As a result, I suggest a four-pronged approach:
1. Raise the level of your cash-equivalent assets. If used to a 10/30/60% allocation, for instance, of cash reserves, bond assets, and equities, now may be a good time to raise the cash type portion to 20% or higher;
2. Lower the average maturity or duration of your bond or bond mutual fund holdings. If you tend to hold long-term bonds or bond funds, a switch to intermediate - or short-term ones may now be prudent.
3. Decrease the percent of your assets that you hold in bond type assets. Particularly if you significantly increased bond holdings after 2007, reestablish a more diversified allocation. If you have tended to have 10% cash, 30% bond assets, and 60% stock or stock mutual funds, for instance, but right now it is closer to 5% cash, 70% bonds and 25% stocks, bear in mind that bonds often react worse than stocks to a variety of circumstances - like inflation - and gradually (perhaps over the next few months) restore something closer to your customary diversification, except with a bit more caution even than usual, perhaps now going for - just as one example, but you must decide what is right for you - 25% cash, 25% bonds, and 50% in equities.
4. If you have, after the 2008 - early 2009 equities debacle, severely reduced your exposure to stocks or stock mutual funds, but have not then raised it again, now would be a good time to gradually increase equity holdings, especially in carefully selected value positions.