Keeping a Level Head
Don't Let Financial Anxiety
Throw You Off Course

Volatile markets, government bailouts and rising unemployment headline the news. It's no wonder even the most stalwart investor may have a challenging time preventing financial anxiety from setting in. However, it's exactly the time not to make hasty, major decisions.

Here are some steps you can take to help you feel better about your finances.

Avoid overreacting. Panic rarely makes a situation better – especially when it concerns money. Take a deep breath, then seize this opportunity to re-evaluate your own circumstances. Investors who sell when prices are down are only locking in losses. If your investments are diversified across a wide range of industries and sectors and different asset classes, your portfolio may weather the market's volatility more readily.*

Add to your emergency fund. A rainy day, unfortunately, is in the forecast. Investors may be recovering from 2008 for some time. If you don't already have an emergency fund of three to six months of living expenses in a cash account, start one. If you have one, consider beefing it up.

Reassess your tolerance for risk. If you haven't evaluated your risk tolerance in more than a year, now would be a good time – especially if you are not sleeping at night. Consider taking a risk tolerance quiz available on many financial Web sites, such as moneycentral.msn.com.** If you feel you have taken on too much risk (or, in some cases, not enough) for your financial goals, consider rebalancing your portfolio.

Review asset allocation. Dividing your money among the major asset classes of stocks, bonds and cash equivalents helps to balance risk and reward. If you originally selected investments to weight your portfolio in certain percentages – for example, 75% in stocks, 20% in bonds and 5% in cash – the market's recent volatility may have upset your original intentions. Consider rebalancing as necessary.

Keep on investing. Look at your investment timeline. If you have at least a five-year time horizon or longer until you need to start tapping your funds, you should continue investing. A systematic investing program, also called dollar-cost averaging, is an excellent strategy for staying the course. This practice can help you make market lows work in your favor because you are buying more shares when prices are down.***  

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Keep in mind that historically markets do recover over time and if you are able to have a long-term financial outlook, your investments are likely to come back.^†

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