First, buckle your seat belt. It won't be easy steering through this rough passage in history. But depending on your personality, the amount of risk you can take and the principal you need to preserve, you have a number of options.
See also: What's happening to your money?
There's actually a dose of good news behind all of the mayhem. This may be a great time to rebalance and overhaul your portfolio to reduce risk or prune it of losers for tax losses.
There are thousands of companies still turning a profit — and paying dividends. Many of these stocks are attractively priced as well. You can buy them individually or lower your risk by buying mutual funds that bundle them in managed portfolios or in exchange-traded funds (ETFs), which are pools of investments often tied into an index. They're like mutual funds, but trade on stock exchanges.
The key to building a good portfolio is diversification according to how much money you can put at risk — and many investors need advice from a professional. Don't try to time the market; you'll likely guess wrong and lose money.
"The beauty of a well-diversified portfolio is that it tends to smooth the pathway for investors," said Craig Israelsen, an associate professor at Brigham Young University who specializes in personal finance and investment portfolio design. "The highs and lows of market hyper-volatility are experienced, but are not as dramatic. As such, attempting to time the market is somewhat negated by diversification."
The famous economist John Maynard Keynes once said that "animal spirits" were behind market movements. As homage to Lord Keynes, here are some suggested portfolios: the lion, the turtle and the ostrich.
The lion. You're an aggressive investor who doesn't mind market risk. You've put most of your money in an annuity, a pension or assets that are immune to global movements; now you're looking for opportunities for the rest and don't mind being contrarian.
You're not afraid to pounce on sectors and industries that are being beaten up. You know you could lose money with this approach, so you're careful not to commit most of your assets.
Here are some vehicles to consider that could help you grab some bargains:
- Value mutual funds. These actively managed funds are always looking for good stocks at attractive prices. If you're a value manager, you relish market downturns to find bargains.
- Financial sector funds. Right now, most banks are in the doghouse, particularly European banks with exposure to Greece, Italy, Spain and Portugal. This is the ultimate high-risk contrarian play right now.
- Commodity funds. These vehicles invest in everything from corn to coal. As a long-term investor, you know that developing countries still need metals like aluminum, copper, iron and tin. While a slowdown might depress prices now, this could be the right time to buy.
- Precious metals funds. Gold and silver are refuges in time of panic. You can either invest in ETFs that buy metals directly or mutual funds that buy mining companies.
- Inverse index ETFs. These specialized ETFs use leverage to bet against a market going up — or down. You can buy them to wager on most stocks, Treasuries and even currencies.