Cramer says you should divide your money among short-, medium- and long-term investments. Money that you will need to have on hand within the next one to three years should be allocated to instruments carrying the lowest risk, such as CDs or money market accounts, while funds that you won't need for several years can go into riskier investments, such as stocks or stock funds that offer potentially higher returns.
Though lackluster stock market returns over the last decade have meant that conservative investors came out ahead, Kiernan says: "You can never invest looking in the rear-view mirror." In fact, she warns nervous investors not to rely solely on the safety of the bond market, either.
"With bonds at decade-low yields and … under the consideration that interest rates will be going up, to be fully invested in bonds is not an investing strategy," Kiernan says. "It's a capital preservation strategy, but it's not an investing strategy."
Investors of individual bonds will get their money back if they hold the bonds to maturity (unless the borrower defaults). But be aware that investors in bond funds can lose significant amounts of principal in a rising-rate environment.