NEW YORK (CNN/Money) - All this talk of war is enough to keep the savviest investor up at night with worry.

Will stocks get trounced? Will oil and inflation go through the roof? Will the economy tank? Given the market's rocky performance, the questions are all the more scary. And while the U.S. isn't likely to lose a war against Iraq, nobody knows how long it would last -- or whether Saddam Hussein would try to use weapons of mass destruction.

Sounds like a good time to battle-proof your portfolio.

In general, stocks decline in the months following U.S. military action but are higher a year later, according to Ned Davis Research. (See accompanying chart.) Still, war leaves a confusing footprint.

War and the Dow How recent conflicts have affected stocks War or conflict  After 1 month  After 3 months  After 6 months   1 year later  End of war or conflict  World War II-Pearl Harbor  -2.4%  -7.6%  -16%  2.2%  46.5%  Korean War  -8.9%  1%  2.2%  14.7%  25.5%  Vietnam War  0.3%  3.7%  7.4%  4.9%  -2.3%  Gulf War  -9.8%  -15.6%   -6.4%  4.9%  0.9%  Sept. 11 attacks   -2.3%  1.7%  10%  -10%  N/A  U.S. attacks on Afghanistan (10/7/01)  5.2%  11.8%  11.9%  N/A  N/A   Source:  Ned Davis Research

There was a powerful rally during the Korean War in the 1950s and the Dow rose 25.5 percent by the time it was over. But during Vietnam, stocks were rife with volatility and the index lost 2.3 percent between 1964 through 1975. More recently, the Gulf War of 1991 had a muted effect on the market simply because it ended so fast.

"You can look at the numbers different ways and draw different conclusions," said Sam Burns, a researcher at Ned Davis. "It's always been a mixed picture."

The longer the conflict, the more it will impact the economy, said Delos Smith, economist at the Conference Board. For example, in Vietnam, years of combat led to huge government deficits, which contributed to double-digit interest rates by the 1970s. Then oil-producing countries raised oil prices, leading to high inflation.

"The whole key is whether or not (a war) ends quickly," Smith said.

Inevitably, there are winners and losers among individual stocks. For example, by the end of 1991, the top-performing industries were leisure products, gaming and lottery, and health care special services, according to a study by Prudential Securities. (See accompanying chart.) The hardest-hit areas were oil and gas, hospital management companies, computer hardware stocks, and gold and mining companies.

Stocks and war The best- and worst-performing industries at the end of 1991, year of the Gulf War. Top industries  Return  Bottom industries  Return  Leisure  67%  Oil and gas (exploration and production)  -40.8%  Gaming and lottery  66.1%  Health care (hospital management)  -33.5%  Health care (specialized services)  48.9%  Computers (hardware)  -31.8%  Footwear  46.7%  Gold and metals mining  -27.5%  Retail (specialty apparel)  46.4%  Natural gas  -26.7%  Housewares  41.1%       Source:  Prudential Securities, Standard & Poor's

In general, more defensive sectors such as beverage companies and tobacco will do better in the uncertain months leading up to war, said Ed Keon, chief quantitative equity strategist with Prudential Securities. Once investor sentiment improves, there's a return to more cyclical stocks, such as airlines or hotels. But there are always exceptions.

The only variable that doesn't seem to change is that investors inevitably miss opportunities in the market when conditions seem the riskiest, Keon said. At the end of 1941, many investors thought they had good reason to hide out in bonds. Stocks had been in a slump, war was raging in Europe, and the Great Depression was still fresh in their minds. Then Japan bombed Pearl Harbor, pushing the United States into war. The best-performing sector was beverages, with a loss of 15.3 percent.

But consider the performance of bonds versus stocks in the 40 years since World War II when you factor in inflation, Keon said. Stocks have earned an average of 6.8 percent since then, while bonds have lost 2.3 percent.

"When things seem very risky it often represents opportunity," Keon said.

William Batcheller, manager of Armada Equity Growth, said he lightened up on technology earlier this year because the threat of war has kept a lid on capital spending at many companies. Instead, he's added to more defensive names such as beer producer Anheuser-Busch and Colgate-Palmolive, a maker of household staples such as toothpaste and soap. Both are trading near their 52-week highs.

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Batcheller also owns retailers such as TJX Companies, which operates T.J. Maxx, as well as Autozone, a maker of specialty auto and truck parts. TJX and Autozone both have a five-year anticipated growth rate of 15 percent.

In defense, Batcheller started buying Lockheed-Martin, the world's largest defense contractor, following the Sept. 11 attacks. Lockheed-Martin is a major player in high-tech electronic warfare devices. The stock is a top-ten holding in the fund and is up about 11 percent this year.

Jim Thorne, senior portfolio manager at Vision Large Cap Core Fund, is heavily overweighted in Raytheon, which makes precision bombs and Tomahawk missiles. The fund has a 1 percent weighting in the stock, much higher than the S&P's 0.16 percent, he said. The bombs that Raytheon is making today are so accurate that pilots can accomplish in 10 missions what used to take 100 missions during the Gulf War, he said.

Defense stocks have lost steam after a runup earlier in the year in anticipation of war. The Philadelphia Defense Index, a collection of 17 companies, including Boeing and Northrop Grumman, is down 7 percent this year. Before the summer stock rout that took everything lower, the index was up as much as 26 percent. But both Batcheller and Thorne see defense as a long-term winner since President Bush has put an emphasis on more military spending.

Even some stocks that may take a beating during a war have their supporters. Mark Foster, manager of Kir Marbach Partners Value, is holding onto Carnival Corp., which operates five cruise lines, as well as Hilton Hotels. Carnival dropped 43.2 percent during the height of the Gulf War. Hotels also struggled. But Foster is betting the war will be short-lived and the stocks will do well in an economic recovery.

That's why Foster is keeping the portfolio almost fully invested, with cash at a modest 5 percent, so he won't miss the rally. "Typically the market moves quickly, and if you're not there ahead of time you'll miss what historically can be a decent move."

Energy stocks, though in the dumps right now, as well as airlines and manufacturers, would also do well in a healthy market rebound.

Sure, managers are doing some buying, but it's still not a great market for the average investor. The best thing you can do in this uncertain environment is to trim your equities and raise your level of bonds and cash, said Mitchell Kurtz, a certified financial planner from Garden City, N.Y.

A battle plan for your investments   If your old mix was:  Your new mix could be:  Stocks  70%  50%  Bonds  30%  30%  Cash   0  20%   Source:  Mitch Kurtz

If you have a portfolio that is 70 percent equities, and 30 percent fixed income, you might want to change the mix to 50 percent equities, 30 percent bonds and 20 percent cash. In the cash portion, stick with CDs and Treasurys with a short duration of three months.

"You're not throwing in the towel and completely stepping to the sidelines, because history shows that if you do you'll miss out," Kurtz said. "But this is a move to make people feel more comfortable in case there is a long war or there are problems that are unexpected."

If you're worried about your 401(k) or IRA and have 5 to 10 years until retirement, you may want to trim more aggressive holdings slightly -- but nothing dramatic. For example, in equities, you might reduce your high-voltage small cap exposure in favor of more stable large caps. You might also lighten up on tech, which is more volatile. On the bond side, instead of a risky high-yield fund choose a Ginnie Mae bond fund.

But a younger person with years until retirement might do nothing at all. Over time, the war will make no difference at all. Retirees may well ask, "Saddam who?"

This article was originally published Sept. 25, 2002. It has been updated with new figures through Nov. 20.