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Experts recommend diversification in good times and bad. If you don't have enough liquid assets to cover at least one year's worth of living expenses, rebalance your investments to minimize the risk of further erosion of their value. Sell individual stocks and mutual funds and buy conservative investments like AAA bonds and federally insured savings accounts and federal, state and local bonds. They will hold their values in declining stock markets.

While conservative investments will also trail other investments in appreciation when the market recovers, it's better for homeowners with liquidity to be safe and miss out on some opportunity for investment growth until the market recovers. Conversely, homeowners who are in good shape financially probably need not restructure a well-balanced investment portfolio.

When recovery begins, appreciation of securities will outstrip growth of more conservative investments. Timing such market changes is notoriously difficult, and homeowners with balanced investment portfolios are usually better advised to stay in the market and benefit from all of that recovery.

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