The best way to prepare for a down market (and we're going to have one eventually!) is to apply common sense principles beforehand.  Sure hindsight is twenty/twenty, but tell me if these  don't make sense to you:

1. What's this money for anyway?
   Think about what you're trying to accomplish with this money.  Is it going to be used to purchase a new home in two years, or is it gong to be used for retirement? These two objectives would have very different portfolios to meet  their requirements.  Think about your financial situation - is there a chance you'll need the funds for some unexpected expense?

2. Match your investments to your comfort level.
   Do you prefer extra starch in your shirts because it makes you feel secure?  As Peter Lynch,  the long-time investment guru once said, "... the key organ (to stock investing) isn't the brain,  it's the stomach."  If you can't sleep well at night knowing you have invested in the stock market, it isn't worth any amount of potential return it may give you.  Life's just too short.

3. Diversify, Diversify, Dishmursify!
   We hear this all the time, but what does it mean?  Essentially, aside from the proverbial "don't put all your eggs in one basket", diversifying properly for the purpose of reducing the overall risk in your portfolio means you have different things in your portfolio that react differently to different   market conditions.  When one goes up, the other one doesn't and vice versa.  This reduces your heart palpitations.

4. Invest for the long term
   This means past your next statement!  Admittedly, this is not easy to do, particularly in recent times.  Yet history has proven time and again, that this simple principle works.  The longer you stay invested, the more chances you have of making money, and volatility (ups and downs in  your portfolio) is reduced to almost nil.

5. Don't try to time the market
   As exciting as this may seem, it doesn't work.

6. Invest Regularly
   Again, probably  as exciting as eating oatmeal, this really does work.  Investing a certain amount of money every month or e very quarter forces you to save, as well as lowering the average cost of your investments over time. Essentially, by investing the same amount every month, you will buy more units when prices are cheaper, and fewer when they are more expensive.

7. Think about the tax consequences
   Outside of a registered retirement savings plan (RRSP or RSP, which are the same thing), any gains made on your investments are taxable!  Ouch!  Different investments are treated differently for tax purposes, (more on this later), but keep this in mind when you are thinking of making   changes to your investments, as it could (and should) influence your decision to make a move.

8. Set realistic expectations for returns
   I know, I know.  Everyone wants a 25% return with no risk, and over the past couple of years, it's   almost been achievable, given the huge run in the markets.  But realistically folks, it ain't gonna happen again, for a while anyway.  Over the long term (1926-1995) common stocks have returned 10.6% annually. During 1995 and '96, stocks returned an average of 30.1%.  Wow!  It makes you want to give up everything and just invest.  In life as in investing, if you do things in moderation, things will  turn out just fine.

RENATA NEUFELD

RBC Dominion Securities, Box 28, Suite 2120, 5140 Yonge St.,North York, ON   M2N 6L7 Email: rneufeld@rbcds.com