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Volatile stock market survival guide

After a 400-point drop in the market Tuesday, Gerri Willis gives you tips on how to cope.

By Gerri Willis, CNN

NEW YORK (CNNMoney.com) -- Stocks plunged Tuesday with the Dow Jones Industrials losing more than 400 points. It was the worst day in 5 years. Markets stabilized Wednesday morning, but the drop is still a loud wake-up call to investors. We'll tell you how to protect your investments if the stock market does tank.

Don't panic

Selling in a panic is almost always a mistake. Remember, the stock market has been gaining ground for 8 months. The market is overdue for a significant correction, says David Wyss, an economist with Standard & Poor's.

Let's put this in perspective. A normal market correction is eight to 10 percent. The sell-off that we saw is only about three percent and we haven't seen a significant correction since 2003. If you're invested in a 401(k) for thed long-term, you shouldn't be concerned with the day-to-day gyrations of the market, says Doug Flynn of Flynn Zito Capital Management.

Look past the bottom line

Don't just look at what you may have lost in your portfolio. Take a longer view of the market. This is a good time to really analyze what kind of investments you're in. If you are a 401(k) holder, go to Morningstar.com and find out what companies you have in your portfolio. You want to make sure you have a diversified mix of stocks, bonds, cash and real estate investments. That's the best way to hedge your bets against a falling market.

Consider your time horizon

If you are only a year or two away from retirement, it's a good idea to revisit your investments. It's easy to get swept away by months of positive stock returns.

The bottom line here is that the closer you are to retirement, the more conservative you should be. If you do have a long time before you retire, the more aggressive you should be. To figure out some good allocation mixes, here are some calculators to help you out.

Professional investors are worried that the economy is slowing down. Just a little while ago the Gross Domestic Product numbers were revised downward. And these GDP numbers measure the nation's economic activity. Add to this fears of a weakening housing market and comments from Alan Greenspan about a possible recession and...there's a lot of worry out there.

Analysts we spoke to said it's very likely that there will be more declines in the stock market before the market regains its footing. So you may just want to steel yourself.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.