2. Review your asset allocation
Your asset allocation is how your portfolio is divided into different assets – primarily stocks, fixed income securities, and cash or money markets. Your asset allocation should be based on your time horizon and risk tolerance.
There is no good asset allocation; it all depends on the individual. Generally speaking, the longer your time horizon, the more you want to allocate to equities, which outperform fixed income investments over the long term. Typically, a ratio between 80/20 and 60/40 stocks/bonds/cash is what most advisors recommend for someone with a longer time horizon.
But if the thought of another stock market crash is keeping you up at night, you can revise your allocation to add a little more fixed income and cash to provide additional ballast. This may lead to lower long-term returns on your portfolio, but you’d likely have the comfort of a smoother, less bumpy ride.
3. Diversify, but don’t try to time the market
Diversification is how your portfolio is invested in an asset class. Take stocks, for example. If 90% of your portfolio was invested in tech-focused stocks and exchange-traded funds (ETFs), you’ve probably taken quite a hit in recent months.