Ideas for the Risk-Averse Saver

Financial advisers offer their best tips for market-wary savers.

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The key to weathering any financial storm is having a reserve of completely safe and accessible cash. This emergency fund can be tapped for unexpected expenses so that your nest egg and other long-term investments can accrue completely intact. Even money market funds, long touted by financial advisers and financial services companies as relatively safe investments with decent yields, may be trending downward. On Tuesday, the Reserve Primary Fund—a giant money market fund—saw its shares "break the buck," which means each $1 share is now worth only 97 cents. This is reportedly the first time investors will lose money held in a money-market fund.

Here's a look at some risk-free savings options.

FDIC-insured accounts. Checking, savings, certificates of deposit, and money-market deposit accounts are insured up to $100,000 per depositor, per insured bank. Certain retirement accounts, such as individual retirement accounts, are insured up to $250,000. Multiple accounts at the same bank, such as a CD and a checking account, all count toward the same $100,000. But $100,000 accounts at two different banks would each be fully insured. Couples with joint accounts can get up to $200,000 in coverage. Mutual funds, annuities, life insurance policies, stocks, and bonds are not insured. If a bank should fail, the FDIC pays out the amount you are insured for within a few days by establishing an account at another insured bank or providing a check.

Treasury securities. Although not FDIC-insured, the U.S. government guarantees that interest and principal payments will be paid on time for treasury bills, notes, bonds, TIPS, and U.S. savings bonds to individual investors. Your due is credited directly into a financial account of your choosing. Income on treasuries is also exempt from state and local taxes.

I asked three financial advisers for their top tips for the risk-averse saver. Excerpts:

Michael Eisenberg, a Los Angeles-based certified public accountant and founder of Eisenberg Financial Advisors:

First and foremost, try not to panic. It's not a time to go in and dump things. We never know when it's going to come back. Right now, if somebody is really concerned, the best place to be would be in cash. Long term, you are never going to make money in cash. CDs and treasuries and cash, under normal circumstances, are not going to beat the inflation rate. But you are not looking right now for great returns; you are looking to not lose anything. If you're working and you've got a 401(k), I think you should still keep putting money into a 401(k). You can at least sleep at night knowing that your money in the bank is safe. If your bank goes out or somebody takes them over, at least you know you can get access to your funds.

Mitchell Freedman, founder and president of MFAC Financial Advisors in Sherman Oaks, Calif.:

I sent an E-mail to all my clients saying that I would understand if they want to bail from the markets mid-afternoon yesterday. I received no takers yet. We have always advised our clients to invest in government money market funds—securities backed by the U.S. government. Theoretically, they are the safest investment that one could get and still have liquidity. It's hard to stay out of the equities market and generally foolish to stay out. When everyone is bailing and selling and running away, that is the most opportune time to buy if you have a long-term time horizon. It's not uncommon at all to find after declines that markets will, in fact, recover and recover quickly. But if you're not in when the markets recover, then you lose all of that opportunity.

Lyle Benson, a certified financial planner and founder of L. K. Benson & Co. in Baltimore:

I guess the only safe place is to be either in cash or in short-term bond funds. Most of the clients who want completely safe money, they use CDs and make sure they stay under the $100,000 FDIC limit at any one bank. The yield on treasuries is just so incredibly low right now. While that is as safe as you can get, you give up an awful lot of return. I worry that people will all of a sudden start shifting their funds from stocks into cash, which is probably the exact wrong thing to do at a time like this. It's probably best to leave it alone right now. Nobody can tell you when the bottom of the market will be, but at some point it will turn around. If you are sitting there in cash, you are going to miss out on those increases.