When one market goes down, another is likely to rise just as quickly. As a result, a diverse portfolio is your best safeguard against crashes and popped bubbles.

One morning, you open up the Wall Street Journal to see blaring headlines about a market crash. It could be stocks, or real estate, or corporate bonds, or gold-it doesn't really matter, because it's always something. If all your eggs were lying in that basket, though, you'd be doing a lot of scrambling.

Benefits of variety

All of the above markets rise and fall, and then rise again. The stock market generally brings you higher returns on your investment than the others; but it's also one of the most volatile places you can put your money. That's why those who assumed that the 1990s bull market would run forever got hit so hard when the tech bubble popped in 2001. Their portfolios were generally filled only with stocks, and risky growth stocks at that.

More conservative investors had diversified their holdings, mixing their high-tech plays with safer investments, like value stocks, or bonds, or maybe even some precious metals. Their stock losses hurt too, but they were soon back on their feet again, as gold and investment-grade bonds saw massive gains while stocks tanked.

Fast-forward to 2007. The stock market has risen again. Unfortunately, some other investments haven't fared as well. If you made a fortune in corporate debt in the early 2000s, those gains might be gone by now, unless you were smart enough to rebalance along the way.

Putting theory into practice

Whatever stage you're at in your life, you need to have a long-term plan for your nest egg. In your early 30s, you might want to stay in higher-risk, higher-return instruments, like real property or growth stocks. Since you won't need to touch that money for decades to come, you have time on your side. Short-term drops don't really matter.

As the years go by, move some of your assets into safer investments, like bonds or certificates of deposit (CDs), or the safest issue of all-government paper, like treasuries. That will ensure solid interest and dividend payouts in your golden years.

Along the way, it's important to adjust to the changing markets. Make sure that you have the right stocks or mutual funds, and don't hesitate to move out of markets that you see heading for the edge of a cliff. The latest housing market downturn, for example, was a long time coming. Wise investors got out of flipping houses before the market turned ice-cold.

If you move with the markets and the years and have more ups than downs, you'll be all right in the end. There's a fine line between panic and flexibility. Take a deep breath, fold up your Journal, and stick to the plan. With the proper blueprint, you'll always know what to do.