Early 2008 has been unnerving for many investors. A steady drumbeat of bad economic news - including slumping housing prices, sluggish economic growth, higher inflation, and a weaker job market - has created mounting anxiety for many Americans.

Economists and market pundits are increasingly invoking the specter of recession - and many observers believe a recession may have already begun.

The fear percolating through the financial media may tempt you to ride out the current economic and market turmoil in the comfort of an all-cash portfolio. But financial experts caution investors to resist the urge to sell long-term investments in reaction to short-term events. A knee-jerk response to an economic slowdown is likely to do more damage to your long-term investment results than a recession would.

In fact, history suggests that a recession probably won't have a significantly negative impact on your investments over the long haul - and may even present a buying opportunity. Dirk Hofschire, vice president of Market Analysis and head of the Market Analysis, Research, and Education (MARE) group for Fidelity Investments points out, "Financial markets typically react to the possibility of a recession well before it is under way. In some cases, an investor will be better off sticking with a properly diversified portfolio than reacting emotionally based on news headlines about economic recession."

Pundits frequently define a recession as at least two consecutive quarters in which the economy shrinks. The official definition is less cut and dry, however. The National Bureau of Economic Research (NBER) defines recession as "a significant decline in economic activity spread across the economy," as reflected in a range of factors, including gross domestic product (GDP), income, employment, industrial production, and sales.

It is difficult to gauge the state of the economy at any one time, however, because economic data typically take months to compile. "Economic data tend to be backward-looking," says Hofschire. "The headlines you see today are based on data that are typically at least a month old."

The historical record may provide some insight into the effect that a recession might have on your investments (although past performance is no guarantee of future results). While economists base forecasts on past data, the stock market looks ahead - so stocks generally decline before and in the early stages of a recession, and then rebound strongly before it's over.

The U.S. economy has experienced 11 recessions since 1945 - and they have lasted an average of 10 months. The stock market swooned entering each one.

Just as stocks historically have declined in anticipation of recessions, so have they moved up in anticipation of economic recoveries. The market rebounded before the recession's end in 10 of the last 11 recessions. The exception? The bear market between 2000 and 2002, which had to digest extreme valuations and the bursting of the Internet bubble in addition to a recession.

Rebounds coming out of recessions can be dramatic. Hofschire notes that the S&P 500 gained an average of 18.5% during the 12 months after the last four recessions were officially announced, including gains of 27% and 39%, respectively, following the designations of the 1990-91 and 1980 recessions. He also notes that bonds, particularly high-quality bonds, have fared much better during recessions, which typically lead to lower interest rates and a more benign outlook for inflation - both of which are good news for fixed-income securities.

It's natural to become nervous when the headlines shout about economic weakness and stock market declines. Indeed, this may be a good time to review your finances. You might decide to boost your emergency fund. Likewise, now might be a good time to pay down high-interest debt, so that you'll have smaller monthly obligations if you encounter an interruption in your earned income.

You also might review your investments to make sure they remain in line with your long-term goals. Stock declines and bond gains may have skewed your portfolio's asset allocation away from your targets. Consider using new savings to bring your investment allocations back in line.

In times like these, you may be tempted to sell your stocks and hold cash until the market recovers. Trouble is, stocks have already declined considerably - and no one can predict precisely when a rebound will occur. "Attempting to move in and out of the stock market can be a costly affair, particularly because a significant portion of the market's gains over time have tended to come in concentrated periods," says Hofschire.

According to Fidelity's MARE group, a $10,000 investment that matched the S&P 500's return from January 1980 through December 2007 would have earned more than $300,000. However, an investor who missed out on the 30 best-performing days in the market during this time frame would have ended up with a portfolio worth roughly $83,000, or about 70% less than one that had been fully invested throughout the period.

Even missing just a few days could prove costly. If you missed the market's five best days, your investment would have grown to just $224,000 - a difference of about $76,000. Historically, some of the best periods to have entered the stock market have been during periods of particularly gloomy sentiments and market turbulence.

An alternative to market timing: Continue saving and investing within a diversified portfolio throughout economic and market cycles. Investing set dollar amounts at regular intervals - a strategy known as dollar cost averaging - may help you purchase more shares when valuations are low and fewer when valuations are high. Meanwhile, holding a range of stocks and bonds that benefit from various economic and market conditions can reduce the risk and severity of short-term losses. Opportunistic investors may even decide to invest more while prices are low.