Who's afraid of a big bear market?

Not the disciples of a time-honored investment strategy known as dollar-cost averaging.Instead of lamenting the recent declines in just about every financial market you can name - from stocks and bonds to gold and international mutual funds - they see the situation as a special opportunity.

This may turn out, they say, to be a chance to reap maximum benefits from the system they advocate. And if the markets remain depressed for a while longer, so much the better.

There is no deep, dark secret to dollar-cost averaging. It is merely a program of regular investing in equal amounts designed to smooth out the ups and downs of the markets.

Dollar averaging isn't the infallible proposition it is sometimes made out to be. But it is a conservative, long-term approach whose popularity has endured in all kinds of market climates, through the rise and fall of many more elaborate gimmicks and fads.

It carries a strong force of logic, and it is readily available to small investors in such vehicles as mutual funds and stock purchase plans sponsored by corporations.

To see how it works on paper, consider this example:

You start an account in your employer's stock purchase plan with a contribution of $1,000 at a time when the shares are trading for $20 apiece.

Six months from now, you put up another $1,000 with the stock at $25. After another six months, a third $1,000 goes to buy shares at $15.

Subsequently, the price of the stock rallies back to $20. It has gone nowhere since you first began to buy, but you are nevertheless slightly ahead of the game.

The first investment bought you 50 shares; the second 40 shares, and the third 66.67 shares.

All together, your $3,000 got you 156.67 shares. At the current market of $20, they are worth $3,133.40.

"The beauty of dollar-cost averaging is that it guarantees that your average cost per share will be less than the average price at which your various purchases were made," says Norman Fosback, editor of the investment advisory letter Smart Money.

Admirers of averaging say it has a second virtue that may be even more compelling - it takes the guesswork, and the emotion, out of deciding when to invest.

"In theory, dollar-cost averaging eliminates the impact that fear, in a bear market, and euphoria, when the bull is loose, may have on investment decisions," says William Brennan at the accounting firm of Ernst & Young.

To help this happen, Brennan recommends that investors consider automatic investment arrangements offered by some mutual fund organizations, annuity sponsors, and stock purchase plans, using regular deductions from your paycheck, checking account or money-market fund.

"Automatic deposits bring a lot more than just convenience to the dollar-cost averaging technique - they also bring discipline," he says.

"Even the most committed dollar-cost averager might have balked at making a payment in recent weeks, given the market's reaction to the invasion of Kuwait and other bleak economic news.

"With the automatic deposit system, you've got to take affirmative action NOT to invest."

Can an averaging strategy ever go wrong? Yes, if you put your money in a hapless stock, fund or other investment that drops in value and never recovers. Yes, too, if you run into circumstances that require you to sell any investment at a time when it is temporarily depressed.

Still, says Fosback, "regardless of whether the overall trend of prices is up, down or sideways, dollar-cost averaging always produces an average cost per share lower than the average of the prices at the times the purchases were made."