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Stock prices tumbling? Four ways to control your risk.

If the wild plunges and rebounds in stock prices have made a yo-yo of your portfolio, welcome to a very big club. The gyrations in stock markets worldwide have forced investors everywhere to confront an uncomfortable reality: Short of stuffing your money in a bank or under your mattress, you have to cope with volatility and risk. Fortunately, there are ways to tame risk – even turn it to your advantage. Here are four steps that you can take to begin to reduce the risk of falling stock prices for your long-term portfolio:

1. Ignore volatility

Jin Lee/AP/File
A trader works on the floor of the New York Stock Exchange last month. Stock prices have seesawed wildly in the past month. For four dizzying days in early August, the Dow Jones Industrial Average rose or fell at least 400 points at day – a historical first. So what should long-term investors do? Ignore the volatility.

  • By Laurent Belsie Business editor

As emotionally wrenching as the market gyrations have been, the only unusual thing about them is that they happened in such a short period. Over the course of a year, the Dow fluctuates more than 15 percent about half the time, says Ed Easterling, president of Crestmont Research, an investment research firm, and author of "Probable Outcomes." The seesaw movement "feels more dramatic, because we went through a period of relatively low volatility and almost all the volatility has been to the upside. It's not historically inconsistent."

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