Buying at market peaks (or at least closer to the top of a period of market expansion) is pretty common. Most people invest during "high" periods for reasons that make perfect sense -- they are tired of sitting on the sidelines with their safer, lower-paying interest accounts and certificates, they see how well friends and family have done with equities in the past few years, they realize that with the way "things" are going, they had better get on board or risk missing out on the growth that is being talked about night after night on the news, in the papers, online, etc..

What makes a little less sense is that these same people will want to dump their equity based investments when things get tough. And like buying at market peaks, it makes sense why people would want to dump losing equities at the worst possible time. They fear that the markets <i>could</i> get works, they fear that they missed out when interest rates were higher and now want to not only "save" their portfolio from losing even <i>more</i> value, but want to lock into a low rate before those rates disappear altogether. Where buying was motivated by fear of missing out on good growth, selling is motivated by fear of losing even more portfolio value.

When investing in mutual funds, however, investors are less likely to sell at those worst possible moments when the markets and equity values are just about ready to turn around. Here is why:

1. Mutual funds are professionally managed. Even though a fund might experience months of cash outflows during poor market periods, the portfolio manager(s) who manages the portfolio is not emotionally invested in the fund's performance. This means that the manager does not believe for one moment that he or she cannot retire in <i>x</i> years if the portfolio continues to lose value and he or she does not invest in a low-paying interest product (in fact, most equity funds cannot invest in interest-paying securities). This means that the portfolio will actually hold the best of the best securities that are more likely to be defensive and less volatile than others in the portfolio. This results in smaller losses, providing at least some reassurances to mutual funds investors.

2. Most mutual funds are managed by professionals who have either experienced or extensively studied periods of market and economic pullbacks. Most people either forget about such periods (too busy worrying about staying employed, making ends meet, saving for the kids' education, etc.). The level of familiarity that an investment professional will have over a regular investor will provide the much needed resolve to stay invested and, more importantly, keep investing, when values are at their bleakest (i.e. lowest).

In addition to professional management, mutual funds are operated by qualified professionals with tremendous experience to keep their decisions in check with what logic and history have taught them. Because of the lack of a personal connection, mutual funds are likely to stay invested when most retail investors would invest elsewhere at the worst possible time.