State and Melchior are among the best ports of call. Elsewhere, European funds from Cazenove and Artemis could also be on your shopping list, while in America my picks are the Legg Mason US Equity and M&G American funds.

I will be covering many of these funds in greater detail in future columns. They are all run by managers with considerable experience, who are used to seeing downturns in the market and won't panic or over-react.

Often, the most difficult thing to do in this situation is to be patient. However, long-term investors with cash ready to invest should be rubbing their hands with glee at this opportunity to pick up quality investments at bargain prices.

Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent

cash@independent.co.uk