What if your portfolio tanks?

The stock market has experienced some big swings in recent months, and it’s got some investors jittery. Do you know what you would do if your stock portfolio suddenly took a dive? Here’s some guidance.

For starters, instead of fearing stock market drops, expect them. They will happen every few years, and some years can shrink your portfolio considerably. In 2008, for example, the S&P 500 plunged more than 36 percent. It dropped for three years in a row in 2000, 2001 and 2002, with 2002’s drop a hefty 22 percent. Those can be alarming, but know that there were plenty of years with double-digit gains before and after those years. The average annual gain over many years has been close to 10 percent.

So keep that perspective in mind whenever the stock market retracts or crashes. It shouldn’t hurt you severely if you’ve sensibly kept any money you might need in the next five (or even 10) years out of stocks. Your investments need time to recover after any downturn.

Another smart thing to do if the market drops is to go shopping! It can be hard, psychologically, to buy stocks when others are selling and the media is obsessing about market losses, but that’s often a great time to buy, as many terrific stocks will be temporarily sporting significantly lower prices.

If you like the idea of shopping during downturns, you might aim to keep a modest portion of your portfolio in cash, ready for opportunities. Five or 10 percent is often plenty, though — remember that any money not invested could have been growing for you. When you shop, you might favor healthy dividend-paying stocks, as they can provide welcome income. (Remember — when a stock’s price falls, its dividend yield rises.)

Remember that the best investors are patient, and they don’t freak out when the market retracts. They expect it — and often profit by it, too. Tune out the noise in the media and focus on buying into great businesses for the long term.