As oil prices continue to rise and people continue to foreclose on their homes, many are wondering just how bad the economy can get. However, "For long term investors, it really is worth noting that this too shall pass," says AuWerter. Try to keep market changes in perspective. While the market may be down right now, in the long run, the stock market goes up.
To minimize your losses, use dollar cost averaging. While many people rush to sell when the market is falling, AuWerter suggests that this isn't the best idea. "You're really locking in your losses," she says. Your best bet is to make regular investments over time, which forces you to buy more shares when the market is down and less when it's rising. The best way to do this? Invest in your company's 401k.
Also, now is a great time to increase your cash cushion. "We all do need an emergency fund," says AuWerter. "It should be 3-6 months of expenses held in a cash account like a money market fund." The idea is to have the money there if you need it. That way, you won't have to worry about selling off other investments in order to cover an emergency.
Keep your eye on what you're investing in as well. Be particularly cautious with commodities. While oil and gold are doing very well right now, investing your children's college fund in commodities can be dangerous. The markets fluctuate so often that you may lose a good chunk of money very quickly. If you do feel you understand commodities well enough to invest, be sure you only put in what you can afford to lose. For most people, that's a very small amount of money, especially in today's economy.
For most investors, it's best to keep a balanced portfolio. "You really do need that right mix of stocks, bonds and cash," says AuWerter. Try to invest in some foreign companies, as well as small companise too. By diversifying, you're less likely to suffer a huge hit if the market falls.
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By Erin Petrun