Whether the market smacked you -- as it did so many investors -- or you dodged the bullet, you probably feel like you could use a nice long break from worrying about your stocks.

The last few months have been hard on everyone. We've all learned something about how we respond to panic and fear, how we act when irrational behavior surrounds us, and how we cope when even financial experts seem clueless on what will happen not just in the coming years, but also just a few days into the future.

Now that we've had a breather -- and stocks have recovered at least a fraction of their losses -- you can take a step back and reevaluate how you want to invest in the years to come. If recent market declines have opened your eyes to the realization that stocks are much riskier than you may have thought, consider making some changes to your portfolio.

Get diversified
The luxury of a bull market is that it tends to reward most investing strategies. From 2003 to 2007, you could have invested in nearly any sector of the market and done well. Sure, some sectors performed better than others -- investors in energy stocks, for instance, enjoyed great returns during those years, with Chevron (NYSE:CVX) almost tripling and Valero Energy (NYSE:VLO) up more than 575% -- but for the most part, the rising tide of the stock market lifted most individual stocks.

Now, though, the value of diversification is much clearer. Many companies -- even huge ones that many thought were completely safe -- have lost huge portions of their share value in just the past year. Just look at these well-known names:


1-Year Return





Loews (NYSE:L)


Motorola (NYSE:MOT)


Raytheon (NYSE:RTN)


Source: Yahoo! Finance.

You may have felt the pinch much more acutely if you had a concentrated portfolio in just a few names like these.

In contrast, while those with more diversified portfolios certainly haven't avoided all the pain, they've had it tempered somewhat. Indeed, some of their investments may have even risen.

Put together the right portfolio
So if you're looking to add some different types of investments to your portfolio, here are a few timely ideas:

  • Add some fixed income. If you're looking to reduce your risk, government bonds have been among the only winners in this market. Those who've owned a healthy portion in their portfolios have seen their losses offset considerably.
  • Don't forget CDs. As great as bonds are, most small investors can get better rates with CDs. For instance, one-year Treasuries pay about 1.25% right now -- but you can get federally insured, equally safe one-year CDs for 4% or more from several banks.
  • Think about real estate. Yes, the housing market is still down and out. But with prices so low, opportunities are coming for anyone who wisely stayed on the sidelines during the run-up. Now, everyone thinks housing as an investment is dead -- which means it's a great time to consider buying.
  • Commodities at half off. When commodity prices were skyrocketing, everyone wanted in. Now everything from copper to corn, from oil to orange juice, has fallen off a cliff. So if you agree that adding some minor commodity exposure to your portfolio is smart, why not do it at bargain prices?

Finally, watch out for hidden risk in your portfolio. Whether it's a mutual fund that placed bets on risky asset-backed securities, or a stock with derivatives exposure, you need to know the chances that companies you're invested in are taking with your money.

It's unfortunate that it took a market panic of this magnitude to alert some investors to the risks they were taking with their money. If it helps you build a stronger portfolio for yourself, however, the lessons you've learned were worth the pain you've suffered.

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Fool contributor Dan Caplinger has a well-diversified portfolio that covers all the categories above. He doesn't own shares of the companies mentioned in this article. 3M is a Motley Fool Inside Value recommendation. FedEx is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy keeps you covered.