You've been given a breather - an opportunity to relax about the stock market and take action with your investments if you feel you must.
At least, that's the way it looked at the end of the week, when the House passed the bailout plan and President Bush signed it. The law is supposed to free up money for lending and save the economy from more serious distress.
Of course, there is no such thing as a painless move at a time like this, when the stock market has already fallen more than 27 percent from its record high. But when you must make a change, using rallies is better than using days when the stock market is falling. Here's how to decide what to do.
Are you going to need cash soon?:
This question torments investors at times like these, even people who won't retire for 10 or 20 years. They imagine themselves penniless. But even during the Great Depression, when the stock market declined 83 percent between September 1929 and May 1932, investors in the Standard & Poor's 500 - or what is roughly known as the stock market - recaptured all that was lost by January 1945, said Peng Chen, president of Ibbotson Associates.
So when financial advisers talk about needing cash, they are focused on people who truly will need to get their hands on cash within a few years, whether the stock market is up or down. That means parents with children in college or a couple of years away from college. It means retirees who don't have the ability to tap savings accounts, CDs or safe bonds like U.S. Treasury bonds for living expenses during the next five to 10 years. Selling can be done over time - not all at once.
Is something broken? :
Investors have received a painful lesson the past few weeks that individual stocks, such as Lehman Brothers or Fannie Mae, can become worthless. And corporate bonds can lose all or most of their value, too, if a company goes bankrupt. Consequently, financial advisers are scouring their clients' accounts - with special attention to stocks, preferred stock and bonds - in financial companies that are in distress.
Now is not an opportune time to sell such investments because they have already declined far in value, but some people will sell anyway.
Financial planner Sue Stevens of Deerfield, Ill., said she learned in the bear market of 2000-2002 that bad investments can become even worse investments. Consequently, she has pulled clients away from some of the investments she thinks are most vulnerable - even well-respected mutual funds such as Oakmark Select and Loomis Sayles Bond fund. Instead of pulling out of them completely, she removed about half of the money - giving investors the opportunity to recover while cutting the impact of losses.
To see what might be in your funds, try finance.yahoo.com/funds and look at "holdings." Or at Morningstar.com, look up a fund using the quote box and click on "portfolio." Funds with diverse portfolios in many industries give you more protection. Those with more than 20 percent in financial companies will be the most vulnerable.
Should you tweak? :
When financial advisers tell you to stay the course, they assume you have a broad array of mutual funds - not a handful of stocks or funds that you bought on a hunch or a recommendation. They assume you have the right amount of stocks and bonds based on your age and needs. You can review this using an "asset allocator," found by searching the Internet.
John Waldron, a Pittsburgh financial planner, is concerned about a recession and tweaking portfolios. He thinks growth stock funds will be vulnerable and is moving about 5 percent of the typical stock allocation into bonds instead. He likes municipal bonds for safety and high-yield bond funds. For safety, choose general obligation municipal bonds.
Contact Gail MarksJarvis at email@example.com.