Updated on February 20, 2009.

It s not easy to sit back and watch the Dow flirt with lows not seen since 1997.

But before making any hasty moves, here are five steps to consider.

Don't Panic

It's easier said than done, but try to stay calm. The worst thing an investor can do is panic and go on a massive selling spree, says Ben Tobias, a Plantation, Fla.-based fee-only certified financial planner. Investors who sell now will turn paper losses into real losses and won't have money invested to recoup those losses when the market rebounds, he says.

And make no bones about it the broader markets will recover. History has shown that over the long haul the stock market goes up, not down. Indeed, the periods after a crisis are often very robust.

* Rate of change is calculated from the last day of the reaction dates.

Chart source: Ned Davis Research

Make Sure You re Covered

If rumors of more bank failures to come have you eyeing your mattress as your safe haven, take some deep breaths. Chances are the money you have held at your bank is FDIC-insured. If so, even if the bank shuts down, the government will cover up to $250,000 (per depositor) in a checking or savings account (the coverage is valid until Dec. 31, 2009, at which point it may be extended or changed) or $250,000 in retirement accounts such as IRAs or Keoghs. Those who have more than $250,000 in deposits should consider spreading it among several accounts at different FDIC-insured banks. That way, all of your holdings will be covered. (To find out if a bank is FDIC-insured, visit the FDIC web site

And what about the money you have at your brokerage firm? In most cases, investors' assets at brokerage firms are safe even if the firm files for bankruptcy or shuts down. All brokerage firms that conduct business in the U.S. are required to be members of the Securities Investor Protection Corporation (SIPC), which insures accounts up to $500,000, including cash of up to $100,000 held in brokerage accounts, according to the Financial Industry Regulatory Authority (FINRA).

In some cases, when a firm runs into trouble, you still may be able to trade or transfer your account. For more, click here.

Shore Up the Emergency Fund

It s easier to ignore today s market gyrations (and the skyrocketing unemployment numbers) when you have a cozy emergency fund to keep you warm. That means keeping at least six months' worth of living expenses held in a cash account like an FDIC-insured money market savings account, says Sheryl Garrett, a fee-only certified financial planner. For the best rates (which won t be much these days) consider online accounts, like those offered by HSBC Direct, Emigrant Direct or ING Direct.

Another option is to open a home equity line of credit (HELOC) on your home, says Garrett. But proceed with caution. "I recommend that people establish a HELOC and don t use it unless something disastrous happens," she says.

Keep in mind lenders have tightened their rules with HELOCs, and they're much harder to come by now. To get approved, you'll need a stellar credit score and a decent amount of equity in your home.

Review Asset Allocation

If you're tossing and turning at night or your portfolio looks like it was just swallowed by a black hole then it's possible your asset allocation is seriously out of whack. If so, our asset allocator can help.

If you re not comfortable making asset allocation decisions, consider investing in target-date retirement funds, which automatically reallocate your investments based on the year you plan to retire, not market swings. You may also want to seek the assistance of a good fee-based financial planner.

Keep on Investing

Stocks are one of those rare items that when prices are cheaper, it s hard to appreciate the bargain. Instead, when prices are falling, our natural inclination is to shy away or get out altogether.

That can be a big mistake. Investors who have at least a five-year time horizon from when they'll need that money should continue investing. If watching the market makes you nervous, simply use dollar cost averaging, like you do in your 401(k). This forces you to buy more when the price is low and less when it's high. "Don't count dollars right now," Garrett says. "Count shares. As long as you're accumulating shares, you have more wealth."

To see how dollar cost averaging can bullet-proof a portfolio, click here.