Your Market Meltdown Questions, Answered

How to understand, and respond to, the turbulence.

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Is Wall Street driving you totally nuts right about now? With the financial markets in terrible turmoil, here are answers to some critical personal finance questions that plenty of folks on Main Street are probably asking right about now:

Should I take my money out of the stock market? It's down 40 percent!
Most financial advisers recommend first checking to make sure investments are well-diversified and then, well, doing nothing, even when the market plunges. Selling when the market is down only serves to lock in those losses, and eliminates the possibility of gains when the market recovers. And it will recover. Not to say the market won't go down further, but it's impossible to "time" the market, because nobody knows what's going to happen next. That's why a strategy known as "dollar-cost averaging," where investors buy into the market on a regular basis instead of putting all their money in at once, tends to pay off over time. You buy less when the market is pricey and more when it is beaten down.

Is my money-market fund safe?
Money-market funds have long been considered almost risk-free. But in September, the Reserve Primary Fund fell below its expected dollar-per-share value. In response, the Treasury Department moved to insure money-market funds. But there are caveats: The insurance applies only to money that was invested before September 19 and to funds that pay a fee for the service. To find out if your fund is insured, check with your financial institution.

What happens to my money if my bank collapses?
Treasury Secretary Henry Paulson has warned that more banks may collapse. The FDIC insures deposits up to the newly-raised level of $250,000, so even if a bank goes under, depositors are protected. Those with money in excess of $250,000 can split their savings into multiple banks to insure coverage. To make sure your bank is FDIC insured, look it up on the FDIC's institution directory or call the FDIC's consumer hotline (1-877-ASK-FDIC).

Will returns still average 10 percent over the next few decades?
Even though the average annual stock market returns for the 20th century were close to 10 percent, not counting inflation, there's no guarantee such a high rate will continue. Since 2000, returns have been significantly lower, and many financial advisers now suggest more conservative estimates in the 6 to 8 percent range. There's also no way to predict how quickly the market will recover from its current decline. It took 25 years for the stock market to rebound after the 1929 crash, but other bear markets have been much shorter. In fact, the big drop means new investors could earn some big returns going forward. Lucky dogs.

I'm retiring soon and with the market declines and don't have as much money as I planned on. What should I do?
For some boomers approaching retirement, this financial crisis may mean they continue working for longer than they planned. Even working part-time past the age of 65 can do a lot to stretch retirement savings, and an increasing number of pre-retirees say that they want to keep working well into their retirement years. Retirement calculators such as the one at TD Ameritrade let users calculate the effects of postponing retirement on their savings.

If I put my money into something safe—like a CD—how long-term should I buy?
It depends when you want to use the money. Returns are typically higher the longer you're willing to part with the cash. According to Bankrate.com, a six-month CD currently returns 3.15 percent, compared with 4.06 percent for a five-year CD.