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Time to Disaster-Proof Your Portfolio

Here are steps to take to protect your financial health in these unsettled times. Hint: Save more.

The market seems like it's in a constant state of flux lately, thanks to hurricanes, high oil prices and the threat of inflation. Granted, it's pretty unsettling but (please) calm down: This is not Armageddon.

Like everything else in life, the market has its ups and downs. It has proved to be resilient in the past and will prevail again through this current uncertainty. So don't even think about stuffing cash under your mattress.

But that doesn't mean you should avoid the obvious. While the world is not ending, things are clearly a bit rocky here in the U.S. Hurricane season will come to an end, but the possibility of a recession will still linger. The economy is immensely vulnerable right now, thanks to huge deficits and very low national savings.

So while you don't need to jump ship, you do need to make sure your portfolio is properly diversified so that you are prepared for any other upcoming "disasters." That means beefing up your savings and properly diversifying outside of the comfy blue-chips zone many of us take safetyin. (Consider this the second part of the

disaster preparation for your financial life.)

Save for the Long-Haul

As trite as it sounds, the best way to prepare for disaster is to save as much as you can on an ongoing basis, says Rande Spiegelman, vice president of financial planning at the Schwab Center for Investment Research. "Not only will the savings contribute to your long-term investment portfolio, the discipline of regular savings will provide a short-term cushion if earnings are interrupted."

So stop living paycheck to paycheck and spending 110% of your salary -- it's going to catch up to you. Get yourself on a disciplined savings schedule, whether it's with payroll contributions to your 401(k) or monthly transfers from your checking to savings account. If it happens automatically, you won't even notice it. But you will notice your peace of mind with each transfer as your nest egg continues to grow.

Go Overseas Already

Next, implement a prudent long-term asset allocation for your investment portfolio that you can live with no matter what happens in the short-term, says Spiegelman. That means proper diversification. And not just among the safe-and-sound U.S. stocks like


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Exxon Mobil

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While those stalwarts have a place in almost anyone's portfolio, you definitely need international exposure at this point.

The psychological aspects of investing overseas are sometimes the biggest obstacle. Some people are just hesitant to put their hard-earned money in countries they know nothing about. And information on a foreign company or locale may be hard to come by. Even worse, many folks got burned listening to pundits preach that Russia was going to be the next "it" place. We're all still waiting for that to happen.

But international stocks have outperformed U.S. stocks for the last few years now. And the rest of the world is much less exposed to the economic issues that we have, says Harold Evensky, a CFP and chairman of Evensky & Katz, in Coral Gables, Fla. "So if we go though a rough time, the rest of the world will probably be doing OK."

Areas like the Asian region and the emerging markets offer lots of opportunities, says Brad Sorensen, head sector analyst at Schwab. And since these areas are very hard to understand, you need to leave the international stock-picking to the pros. Fortunately, there are some cheap, efficient ways to get in on the action these days. Mainly, the exchange-traded funds, like the

iShares MSCI Emerging Markets Index

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. The fund invests in the markets of developing countries and beat all funds in its category last year with a 25.5% return.

India and China also have had a long run of good growth so the

iShares FTSE/Xinhua China 25 Index Fund

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may be a good choice.

If you really want to play it safe, check out some international bond funds, suggests Evensky, who recommends any of Pimco's international bond funds. Or look at the

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T. Rowe Price International Bond, whose trailing returns have outperformed other funds in its category over the last three years.

A Little Gold Goes a Long Way

A small allocation to hard assets, like gold, oil or other precious metals could make sense for risk-reduction purposes. But everyone assumes that metals, like gold, are disaster hedges. Well, maybe, when Armageddon is close. But remember, we're not there. So please don't cash in your portfolio and buy bricks of gold.

Until recently, buying bricks was just about the only way to get exposure to gold. Thankfully, there are now easier (and less cumbersome) options. So check out the relatively new gold ETFs, like

streetTRACKS Gold Shares

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iShares COMEX Gold Trust

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. These ETFs are just like owning the bricks without having to deal with the storage issue.

But do must of us need exposure to gold? Probably not. If you're well diversified amount global equities and have an appropriate fixed-income allocation, you'll probably be just fine. So leave the gold to the

fall fashion runways.

Instead, go beef up your monthly savings amounts. Save. Save. Save. Because if -- or when -- disaster does strike, your accumulated savings will be your lifeline.