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By Jason Stipp | 05-21-2010 02:12 PM

Taking Charge in a Downturn

Morningstar's Christine Benz and Jeremy Glaser offer portfolio dos and don'ts, plus high-quality stock and fund ideas for a volatile environment.

Jason Stipp: I'm Jason Stipp for Morningstar. After the last few days in the market, investors can't be blamed for getting that oh-no-here-we-go-again feeling, but what should we make of the recent market volatility, and what does it mean for our portfolios?

Here with me to offer some insight is Morningstar's Jeremy Glaser, he's the markets editor for Morningstar.com, and Christine Benz, she's director of personal finance. Thanks for joining me, guys.

Christine Benz: Jason, nice to be here.

Jeremy Glaser: You're welcome, Jason.

Stipp: Christine, you and I have talked about portfolio allocation for a lot of different reasons, and in a lot of different contexts before, and I have to say that I've never heard you recommend selling everything in your portfolio and moving into cash and Treasuries.

Benz: That's not something I would say, is it, But it's something investors have been feeling inclined to do recently. I would say that the recent market volatility is a good wake-up call if you have money that you can't afford to lose. Maybe it's the property tax money, or next year's tuition bill, or if you're retired, your living expenses.

You need to have that money in relatively safe investments. It shouldn't be in stocks. So have that as something that you have in the back of your mind when you're thinking about this volatility. That you do need that cash sleeve carved out.

Stipp: Certainly it's good not to let the market dictate all of your decisions, but it's going to be hard to ignore the market. The market is everywhere. It's on your mobile device, it's on cable channels, it's in the newspaper. How should I think, if at all, about what kind market movements we've been having? How should I think about my portfolio in that context, and should I make any moves based on them?

Benz: Well, normally I would say no, but when you do see the kind of market move we've seen recently, with stocks moving down so appreciably, it might be time to look at re-balancing. Some people re-balance on an annual basis, or on a calendar-year basis. That's fine. Stick with that, if that's what you're doing.

But if you're someone who re-balances when you see your asset allocations veer significantly from your targets, maybe it's time to get in there, use our X-ray tool to see where you are, in terms of your allocations, and maybe think about bumping up your stock position. One thing you might do is consider doing it over a period of a few months, rather than doing it all in one go.

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