Cripes, chief, this investment game sure is a dangerous business!

Despite volatility on the stock market, there has been no sign of panic-selling among private investors since the events of 11 September. Rather, redemptions are low because investors recognise that now is not the best time to get out of equities.

Immediately after the terrorist atrocities in America, world markets were understandably beset by doom and gloom. The FTSE 100 closed at 5,028 the day before the attacks but had fallen to 4,433 on 21 September. However, markets have since rallied, with the FTSE closing at 5188.6 on Friday, and for many investors, the current situation presents a great buying opportunity.

"We're more optimistic now," says Fred Robinson, a partner at the stockbroker Killik & Co. "There's a feeling the market has changed over the last few weeks, which is a really positive sign."

Unlike previous stock market crashes, last month's fall did not cause investors to panic and sell. "Generally, investors have become more sophisticated; a lot have seen volatile markets before and learnt that it's wise to sit tight," says Philip Childs, head of UK retail at Foreign & Colonial. Already, it is evident that this was the right thing to do. Figures from Chase de Vere, an independent financial adviser (IFA), show that if you had invested in a European fund on 21 September 1999 and exited on 21 September this year, you would have lost an average of 22.02 per cent. But if you'd held tight and stayed invested, you would now only be down by an average of 6 per cent.

Market volatility is set to continue for the time being because of the war in Afghanistan and the threat of recession, so investors should continue to hold.

Many investors are nursing heavy losses suffered over the past 18 months, making them unwilling to buy more equities. The technology boom two years ago led thousands of people to pour money into tech funds – a great opportunity for those who got in at the beginning, but not so good for those who bought at the top of the market. The Framlington NetNet fund, for example, is down 82.9 per cent since its peak in February 2000. Two other funds popular during the tech boom have seen similarly big losses: Aberdeen Technology has fallen 67 per cent since March 2000 and Jupiter's Global Technology is down 74 per cent. It's understandable, therefore, that some may be apprehensive about investing in stocks and shares – but those who hold off could well be missing out on a great opportunity to buy.

"There's bound to be fear," says Steve Glynn, joint managing director at Jupiter Asset Management, "but if you take a medium to long-term view, there is no reason why now should not be a good time to invest. Equities [are still] the asset class with the best performance potential."

As was seen during the technology boom, people are much happier to invest when the market is strong, despite the fact that in order to realise the highest growth, they should be doing the opposite: investing when markets are low.

"Investor caution is understandable," says Philippa Gee, investment strategist at IFA Torquil Clark. "But if you wait until the stock market has risen considerably, you're missing the point of investing in the first place. [However], in light of current uncertainties, we're recommending that clients phase their money in over six months, rather than investing a lump sum." By drip-feeding money in, you will benefit when the stock market recovers but protect yourself should markets fall again in the near future.

Given the current political and economic situation, fund managers are pleased with the level of new investments. Sales dipped for about a week immediately after the US attacks but have since picked up and show little sign of declining.

"While the near-term economic outlook for the US has deteriorated, confidence in a robust recovery has improved," says Gary Marshall, managing director of Aberdeen Unit Trust Managers. "The depth and duration of the downturn are now more severe, but the corollary is that the recovery will be stronger and faster."

But although confidence may be returning, attitudes to risk appear to have changed. "A lot of portfolios are being realigned because of changing perceptions of risk," says Craig Wetton, managing director of IFA Chartwell Investment Management.

Emerging market and technology funds are out of favour, with investors opting for lower-risk alternatives. "When a market is low, people tend to look closer to home," says Mike Webb, head of retail at Invesco Perpetual. UK equity, UK income and corporate bond funds seem the most popular at the moment. However, Ann Davis, executive director at Fidelity Investments, adds that investors are polarising into those acting cautiously and those prepared to take more risk.

"There are some people who regard the current situation as a buying opportunity and are opting for more aggressive funds, such as US funds and UK Special Situations," says Ms Davis.

If you've got the guts, it could be an ideal time to adopt this strategy, but you must be happy with the risk involved.

Michael Owen, director at IFA Plan Invest, says investors must tell their financial adviser if they feel uncomfortable with the risk in these markets.

"We're clearly living in volatile times," he says, "but if you invest at this level then you should see reasonable long-term performance."