Take control where you can

The market's plunge has clarified for investors how they really felt about losing money. Some who thought they could handle risk lost their nerve and bailed. Financial advisers as a rule warn against a major retreat in a market free fall; you're selling at a loss, and you'll probably miss the inevitable rebound, which individual investors historically can't anticipate. Indeed, sticking to an investment plan in thick and thin is a mantra among financial planners.

But if you've truly been spooked by the market plunge, reconsider your balance of bonds and stocks based on your new understanding of risk. "That knot in their stomach is what we're talking about when we talk about risk tolerance," says Mickey Cargile, managing partner at WNB Private Client Services in Midland, Texas.

One guideline for asset allocation among those saving and planning for retirement—subtract your age from 110 and put that percentage in stocks—might seem risky now, leaving a 60-year-old with 50 percent in stocks. You might rest easier with a more conservative allocation. Just be aware that such an approach could result in lower returns. "You cannot realistically be more conservative unless you're willing to cut the spending," says Robert Glovsky, a certified financial planner and president of Mintz Levin Financial Advisors in Boston.

How do you get to a new ratio of stocks to bonds? With stocks beaten down in price relative to bonds, your portfolio might already be weighted more heavily to bonds. If you still have more in stocks than you're comfortable with, plan for a gradual shift—say, by directing all or a portion of new retirement-plan contributions to a fixed-income investment such as a bond fund. After that, check your allocation each year to see whether it's intact, and if not, rebalance by selling shares in the overweighted assets and buying those that are below optimal levels.

What you can do

Plump up your cash cushion

If you've raided your emergency fund of late or never had one to begin with, devote the next few months and years to building it up, or at least not touching it further. A cash fund helps ensure that you won't have to dip into equities when they're down and that you won't have to borrow in a pinch.

If you can, pad that cushion with new savings, not with invested funds. "If you don't have a cushion today, I wouldn't go and create it by selling stocks because you'll be selling at a loss," Glovsky says. Financial advisers generally recommend that workers have three to six months of expenses in an emergency fund; retirees should have at least one year's worth.

Track your spending

That exercise helps target spending weaknesses, such as Starbucks and Stolichnaya. Write down all expenditures for a month or more and then put them into categories, such as mortgage, utilities, groceries, travel, and entertainment. You can create your own system or use budgeting software, such as Intuit's Quicken or Microsoft Money.

Redirect tax savings

If you're due for a large refund this spring and don't expect your tax liability to change much in 2009, reduce your federal tax withholding now. The average refund was about $2,400 in 2008. Cut your withholding and put the additional money toward expenses or to build up your emergency fund.