A nerve-wracking week punctuated by the biggest stock market plunge in three years has left investors with more questions than answers — and considerably less money in their portfolios.

Is the plummet in the Dow Jones industrial average of 10 percent since late July a short-term blip or a precursor of what’s to come?

Additional Photos

A monitor displays the plummeting Dow Jones Industrial Average and a host of news analysts and commentators weighing in as traders watch on the floor of the New York Stock Exchange on Thursday. Associated Press photos

Traders working on the floor of the New York Stock Exchange Thursday had reason for concern, as the Dow Jones average lost 513 points by the end of the day.

Will investors who didn’t flinch, even during Thursday’s 513-point drop, be rewarded for their perseverance or punished for not selling before the market gets worse?

Most importantly, what should they do now?

Concerns over the debt deadlock in Washington that brought the government to the brink of default were then overtaken by increasing evidence of anemic U.S. and global economic growth. Now economists are talking about the increased chances of another recession, though not imminently.

That’s left many individual investors unnerved.

“It all adds to the overall uncertainty, the nervousness. You just really can’t count on anything,” said Jeff Hawkins, 52, of Gainesville, Va.

Hawkins, a security director, and his wife, Jo, have most of their portfolio in stocks. He still believes stocks are the best way to invest in the long run, and he has decided to hang on rather than sell. But that faith is being sorely tested.

The wild swing in the markets on Friday following a report that the unemployment rate declined in July underscored just how jittery investors are. After shooting up 171 points, the Dow tumbled into triple-digit-loss territory for the third time this week before yo-yoing back to close the session with a 61-point gain.

“The most important thing for people to do right now is to take a deep breath, whether you’re reacting to the latest, pretty good job numbers or you’re still in shell shock from everything else we’ve learned in the last week,” said Jerry Webman, chief economist at Oppenheimer Funds in New York.

Consider how far stocks have climbed from their lows following the 2008 financial meltdown. The broader Standard & Poor’s 500 index is still up 77 percent from its bottom in March 2009, although it’s still 23 percent off the all-time high set in 2007.

Investors, though, have been focusing more on the economic turmoil. And many are selling stocks or piling into cash and presumed safe havens like U.S. Treasury bonds and gold.

Here are some guidance to help sort out all the mixed messages:

DON’T PANIC

The volatility is dramatic and the TV anchors used phrases like “bloodbath on Wall Street.” But it’s important to keep a level head. Don’t lose sight of your investing goals — a key component of which is your time horizon.

Investing is for the long-term. However, if you’re approaching retirement or expect to need the funds soon, you’ll want to assess your mix of investments. It may make sense for you to take some money out of the stock market and put a portion into something more stable.

Leon LaBrecque, managing partner and founder of LJPR LLC, an asset management firm based in Troy, Mich., reminds investors to make sure the level of risk fits their time until retirement. A common mix for someone in their 40s is to have 60 percent to 70 percent of their portfolio in stocks and the rest in bonds.

As retirement approaches, the percentage of stocks should be reduced to ratchet down risk.

STOCKS ON SALE?

Historically the stock market is the best means to ensure that your savings outpace inflation — though that’s been minimal in recent years.

Many investors have fled to cash alternatives like money-market accounts or certificates of deposit. These investments return almost nothing right now and for a while on Thursday U.S. Treasury yields were actually negative, meaning investors were paying the government to hold their money for them.

A market downturn presents buying opportunities for investors who are sitting on cash. Tech stocks got hammered in the recent sell-off, and LaBrecque says he’s looking for bargains. He’s buying Apple Inc., which sank to around $315 a share in mid-June, but is now up about 19 percent.

Despite the market downturn, corporate earnings are healthier and better able to endure an economic slump than they were three years ago. Earnings for the second quarter are still on pace to post a record high.

Given that interest rates are so low, seeking out dividend paying stocks is a good strategy. Among the highest dividend yielding sectors are consumer staples, just over 3 percent; utilities, just over 4 percent; and telecommunications, about 5 percent.

PLAY DEFENSE

When the economy gets tough, investors typically flock to large companies with strong balance sheets. These companies have the reserves and track record of being able to ride out economic downturns. Investors are drawn to the stability of their reliable earnings.

Certain sectors are also more defensive than others. If you’re anxious about a faltering economy, consider consumer staples stocks. These include food companies and the makers of everyday household products. This sector is among the highest dividend yielding sectors in the S&P 500 with a current yield of a little more than 3 percent.

Global companies that make equipment for farmers, construction and other industries like Caterpillar Inc. and Deere & Co. also offer some cover in tough times.

Also look at utilities, which have a dividend yield currently of about 4 percent.

What playing defense doesn’t mean is running to gold, said Richard Barrington, an analyst and personal finance expert at MoneyRates.com. Gold, he says, doesn’t produce earnings or dividends and since its up fivefold in the last decade, it could be a bubble ready to burst.

BONDS OVERBOUGHT

Investors have continued to pour into U.S. Treasury bonds for safety even though they have lost considerable allure as an investment. Heavy demand pushed the yield on the 10-year Treasury note to 2.42 percent Friday, its lowest of the year. Treasurys are overbought and investors should make sure they’re not too loaded up on them, said George Rusnak, national director of fixed income for Wells Fargo Wealth Management.

Municipal bonds, issued by local governments to help pay for schools, hospitals, roads and bridges, are not necessarily the best place to be at the moment either, he said. The yield for 10-year munis with a Triple-A rating was 2.35 percent, close to the all-time low set last August. Yields fall when demand increases.

Investors, he said, would be better off in corporate bonds of large industrial companies that pay coupons — semiannual interest payments.

And with interest rates poised to rise, they should not buy bonds that mature more than five years from now or they’ll be stuck with today’s rates.

MIXED INTERNATIONAL OUTLOOK

Fund managers advise keeping a portion of your portfolio in international investments. But the worsening debt drama in Europe makes it worth checking your holdings to make sure you’re not over-reliant on companies in developed countries.

Emerging markets have delivered impressive gains for years and promise to continue to do so over the long term.

They too, however, have had their issues lately. The iShares MSCI Emerging Markets index, a key indicator reflecting nearly two dozen developing markets including China and India, plummeted 13 percent in the last two weeks and is down 15 percent for the year – 10 percent more than the S&P.

Further weakening in the global economy will hurt exports from emerging markets countries. But companies and funds there still have stronger balance sheets and remain a better bet than their counterparts in developed countries, notes Arlene Rockefeller, president of the TruColor Capital Management hedge fund in Newton, Mass.

CASH AS A SHELTER?

Shifting a portion of your money to cash or low-risk investments like money-market mutual funds can ease a potential hit from the stock market. It’s important to keep in mind that after stocks lose half their value, it takes a 100 percent gain — not 50 percent — to get back to where you started.

But should stocks rebound, a move into cash now could lock in losses and prevent full participation in a rising market. If you shift money to the sidelines, do so for safety, rather than expectations of seeing your money grow. You’ll earn next to nothing from cash these days, wherever you’re stashing it in the bank, or in a money fund.

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