By Rob Silverblatt

Perhaps the most daunting aspect of the recent market turmoil is the simple fact that whenever stocks shoot up, a whole army of rally-killing scenarios seems poised to swoop in and drag prices back down. Over in Europe, the debt crisis threatens to extend even deeper into the vulnerable euro zone. On the Korean Peninsula, fresh wounds have reignited decades-old tensions, prompting the North to say it would slash its remaining ties to the South and raising concerns about the economic and political stability of the region. And right here at home, the touch-and-go recovery has elicited a veritable mixed bag of reactions from traders.

As this confluence of factors injects a sense of unpredictability into the stock market, it's no surprise that many jittery investors have opted to sell some of their holdings and hang onto the cash. After all, by staying on the sidelines, they can take a wait-and-see approach to the market's roller-coaster ride, feeling out the patterns without fully committing themselves to the consequences. In the week that started May 6, the day of the flash crash, investors pumped $24.2 billion into money market funds. Meanwhile, mutual funds have been seeing net outflows for the first time since early last year as some investors start wondering whether they can stomach any more swings.

Still, the answer, most experts say, is for long-term investors to stay put.

"I think the last bear market illustrated that perfectly, that someone who thinks that they can just go to cash and wait for things to improve would have missed out on the rebound last year," says Russel Kinnel, Morningstar's director of mutual fund research. In an ideal world, investors could park their money in cash until the market bottoms out and then buy low. But in reality, even investing professionals are notoriously bad at knowing when to call a bottom.

As a result, a panicked flight to cash during turbulent times is often ill-advised, says Peter Crane, the president of the money market tracking firm Crane Data. "You shouldn't time the money markets any more than you should time the stock or the bond markets," he says. When it comes to deciding how much cash to have on hand, investors should be taking inventory of their short-term needs rather than attempting to game the market, says Crane. "What the money is going to be used for should always be the question," he says.

For professional money managers, on the other hand, having some cash available during turbulent times can be valuable.

"In a selloff, that generally means that some stocks are on are sale, so the good active managers are able to use the volatility to their advantage and buy during some of the big dips," says Kinnel.

Charles Akre, the manager of the Akre Focus Fund, has been looking to do just that, and he says he's found some bargains on companies whose fundamentals he trusts. For the most part, he's added to positions he already owned in his highly compact portfolio. But he's also used beaten-down prices as an excuse to buy some companies that he'd previously been researching. This has helped him whittle away at his massive cash stake, which as of earlier this week comprised around 35 percent of his portfolio. But even as he wades back in, he -- like many other managers -- is treading carefully. "It's prudent to be cautious," he says.

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