Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific investment tips and stock market advice. Each Investor Toolkit update gives you a fundamental piece of investment advice, and shows you how you can put it into practice right away.

Today’s tip: “When you need to sell stocks, take the opportunity to improve your portfolio by making a careful inventory of what investments will do more harm than good over time.”

When you need to sell, here’s one key factor to consider: how soon do you need to take your money out of the market?

Suppose you plan to take the money out of the market within the next six months, perhaps to buy a home. In that case, you shouldn’t be in the market at all. As a general rule, you should only invest money in stocks if you can afford to keep the money there for two to five years.

Are you investing with borrowed money? This expands your risk.

Do you mainly own shares of well-established companies with a history of revenues and earnings, if not dividends? This cuts your risk. Stocks like these tend to hang on to their value when there’s a market downturn, compared to the averages. They tend to recover sooner when the inevitable recovery begins.

Or do you own many junior stocks—stocks with little or no history of revenue or earnings, much less dividends? These stocks expose you to far more risk than average in a market downturn.

Don’t guess—cut your risk by diversifying

Worse still, do you own call options, or warrants that have a limited life span? These securities can plunge in value or become worthless if the value of the related securities simply holds steady. They are especially risky when prices generally are falling.

Are your holdings diversified across the five main economic sectors? When there’s a market downturn, the longer it lasts and the more damage it does to the market indexes, the more likely it is that it will hurt some economic sectors more than others. Rather than guess at which sectors will do better or worse, you are better off to cut your risk by diversifying.

Remember, though, that predictions are the least reliable part of the investing process. That’s why you need to follow our three-part Successful Investor approach.

1. Invest mainly in well-established, high-quality companies;
2. Spread your money out across most if not all of the five main economic sectors;
3. Downplay or avoid stocks in the broker/media limelight.

You want to limit your risk and make sure your portfolio is well-suited to your personal circumstances and temperament.

If your portfolio is too risky or otherwise inappropriate for you, however, you should take steps to fix it right away, regardless of the market outlook.

Tomorrow we look at how Dun and Bradstreet is adding cloud computers and buying up databases to spread its credit reports.