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By Jason Stipp and Christine Benz | 12-20-2012 01:00 PM

Christine Benz's Tips for Turbulent Markets

Morningstar's director of personal finance recommends locking down short-term income needs in cash-like investments, stress-testing your bond holdings, and staying poised to buy on the dips.

Jason Stipp: I'm Jason Stipp for Morningstar. Unfortunately, there's no shortage of wildcards in the market as we head to 2012's final days. So it's reasonable to expect we may see some volatility.

Here to help us weather that bumpy ride is Morningstar's Christine Benz, our director of personal finance.

Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: Before we talk about some tips for preparing for volatility--not sure if we'll see it or not, but it's likely--we've actually had a decent year in the market this year. Despite all these uncertainties, Europe and the fiscal cliff, stocks have done pretty well so far.

Benz: I think that context is really important. If, in fact, we do see more volatility, just remember that if you had a balanced portfolio, you probably have very strong returns from the stock component of that portfolio, and bonds have actually done quite well as well. So, investors who had balanced portfolios and weren't hunkered down entirely in cash probably are sitting on pretty nice gains. Even if we cede a few of those gains as this year winds down or into 2013, it's still not the end of the world. It's been a very good year.

Stipp: So we do have these headlines out there that indicate we could see a bumpy ride coming up. There are some things that need to get resolved. There are good practices for any kind of market. We don't know when volatility can heat up always, and one of them has to do with checking your asset allocation and especially the money that you'll need in the short term. If we weather a bumpy ride here, how can I make sure I'm ready?

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