Mutual fund investors should follow their long-term investment strategy and not let short-term market swings dictate their investing style according to an article released today by Standard & Poor’s.

The article, “Mutual Fund Investors — What Now?” was written by Standard & Poor’s Philip Edwards, managing director of global mutual fund research and Rosanne Pane, director and mutual fund strategist. “Our advice, from a strategic perspective, is simple and straightforward: Do nothing”.

“The natural inclination during market corrections is to move to more stable fixed income vehicles and away from equity markets,” according to Edwards and Pane. “When this happens, short-term actions begin to drive long-term investment strategies. As we all know, the opposite should be happening. Where to put the next dollar of investment should be decided by an asset allocation intended to meet long-term goals.”

“Markets will continue to cycle and a recovery will happen. But even the best economists find it difficult to put an exact date on when. Hence, the need to have a long-term strategic allocation and to stick with it. Investors need to be positioned to take advantage of market cycles whenever they occur,” the say, noting that Standard & Poor’s chief economist David Wyss says that the U.S. economy is in recession.

Standard & Poor’s recently developed model portfolios of funds, and it has reviewed the funds in these portfolios in light of the tragic events of September 11, saying that they should not be changed.

Three portfolios were developed reflecting three different asset allocations: growth and income (60% equity, 40% fixed income), growth (80% equity, 20% fixed income), and aggressive growth (100% equity).

“At the same time, you should accept the reduction in equity exposure that has occurred with the decline in the stock market. More economic information needs to be available before shifting funds away from fixed income and into equity. Note that S&P’s Investment Policy Committee recently lowered the equity asset allocation to 60% from 70%, largely in line with the recent market decline.”