If there's one thing that can strike fear into the heart of any investor, it's the prospect of losing hard-earned money. The rough-and-tumble markets of recent months have tested the steeliest of nerves, and it doesn't look like volatility will be taking a vacation in 2008.

A jumpy market can make you want to take your money and stuff it under a mattress. But resist that urge. That could be the single best thing you ever do for your portfolio.

Time in the market, not timing the market
History (and a good deal of academic research) has shown that most investors are lousy market timers. Trying to guess the market's every up and down is extremely difficult, even for the smarty-pants Wall Street types. As the market heads south, folks get scared and head for the exits. Then they wait until things are looking up before heading back into the market.

This is exactly the wrong way to approach investing -- when you lock in your losses you miss out on a lot of the gains.

The way to circumvent this knee-jerk reaction to investing is to think long term. It's hard to tune out all the day-to-day noise and market gyrations, but your portfolio will thank you for it. Keep your eyes on the finish line, even during downturns and volatile markets.

Evidence of investor folly
This same advice holds true for mutual fund investing. It can be tempting to want to dump underperforming funds and channel that money into better-performing investments, but you'll end up further ahead if you hold tight.

Consider what's happening over at Muhlenkamp (MUHLX). This fund was riding a tremendous wave of outperformance several years ago. Thanks to strong performance from holdings like NVR (NYSE: NVR) and Beazer Homes (NYSE: BZH), the fund beat the S&P 500 index handily by more than 120 percentage points from 2000 through 2005. Attracted by these outsized returns, investors poured billions into the fund.

But then the fund stumbled a bit in 2006 and 2007, hurt by poor performance from home builders (the source of the previous outperformance) and lenders such as Countrywide Financial (NYSE: CFC) and Washington Mutual (NYSE: WM). Positions in Allstate (NYSE: ALL) and Harley-Davidson (NYSE: HOG) didn't help, either.

Avoid the lock and loss
Predictably, investors responded by yanking almost half the fund's assets. These investors have now locked in their losses and lost any hope of gaining that money back if/when Muhlenkamp rebounds.

Smart investors know the importance of sticking with proven fund managers, even during periods of underperformance and market downturns. You don't know when the market or a strategy will bounce back, and you've got to be in it to win it. And when you find those rare funds that can take you through both good and bad environments, you won't have to worry about trying to time the market anymore.

A helping hand
Maintaining a long-term focus isn't always easy, but it's the best way to ensure that you reach your investment goals. And investing in top-quality mutual funds is one of the easiest paths to ensuring that long-term focus throughout your investing career.

If you'd like help in finding some of the best money managers around, join me at Champion Funds. Superior managers will give you the confidence you need to resist timing the market. You can get the names of the top-notch managers we've recommended (as well as the lowdown on their funds) by taking a free, 30-day trial to Champion Funds.

Amanda Kish heads up the Fool's Champion Funds newsletter service. At the time of publication, she did not own any of the companies mentioned herein. Muhlenkamp is a Champion Funds recommendation. Washington Mutual is an Income Investor pick. Click here to find out more about the Fool's disclosure policy.