American has weathered more than a dozen recessions after the end of the Great Depression, but many financial analysts consider the tough economic times of 2008 and 2009 to be both "historic and extraordinary." Although some will blame the lower lending standards pushed on financial institutions during Bill Clinton’s two terms, the fact is that the makings of the present crisis go back at least to FDR, if not all the way to the creation of the Federal Reserve Bank in 1913.

Despite government interventions in the economy, or ever perhaps because of them, the commonly heard phrase even now is that things are "likely to get worse before they get better." It really is not dependent on who the President is or what he does. Experts are predicting "a serious contraction" of the economy that could ease possibly by the beginning of 2010. However, these predictions are being made by many of the same people who were behind some of the "bonehead" moves of the last decades. What can you really do to protect your investments?

Diversity plus understanding

First of all, the age-old advice not to put all your eggs in one basket is still good today. Your portfolio should be diversified, and with deliberation and thought going into it, not just diversification for the heck of it. If you think you will make some "easy money" by "flipping" real estate or buying the popular, high-flying stocks, you have come up with that idea about a year or two too late. The familiar mix is still a good one – some real estate, some savings, some bonds and some mutual funds (which are themselves invested in stocks, bonds and money market accounts). Now that’s diversified.

It is critical that you understand what you expect from your savings and investments. What is the goal, and what do want the money for? The purpose of investing should never be "to get rich quick," but to provide income now or later, for current needs or retirement. Reconsidering your aims will help you to focus your efforts in the right places. In fact, one little known way to protect your investments is to change some of them, especially if your goals have dramatically changed. How sad it is that ongoing reviews of your investments and goals have become "little known ways" of protecting your investments!

Communication and calmness

Obviously, you need a good relationship with your financial advisor. Or perhaps this is not so obvious, since studies indicate that only half of even serious investors know their account executive by name. You need to know yours, and have a serious discussion about your goals, whether stable or changing, and get the information and advice you need to make the important decisions. Younger investors may accept a higher level of risk, but at any age you must balance potential return with the potential downside.

The closer you get to retirement, the less sense it makes to take on additional risk. No matter what your situation, of course, never take on more than you can handle, and make sure your financial advisor understands your overall investment philosophy.

If you have that good relationship with your advisor, and your have these conversations regularly, then you have tremendous incentive to keep calm, though others around you "may lose their heads," as the saying goes. Among the biggest problems in tough economic times is the propensity of people to panic. However, panic has a hard time taking hold in an environment of rational discussion and common sense.

Cashing in your investments out of fear, with the plan to selectively buy your way back into "solid gold" investments, is a strategy doomed from the outset. Be very cautious about TV financial commentators telling you that "now is the time to buy" and that there are "bargains galore." Skepticism is a little known way to protect yourself in this arena, as it is in so many others.

Patience and preparation

It is almost scary how little known it is that the main thing that makes a difference in all of these considerations is time. A down market may or may not be a great time to buy stocks, but the most important thing to realize is that gains take time to manifest. If you are not an experience online trader getting good, professional advice, don’t try to time the markets. Never think that you can pull off one "big deal" to make a "killing." This is a formula for disaster.

Preparation, of course, is key. Whether you are trading stocks or taking the buy-and-hold approach, you need to be aware of what your money is doing. Even if you use a professional portfolio manager, you need to stay abreast of what your money is doing, and who is doing what with it, and when. Do not let total control slip from your fingers, but don’t micromanage unless you are handling your own trades and other financial transactions. Find a balance, look for underutilized approaches, stay on top of things as much as you can, and you will likely come out the better for it.