Expect Less, Pay More

Worried about inflation? You bet. Over time, stocks are still the best protection against the rising cost of living. They consistently have returns of about 6 percent over and above inflation.

Bonds play their role, too. Historically, down periods for bonds have been shorter and less severe than for stocks. In fact, during the past 30 years, the bond market has produced a negative return only twice, with the largest of the two declines being a mere 2.92 percent. Bonds lower the volatility of your portfolio.

Finally, the world is your oyster. While the U.S. economy may be suffering, the world economy seems to be on track to grow about 4.75 percent in 2008. However, this figure masks big changes in the way the global economy operates. Rapidly expanding emerging markets now account for nearly half of all global growth, meaning that a well-diversified portfolio for many investors should have an exposure to international stocks.

But most of all, volatile markets demand a disciplined approach, and that demands a plan and some outside help. All plans consist of several key components: your objectives, your tolerance for risk based on your own particular circumstances, and a portfolio allocation that reflects those conditions.

Putting together a plan—then holding to it—isn’t something that most people do very well on their own. That’s the second component of all this: Get some outside help. A financial planner can help monitor your plan and provide advice about when to rebalance your portfolio. He or she will also help you evaluate such factors as your tax situation, your desire to give back through charitable giving, and your desire to provide for loved ones now and after you die.

But most of all, he or she will help you stick to your plan, keep you rational, and remind you on occasion that you’re not a trader, you’re an investor.