While it is good to have links that are helpful to your web visitors, you need to be careful who you are linking to. If you link to sites that are considered “bad neighborhoods”, you will certainly see a drop in your search engine results. This is because the search engines will assume that you are linking just to increase your search engine ranking. Avoid linking to sites and pages that are mostly a list of links. Many of these sites are somewhat spammy and also link to many other “questionable” sites. If you want to put your link in a link directory, go for high quality link directories, especially if these directories require a reciprocal link back to their site. Sometimes paying the few bucks they ask for to get listed could be worth it as it will filter out all of the spammers. The penalty hit is from an action on your part of linking to the bad neighborhood so you can control it by not linking to one in the first place. If you aren’t sure if the sites are in bad neighborhoods or not, you can easily check it out by using online tools that tell you if your website is linking to a bad neighborhood. Tools like bad-neighborhood.com give you detailed information about the websites you are linking to.