Keeping sane in a chaotic market

The headlines are scary; the stock market dips tumultuous. It's enough to make you want to pull your money out of the market altogether. But that would be a bad move.

1) Don't follow the herd

The golden rule of investing here is : buy low, sell high. If you pull your money out of the market now, you'll be selling at a low–and you'll be guaranteed to lose money. Don't let your emotions guide your investment strategy. Consider this, if you missed 30 of the best days in the market you would have wound up losing almost half of your portfolio's value, according to the investment firm Edward Jones.

2) Think big picture

The average investor should ignore daily market fluxuations. This is especially true if you own a 401(k) and you have at least ten years until you plan on retiring. While these are trying times, it's helpful to keep in mind that the stock market falls in anticipation of a recession and recovers before it ends. In fact, the stock market anticipates the economy by nearly nine months.

3) Gauge your risk tolerance

If these market losses are keeping you up at night, it's time to revisit your asset allocation. To minimize your risk of wild market swings, make sure your portfolio is well diversified. This means you have a mixture of stocks, bonds and international holdings. Don't put a lot of your own company's stock in your portfolio. The way to manage a choppy market is to make sure you're dollar-cost averaging. That means instead of putting your money in a lump sum into the market, you're spreading your money over a period of time. It's the safest way to play in times like these.

For more of Gerri's Top Tips, watch CNN weekdays at 10:15 am Eastern Time.

Posted by: Gerri Willis, Personal Finance Editor
Filed under: Finance • Living • Willis