Nerves of individual investors and fund shareholders are under attack.

The average diversified stock fund is down 23.13% this year and the average bond fund down 3.24%, according to Morningstar. The descent worsened this week as the government struggled to create a plan to rescue the U.S. financial system.

It's enough to make investors wonder if they should pull what's left of their assets out of the market. Wouldn't it be safer to go to cash and ride out the storm?

The strategy sounds nice. But it's like closing a barn down after your horse bolts. For it to work, you must have a finely tuned timing system.

"No one truly knows what the future holds," said Stuart Ritter, a financial planner at T. Rowe Price. "If you got out now, you'd be guessing. And you could be wrong from the start. Maybe this is when people who got out earlier should go back in, not vice versa."

Growth you miss is a bigger loss than whatever setback you suffer in a downturn, Ritter adds.

And missing growth is what's likely if you pull out. That's because market rallies occur in spurts.

"Gains aren't evenly spread throughout the year," Ritter said. "They are concentrated in short spurts. You've got to time it right getting out. And you've got to time it right getting back in. Most people usually don't get one of those right, let alone both."

The penalty for blowing the call can be severe.

Consider the outcome for investors who sat out the market on days it racked up its biggest gains from 1969 through 2001. That's a period of 8,100 trading days.

Best Days

If they missed just the 10 best days, $100,000 invested in the S&P 500 at the start would grow to $740,000, according to T. Rowe Price.

If they tried to dodge sell-offs and instead ended up benching themselves on the 40 best days, their end balance was $240,900.

On the other hand, if they had stayed in the market during the entire period, through good days and bad, their end balance would have been $1.25 million.

And that doesn't include sales commissions and capital-gains taxes they can save along the way too.

When T. Rowe Price did a similar updated study, the buy-and-hold strategy again came out on top.

The Baltimore-based fund family looked at June 30, 1990, through June 30, 2006. Two hypothetical investors started with diversified stock fund portfolios. Large caps made up 60%. Small caps were 20%. Another 15% of the money was in developed overseas markets. And the final 5% was in emerging markets stocks. That's T. Rowe Price's standard asset mix.

To imitate moves that are emotional rather than objective, T. Rowe set the scene like this: When any of those asset classes fell 10%, one investor sold that class and shifted the money into cash. He did not return to the fallen class until it gained 10% in a month. The other investor bought and held.

By the end, the stay-the-course investor had earned an average annual return of 10.3%.

The other investor -- whom T. Rowe Price described as a jittery person who overreacts to sharp market setbacks -- averaged 8.0%.

The in-and-out investor lagged even though he had no exposure to large caps during the severe bear market from 2000 to 2002. The S&P 500's 49.1% plunge in that period was the worst since World War II, says Standard & Poor's.

A $100,000 portfolio would have grown to more than $517,000 for the steady investor between June 1990 and June 2006.

The in-and-out investor would have ended with almost $361,000.

Two-thirds of the time that investor was out of at least one asset class. "The gains he lost out on were often bigger than the losses he avoided by going to cash," Ritter said.

Following rules for their hypothetical scenario, T. Rowe's jittery investor got out of emerging markets on June 1, 1998, after May's 13.7% fall. That let him avoid a further 23% loss through Oct. 1, 1998.

His emerging markets returns were a wash through several more moves in and out of the market. He exited again after a 10.8% pullback in September 2002. That made him miss a 42.3% average annual gain through Feb. 1, 2006.

Market timing can work better with individual stocks than funds. A stock can shoot far above or below the market average. Neglecting to trade in line with the market can sap the portfolio of anyone not committed to keeping losses small.

But with diversified stock funds it's a different game. Those portfolios spread risk. Unlike some individual stocks, funds diversified across industries rally from bear markets.