1. DON'T CHASE THE INDEX. Stock market indexes are driven by their largest components and that can be a problem for people who invest in them. Take the S&P/TSX Composite. Commodities, resources and financials account for more than half of its make-up. And all three sectors have been volatile in recent months, driving the index to all-time highs and 52-week lows, regardless of how other components are doing. For that reason, some financial advisers are warning clients off index-tracking investments, such as exchange-traded funds, at least for the time being. Better to have a well-constructed portfolio designed for long-term growth. If you chase index returns, on the other hand, and move your money in or out every time your benchmark fluctuates, you'll likely end up investing at the wrong time. "Some of the best gains are made in the recovery period after the downslide," says Peter Andreana, a certified financial planner at Continuum II Inc. "If you rode the equity market down, took your money out to buy bonds, you won't be part of that recovery. You'll have realized your loss and locked in your gain at 2%."

2. BUY CASH, GOLD, STAPLES. Gold and cash are time-tested hedges in rocky markets. And they're playing a key role in the defensive position taken by Michael Cassady, senior investment adviser with The Cassady Group in Vancouver. "Historically, when the U.S. dollar goes lower, gold goes higher, and gold is a traditional hedge against inflation and financial turmoil," he says. Cassady adds that times might be particularly good for gold, as demand is increasing. He's also adding utilities to his portfolios, noting that they tend to outperform the markets on a risk-adjusted basis over the long term. Jim Allworth, a portfolio strategist with RBC Dominion Securities in Vancouver, also says consumer staples - products that people need to buy regardless of economic conditions - can make good defensive investments. "Guys who make toothbrushes and things like that did really well through the whole bear market of 2000 to 2002," he says, adding that wise investors are picking individual companies rather than making sector buys.

3. AVOID COMMODITIES, OIL. At least avoid them if you're looking at shorter-term investments. There's still money to be made in these categories, but that's taking the long-term view, RBC's Allworth says. "Commodity prices can move very, very quickly in big directions," he says. "Even in the big long-term picture, you can have some pretty noticeable corrections." Oil, in particular, may be a risky investment as there's no guarantee it will return to earlier heights after its recent declines. Additionally, margins are being squeezed for Canadian oil producers, as oil is priced in weakened U.S. dollars while their costs are priced in the more robust loonie. "That affects a lot of decisions on capital expansion," Allworth says.

4. WATCH YOUR HOME EQUITY. When real estate was sizzling and interest rates were lower, many Canadians took out home-equity lines of credit (HELOCs) to pay for renovation projects or to consolidate consumer debt. That was fine when home prices were soaring and interest rates were low. But with markets cooling (even dipping in some cities) and the likelihood of interest-rate hikes on the horizon, people who have HELOCs need to pay close attention to their debt-to-equity ratios. Experts say your entire monthly debt load, including mortgage and HELOC payments, should not exceed 40% of your gross monthly income. If it does, you may have a hard time managing your debts, particularly if interest rates begin to rise. And remember - banks reserve the right to call in your HELOC at any time, especially if you start missing payments. Make sure you stay on top of them.

5. DIVERSIFY YOUR PORTFOLIO. It's the oldest piece of investment advice out there, but it bears repeating: A properly diversified portfolio will help you minimize losses when markets go down, and it will position you for future growth when markets rebound, no matter how bad things look at a given moment. A good portfolio will have a mix of large- and small-cap equities, mutual funds, fixed-income products and will be balanced between value-driven investments and growth-driven investments. It will also be geographically diverse, with Canadian, U.S. and international holdings. Be sure that your investments are blended so that they increase "negative correlation" - that is, the components of your portfolio aren't all moving in the same direction at the same time. "If your holdings are in lockstep with each other, you're in for a very rocky ride," says Continuum's Andreana. Also, once you've achieved a good mix, stay the course, unless your goals change or you experience a major life change, such as having a baby. A well-designed portfolio will see you through good times and bad with few adjustments.