Dear Mike: I liked your column about the markets a couple of weeks ago, but I'm more of a "hope-for-the-best and prepare-for-the-worst" kind of guy. What should I do to take advantage of the market, but protect my downside?

Mark in Victoria

The rise in the financial markets over the past six months may have soothed your nerves, which probably got jangled during the prolonged slump of 2008 and early 2009. And yet, if we're like many investors, you might think that the market upswing has gone about as far as it can go for now and that we may be due for a correction, in which prices drop, perhaps substantially. If that happens, would you be prepared?

No one can really predict what lies in store for the markets over the next several months. But whether the market declines, remains steady or even continues its advance, you need to create an investment portfolio that is built to last. To do so, ask yourself these questions:

n Do I have a strategy designed to help me achieve my financial goals? To build and maintain an effective investment strategy, you need to make sure that you are making the right moves. For example, you may need to discard investments that, due to their risk factors, fundamentals or outlook, are no longer appropriate for your needs. And you will want an overall investment mix that's aligned with your long-term goals and risk tolerance. Furthermore, you will want to avoid having similar investments in different accounts, a situation that could result in your portfolio being less diversified than you thought. Although diversification, by itself, cannot guarantee a profit or protect against a loss, it can help reduce the effects of volatility.

n Do I have a sufficient amount of income producing investments? Income-producing investments tend to be less volatile than growth-oriented vehicles. Consequently, it is a good idea to include some bonds and dividend-paying stocks, individually and in mutual funds, in your portfolio. If you don't currently need the dividend income to bolster your cash flow, you can reinvest the dividends to potentially help your investments grow over the long term. (Keep in mind, however, that companies may decrease or discontinue their dividends at any time).

n Do I own the investments I will want to own in the next market downturn? Stock market declines happen regularly and without warning. You can't prevent these downturns, but you can prepare for them. One of the most important things you can do is to own investments today that you wouldn't mind holding if the market heads south -- investments such as bonds and dividend-paying stocks, both of which tend to decline by smaller amounts in downturns. And if the market does go down, you will also have the opportunity to add equities at lower prices.

n Have I protected my assets -- and my family? You can have the most well-balanced, all-weather investment portfolio in the world, but it might not prevent your family from facing financial difficulties if you were to become disabled or die prematurely.

That's why you should look at your overall financial picture and examine whether you have the appropriate amounts of life insurance and disability income coverage. Your financial adviser can help you look at the big picture and make the right moves.

At some point, the rise in the market we have seen lately will be a distant memory. But when that day arrives, it doesn't have to be a serious setback to your financial goals -- as long as your portfolio is built to last.

Mike Watkins, CFP, FMA, FCSI, Ch.P.

Watkins is a financial adviser with Edward Jones and author of the financial planning guide It's Only Money. To ask question, call 250-418-0114 or e-mail michael.watkins@

edwardjones.com.