Should I move existing mutual funds to cash for 2008?

I have 80% of my savings in a diversified set of about 20 mutual funds for the past several years. I have always had a long term investment approach but the current housing/credit crunch has me very nervous. Should I sell the mutual funds I have and convert them to a money market until the market calms down? I get the feeling there may be more surprises from the mortgage industry and do not want my savings to be hammered further if I can help it. I am 40 years old

It's hard to reconcile your "long term investment approach" with your sudden desire to park all of your money in a money market fund until the markets settle down. The U.S. stock market is down over 10% since last October's highs, which means a true long term approach would be to consider buying more stock at the cheaper prices, not to bail out when the market is down.

Ride it out, the market will fluctuate.

No, I wouldn't convert to cash.

If you think the economy is really going to get bad then you could put your money into a bear fund. That's a fund that does well when the overall stock market is dropping.
(Who really knows what's going to happen to the economy? None of us do.)

Also, there are investments that do better when the overall market is going down. Healthcare is a good investment. I really recommend Vanguard's Healthcare Fund. I've been in this fund for about ten years. It's been great. Also, T. Rowe Price's Health Science Fund is a good fund. Healthcare is good because there is no business cycle. When the economy is doing good, healthcare does good. When the econonmy is doing horrible, health care still does good. Also, a weak dollar is great for US pharmaceutical stocks. Because a weak US dollar makes prescription drugs cheaper for people to buy in other countries.

There are still a lot of things that could happen to make the stock market go up. The price of oil could drop and this would immediately cause the market to go up. (When Bush is out of office the price of oil will definitely drop. There is way too much oil in the world. There is no shortage of oil.) Also, if the Feds aggressively cut interest rates this will help the stock market.

Good luck.

Moderation is best. There is no law (or, for that matter, no strategy) requiring an "all or nothing" approach. Why not sell some of the funds or, as a similar alternative, a portion of each fund, until you have a better idea of what is the probable direction of the market from this point on. Your concern is altogether understandable, but it is unrealistic to expect yourself to pinpoint a market bottom. Commissions (if any) are so low nowadays that buying back in to a fund should not represent a problem. Any long-term investor has to expect declines. When J.P. Morgan was asked for his expert advice on what the market will do, his reply was: "It will fluctuate."

At 40, you're still young. The worst thing you can do is "sell low." If you're satisfied with the quality of the funds (sounds like you are), keep investing. The mortgage/housing bubble had to burst, just like all bubbles do. Bear markets always end, just like bull markets.

I think we are in for a short term market reversal (1 year) So MMF might be a good idea, BUT WATCH OUT which mmf you are interested in..SOME MMF,s have invested heavily into derivitives of the subprime mortgage paper. So you could loose big time on these.