Seven principles of investing in a volatile market.

Recent months have been hard on investors. While it is easy to get caught up in the headlines and events of world markets, it is probably best not to make decisions based on short-term trends or emotions. Instead, investors should remain steadfast in their long-term investment discipline. During these trying times, one should keep the following tips in mind.

1. Clarify your investment strategy. Living with market volatility is a lot easier when you have a firm investment strategy in place. To create a strategy, you will need to understand several key factors, including your time horizon, your goals and your tolerance for risk.

Your time horizon is determined by counting the number of years left until you plan to retire. Your primary goal is to accumulate enough savings to create the income you need in retirement. Your tolerance for risk reflects your broader financial situation--your savings, your income, your debt--and how you feel about it all. Looking at the whole picture will help you clarify if your strategy should be aggressive, conservative or somewhere in between.

2. Match investments to your comfort level. As a legendary mutual fund manager once put it, "The key to stock investing isn't the brain. It's the stomach," Never is this statement more true than in a volatile marketplace. Even if your time horizon is long enough to warrant an aggressive-growth portfolio, you need to make sure you're comfortable with the short-term ups and downs. If watching your plan balance fluctuate is too nerve-racking, think about a portfolio that feels right and set realistic expectations.

3. Diversify, diversify, diversify. One way to protect yourself from market downturns is to own various types of investments. First, consider spreading your investments across the three asset classes: stocks, bonds is and short-term investments. Then, to help offset risk even more, diversify the investments within each asset class. Keep in mind, however, that diversification doesn't ensure a profit or guarantee against loss.

4. Invest for the long term. To help calm jitters caused by short-term fluctuations, it's best to focus on long-term trends and your long-term goals. Market volatility decreases over time. Holding a stock for 20 years reduces its volatility by two-thirds, compared with keeping it in your portfolio for just a year. Of course, volatility isn't necessarily a bad thing. Dramatic short-term changes in value can be positive or negative. Historically, time has reduced the risk of holding a diversified stock portfolio.

5. Don't try to time the market. No one can consistently predict the market, not even the experts. Yet, many investors think they can guess what will happen, based on hunches ...