After yesterday’s 376 point drop in the Dow Jones Industrial Average, it’s understandable that you may be a bit uneasy about the markets and your portfolio. The worst thing you could do right now, however, is panic and pull out of the market. If you just can’t sleep at night, then it’s likely that your portfolio is too aggressive, with too much allocated to stocks.

It’s important too, to have enough allocated to cash and short-term fixed-income assets to meet short-term goals and to allow you to ride out these down-market periods. For example, if you are retired, you should have at least two to three years (perhaps even five years) worth of cash and short-term securities to meet your living expense needs. If you also need money for a major project, daughter’s wedding or new car, that money too should not be invested in equities.

If you haven’t set aside enough, you might want to consider delaying the project or new car (you probably won’t be able to postpone the wedding) until you can get your portfolio straightened out.

We’ve seen lot’s of market corrections like these in the past and will likely see more and more of them in the future. Although inflation is almost insignificant at the present time, it most assuredly will raise its ugly head not too far down the road. It will be important to have some equities in your portfolio to maintain your purchasing power (unless you are so wealthy that you your funds will last no matter what the affect of inflation). Over the long run, stocks have consistently proven their superiority to bonds.

Remember that you want to buy low and sell high. Now is not the time to be selling.