(This story, originally published in February, has been updated.)
NEW YORK (CNN/Money) -- Whether or not you approve of the war with Iraq, the conflict raises the question of how you should manage your portfolio during such a volatile period.
To that end, here are five suggestions of things you should not do:
Don't base your investment strategy on one event. No one can say with absolute certainty that the United States will be successful or, frankly, what true "success" really means. Sure, Saddam Hussein may get the boot, but what new problems might that create and how will the markets react?
One problem is that other issues exist that have been undermining stocks and the economy that are not going to be resolved overnight: for instance, the persistent threat of terrorism and the continued hangover from the Internet bubble.
"The worst mistake is to look at one event as the event that you're trying to strategize around," said Brooks D. Tucker, an adviser in the private-client division for Deutsche Bank Alex. Brown and who served as a Marine infantry unit leader during the Gulf war. "This stuff is priced daily into the market. It's fruitless to try to get ahead of it."
What's more, basing long-term investment decisions on potentially short-term events can be a costly mistake. Indeed, said Gary Schatsky, president of Independent Financial Counselors, a fee-only financial advisory service, "Responding to the news du jour is not the right move."
Don't wait for the "all-clear." In other words, get used to uncertainty because it's likely here to stay, said Tucker. "There are several layers of pressure. War with Iraq is just one," he said, noting that post-Sept. 11, "we're in a different era of U.S. policy."
This advice is particularly targeted to investors who have been holding on to losing stocks for the past three years, waiting and hoping for a definitive event to turn the tide on Wall Street.
War or no war, it's always a good idea to re-examine whether your portfolio is really serving you. Ask yourself, "What kind of return do I need to get to my goals?" Look at what you own, what sectors you're exposed to, and the level of risk you're taking. Then question whether all that is in keeping with your needs.
Don't take on more risk than you have to. With uncertainty and volatility the watchwords going forward, it's more important than ever that investors adjust their risk-taking to levels in keeping with their tolerance and their time line.
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Wealth, in terms of money and time, is a key factor that determines how aggressive your investments should be.
A 30-year-old millionaire, for example, can afford to be far more conservative than someone in their 40s who has less than $200,000 stashed away for retirement, Tucker said.
By the same token, if your financial goals are five years or less away and especially if you're on the verge of retirement, you should be as defensive as possible, he added. That may mean taking the money you'll need within one-to-six years out of stocks altogether. But "the longer the time line investors have, the more I'd suggest they have an equity presence in their portfolio," Tucker said.
Keep in mind, the more conservative your allocation, the more modest your expectations should be for long-term returns and the more you'll need to save to meet your goals.
Don't rush headlong into "safe havens." Gold, bonds and even cash -- traditional safe havens in wartime -- certainly can be useful parts of your portfolio. But assuming you're not yet the millionaire you'd like to be, overdosing on any one of them can be hazardous to the long-term growth of your savings, said Schatsky and certified financial planner Tom Grzymala.
The problems are the paltry returns on interest-bearing accounts, the fact that gold was recently trading at six-and-a-half year highs, and the fact that government bond yields have been treading near 40-year lows. What's more, Grzymala said, when interest rates eventually do rise, bond prices will fall, increasing the chance you'll lose money.
Don't abandon your 401(k). If you've lost money in the stock portion of your account and you're afraid a war with Iraq will advance those losses, you may be tempted to abandon ship altogether and just dump future contributions into your bank account instead. Resist the urge, Schatsky said.
Instead, if stocks make you seasick, redirect some of your contributions into a more conservative alternative within your 401(k) for the time being. (For a look at stable value funds, an increasingly popular safe haven among 401(k) investors, click here.)
That way, you preserve the immediate tax break 401(k)s offer (contributions reduce your taxable income); you remain eligible for a matching contribution from your employer (a.k.a. free money); you sleep better at night; and even though investing long-term savings too conservatively can impede growth over time, there is one advantage to doing so in a 401(k), at least during a bear market, Schatsky said.
Losses in your tax-deferred accounts are not tax-deductible, so minimizing them makes sense in more than the obvious way: You can't take your lemons and make lemonade as you can in a taxable account.
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