Equity investments should cover the range of small, mid cap and large cap companies; some should be value oriented and some growth oriented. Bonds could range from Treasuries to investment grade corporates. If a small portion of your portfolio is set aside for high risk, you may want some junk bonds, but it's probably best to let an adviser select those. And, of course, there should be foreign investments.
Diversification means more than just large cap, small cap. A small portion of your holdings should include assets that have little or no correlation to the stock market. That's why some people add gold to their portfolio.
Another chestnut -- buy and hold doesn't mean buy and forget. Benign neglect can have horrible consequences. You don't have to read Investors Business Daily from cover to cover, but if one of the companies in your portfolio makes it into the news in an Enron sort of way, be prepared to take action.
See a financial adviser
This is the age of do-it-yourself portfolios. Why pay someone a percentage of your assets when you can go on any one of a zillion financial Web sites and research stocks and funds? Commissions for trading stock are so low that investors don't even consider them a factor. The truth is that unless you're willing and able to do a lot of research, you could be playing a dangerous game.
A financial adviser should be able to design a portfolio that -- given enough time to let it grow -- will meet your goals while respecting your tolerance for risk. In other words, you should be able to sleep at night.
Spend some time learning how to choose a financial adviser. The Certified Financial Planner Board of Standards has some tips and can link you to qualified advisers in your area, as can the Financial Planning Association.
Bankrate.com also has helpful articles on picking a financial planner, such as "Financial planners: not just for millionaires anymore."
Stuff your retirement plan
One priority, from the day you start working, should be to max out your retirement plan every year. In 2008, the limits for most employees are $15,500 for those under age 50; $20,500 for those 50 and older.
Understandably, unless you're very aggressive and debt-free you're probably not going to meet those thresholds. But you should make every effort to contribute at least whatever amount your company will match.