Markets are well down from their peaks, the North American economy may have hit bottom, and investors have billions of dollars parked in money-market funds ready to flood into the market.

Still, while strategists advise that no portfolio will be immune to the kind of fierce bear market seen last year, investors who really took a hit can take steps to make their registered retirement savings plans more bullet-proof for the long term.

Here are 10 strategies to add some armour to your portfolio:
Set the goal posts

Peter Loach, a mutual funds analyst for BMO Nesbitt Burns Inc., advises that investors who have huge holes in their portfolio now probably did not adequately guard against an inevitable market downturn.

"If they lost a lot of money, they probably took on a lot of risk," Mr. Loach says.

Many investors looked at the stunning rise of stocks such as Nortel Networks Corp. in the late 1990s and thought the bull market would never end.

"They really thought a 35-per-cent tailwind was their right and they were just going to ride it."

Mr. Loach advises investors to first establish a goal.

Suitable goals include retiring by age 55 or buying a cottage, he points out -- not aiming to beat the Standard & Poor's 500-stock index by two percentage points.

Once you know your goal and how long you have to achieve it, you can figure out how much fluctuation your portfolio can withstand. Will a downturn of 8 per cent derail your plans? 12 per cent?

Mr. Loach explains that investors who know what they want to achieve can construct the best portfolio to limit downside risk.
Diversify, diversify, diversify

Investors can lessen their risk by choosing funds that vary by asset class, geography and style.

A middle-of-the-road investor with a $100,000 portfolio, for example, should have between five and eight different types of funds, including balanced, bond, global high-yield, Canadian mid-capitalization, U.S. mid-cap, global value and global growth funds, Mr. Loach says.
Don't be paralyzed by caution

What does risk mean? That the value of your portfolio will drop to zero and your savings will be vapourized? Or that you won't meet your financial goal in the time you have left to invest?

For those tempted to stick with money-market funds and similar safe havens, the second scenario is the greater risk.

Dan Hallett, analyst at Sterling Mutuals Inc., also advises investors to keep a firm eye on what they hope to achieve -- and guard against over-reacting to market extremes.

Mr. Hallett says it's easy for an investor to believe he or she has a high tolerance for risk during boom times.

"In 1999, people kind of laughed at risk. Risk was you might not make 15 per cent a year," he says. "In negative periods, people tend to realize that they have over-estimated their appetite for risk."

Many people, he warns, see only the downside in their portfolios during times of market carnage.

They then move so far into the comfort zone that they risk not meeting their long-term goals, he says.

Mr. Hallett notes that market downturns offer good opportunities for buying mutual funds at a discount.
Rebalance regularly

Mr. Hallett recommends that all investors rebalance their portfolios from time to time if allocations to stocks, bonds and cash have gotten out of whack because of market movements.

Within the stock portion, investors need a mix of small-caps and large. The fixed-income portion should contain government bonds and a smattering of high-yield offerings.

The cash portion provides safety and takes care of the short end of the fixed-income spectrum.
Pick a solid stock-picker

When the markets were good, many people griped about paying 2 or 3 per cent off the top to a manager who just kept placing buy orders for Nortel. But when the markets headed down, many of those managers proved their mettle.

That's because an index fund mirrors the performance of the index it tracks -- in good times and bad. But portfolio managers can stem their losses with an adroit switch into defensive stocks before the market tanks.

Raynor Burke, an analyst at National Bank Financial, believes successful stock pickers will be heroes again in 2002.

The analyst says technology and telecommunications stocks, which were dramatically out of favour in 2001, could see a resurgence in 2002. But he believes that only some of the companies within those sectors will advance.

Over the long term, a good manager can beat the 5- to 7-per cent returns that passive investing has historically offered, Mr. Burke believes.

Pick bonds strategically

After last year's stock market turbulence, some investors might be tempted to load up on bonds.

But Mr. Hallett warns that bond prices may not offer the same high returns in coming years that they have offered in the past 20 years.

That's because interest rates have been on a long downward trend.

Since bond prices and bond yields move in opposite directions, bond prices have done well.

But historically, bonds tend to offer a return closer to their coupon rate, or the rate at which they pay interest, which is more typically about 5 or 6 per cent a year.

Since interest rates are now about as low as they can get, investors should not be looking for bond prices to climb.

Aggressive investors who want to juice the fixed-income portion of their portfolio might consider adding high-yield bonds.

High-yield bonds -- also known as junk -- are considered higher risk because they are issued by struggling companies.

In return for taking a chance on a company that may default, investors are compensated with a much higher coupon rate than they can earn on a government or blue-chip corporate bond.

Currently the average junk bond in the United States, for example, is yielding more than 12 per cent, compared with less than 5 per cent paid on a 10-year U.S. government bond.

Investors who believe inflation might surge can add real-return bonds to their fixed-income mix.

A real-return bond offers a payout tied to the inflation rate.

Buy defensive mutual funds

This piece of advice is aimed at people who are more concerned with limiting the damage if markets stumble than participating in the upturn when they recover.

But if bullet-proofing is what you're after, some funds offer a better cushion than others.

James Gauthier, an analyst for Fundmonitor.com, points to the GGOF Guardian Monthly High Income Fund as one that offers income for conservative investors.

The fund invests in Canadian income trusts with holdings in areas such as oil sands and real estate.

The monthly dividend on the GGOF fund currently yields about 8 per cent annually, though the analyst cautions that rate is not guaranteed.

Mr. Gauthier calls the one-year return on income trusts of about 20 per cent "incredible, considering how safe they are supposed to be."

Mr. Gauthier also likes the Fidelity True North Fund and the "no-nonsense" approach of its manager, Alan Radlo. Mr. Gauthier says the Canadian equity fund currently has a comfortable cash cushion.

The Mackenzie Ivey Foreign Equity Fund has a reasonable management expense ratio and an excellent risk-return profile, Mr. Gauthier advises.

He also likes the McLean Budden American Equity Fund, which has teams of managers who combine value and growth styles. While the fund has a fairly steep $10,000 entry point, Mr. Gauthier notes the MER is a slim 1.3 per cent.

"Really, the team approach has paid off wonderfully."

Do your own research

Many books and Web sites use rating systems to help investors sort through the thousands of funds available. But Mr. Hallett warns that those systems are often too sensitive to a fund's recent performance. Mr. Hallett advises investors to delve a little deeper and learn more about the portfolio manager's philosophy. Read the fund company's prospectus. Keep an eye out in the media for that fund manager's views. If you believe in the manager's long-term strategy, you won't feel tempted to pull the plug during a period of underperformance.

"It takes work and it takes time," Mr. Hallett warns.

Invest at regular intervals

Dollar-cost averaging is a sound strategy, Mr. Gauthier believes, because it allows investors to ease into a stock market that may still produce some more shocks. With dollar-cost averaging, investors make small, regular purchases instead of one large one. The strategy offers protection from a swift deterioration in the market: If mutual fund values fall, you end up buying more units at a bargain price.

Look forward, not back

Choosing a fund based on its recent performance numbers means investors may chase last year's hot fund or switch out of a losing holding just before its fortunes turn for the better.

"People have to look beyond what's happened in the past six to 12 months," advises Mr. Hallett.