NEW YORK (MONEY Magazine) - It's been a welcome change -- imagine, stocks actually finished up for the week. But that's small consolation for people who have lost a bundle over the past two and a half years, and many are ready to swear off stocks for good.

That, of course, would be an overreaction. Selling stocks now and rushing into other investments is exactly the kind of behavior that got investors into trouble the last time around. Still, it's never too late to learn the lessons of the bear market -- that is, to make sure that you have a properly diversified portfolio.

Do you have enough bonds? Should you be doing more to cash in on the hot real estate market? In the latest issue of MONEY Magazine, the editors tackle dozens of such questions, and here's a sampling.

Since the end of the bull market, bonds have gotten a lot racier. With the Lehman Brothers aggregate bond index up 5.3 percent in 2002 and the S&P 500 stock index down 20 percent, bonds are on the way to beating stocks for the third year in a row.

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But that doesn't mean that you should expect the same gains from bonds going forward. The big risk: rising interest rates. Interest rates, especially short-term rates, are at or near historic lows, and the Fed will most likely raise rates when the economy picks up. Rising rates, of course, knock down the value of existing bonds.

To minimize interest-rate risk, avoid bonds maturing in 10 years or more; long-term bonds take the biggest hit when rates rise. In addition, try to ladder your bonds; that is, divide your investment equally among one-, three- and five-year issues. As the short-term bonds mature, you'll be able to reinvest the proceeds in longer-term securities at higher rates.

Unfortunately, the Federal Reserve's serial rate cuts in recent years have slashed returns on liquid investments like money-market funds. The best you can do is look for investments that offer slightly above-average rates and don't levy fees that could eat into your already meager returns. Rates on money-market funds, the backbone of most cash investing, are now near a 40-year low, averaging about 1.3 percent, down from 5 percent just over a year ago.

Banks are offering slightly higher rates on their FDIC-insured money-market accounts. On average, these accounts have been paying 2 percent to 3 percent and if you shop around, you can avoid monthly fees. Some six-month certificates of deposit offer rates that top 2.5 percent.

Thanks to years of residential and commercial real estate appreciation in most of the country, owning investment property does look like a tempting alternative to the scary stock market. Indeed, for individuals particularly suited to owning property, the hard asset part of their portfolio has been a godsend. That said, most investors need to consider carefully the special complications of owning rental or commercial property. Among them:

• Real estate is nondiversified and illiquid. When you buy a building or a plot of land, you're pouring a lot of money into a single position -- far more than you likely would in a single stock or bond. What's more, you may have to be willing to live with that investment for a long while. Unloading real estate takes a lot longer than dumping a stock or a fund.

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• Owning investment real estate is owning a business. For some, that's a plus, because it means they can influence the value of their investment more than they could with, say, their Intel stock. But are you ready to screen potential tenants, collect rent, toss out deadbeats and do some of the building maintenance yourself? In other words, do you want to be a landlord? Not everyone is cut out for that job.
• Tax breaks are not all they're cracked up to be. True, you can deduct mortgage interest, property taxes and operating expenses on rental properties, but first you have to dig into your own pocket to pay them. Depreciation is the only noncash deduction allowed.
• Bad timing. The best time to invest in real estate is when interest rates are high, buyers are scarce and prices are depressed -- all things that are not true now.
• If you're still determined to invest in real estate, consider REITs, or real estate investment trusts. These companies own baskets of commercial properties and pay out at least 90 percent of their rental income in dividends. Be selective, as REIT prices have risen substantially this year, and some analysts think they are starting to look overvalued. A couple that still look promising: Vornado Realty Trust (VNO: Research, Estimates) and Equity Office Properties (EOP: Research, Estimates).

No question, your house does have value. And as housing prices soar and the stock market plunges, you may view your home as the best investment you ever made. But make no mistake: Your home should not be considered in the same light as a stock or bond portfolio. Says Harold Evensky, a financial adviser in Coral Gables, Fla.: "You shouldn't count on your home's value for financial planning purposes."

Real estate values won't always go up. Many forecasters see home prices flattening or even dipping in some areas. Further, your home is not a liquid asset -- you won't know what your house is worth until you sell it, which can take months. Even if you sell it, you won't pocket the appreciation unless you buy a cheaper place and stash the profits. But that seldom happens -- almost invariably homeowners trade up.

That said, there are occasions when a house can serve as an investment asset, chiefly at retirement. That's when some people downsize into cheaper residences, providing an opportunity to tap accumulated equity. Still, if you are decades away from retirement, it's impossible to know if you will want to take that route. In the end, home ownership is a lifestyle decision that very likely will prove profitable in the long run. But it's no substitute for a comprehensive saving and investing plan.