What to Do When Your Portfolio Has Plunged

Here's how to keep a level head:

• Breathe — really. Take several, slow, deep breaths. This can slow your heart rate and your racing mind.

• Take control. Separate what you can control from what you can't. If the Dow plunges or a company you own cuts its dividend, you have no control over that. All you can do is reassess the long-term health of your portfolio and decide whether or not you want to make any adjustments. That's your sphere of control.

• Always come back to the business. Nearly all stocks have been taking a beating, but not all businesses face the same risks in this crisis. Morgan Stanley and Goldman Sachs aren't in the same position as ExxonMobil or General Electric.

Look for mines in your portfolio. Regardless of the market environment, there are two main causes of bankruptcy: an unprofitable business model and excessive debt.

• Valuation matters. Review the valuations of the stocks in your portfolio. Ignoring the direction and size of stock price movements for a moment, ask yourself whether the current valuations of the stocks you own make sense, given the companies' earnings power.

If a terrific company that you own now has a price-to-earnings (P/E) ratio of 10, ask yourself if that depressed valuation is sustainable over the long term. You may find a new confidence in holding the stock. For every stock you own, ask: "If I didn't own this stock today, would I want to buy it at its current price?"

• Don't track your portfolio on a minute to-minute basis, and watch less financial news. Information is extraordinarily available, and continually watching your portfolio is corrosive to the kind of mindset you need to adopt under these circumstances.

Stay calm, stay focused, and you'll make better decisions. Oh, and don't forget: The market is just one part of your life. Make sure to continue allocating time to the activities and people you love.