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Consumer Action by AnnaMaria Andriotis (Author Archive)
Navigating Today's Troubled Markets
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.
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"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)."
Hi, I have a couple of questions. I'm asking for my uncle who lives out of town and has some money invested in Merrill Lynch but has no knowledge on how to react to the current market crisis.
1- with the dreaded nationalization of banks specially BofA, what would happen with people that have money invested in Merrill Lynch since it is now acquired by the latter. Would the funds still be covered by the SIPC, and what if the amount in these accounts exceeded the what is covered say 700K?
It's easy to say "don't panic" but one thing to keep in mind for the future is that it's a lot easier to not panic if you have a significant amount of cash on hand and are never near 100% invested in stocks (on the long side). If you're 100% invested in stocks, than there will always be times where it is "safer to panic".
I pulled a substantial amount from IRA Mutual Fund recently to pay-off high interest cc debt. I have a good amount left. Should I reinvest? IRA? ???
Thank you John! Very Good !
Just would have liked More Idea's on Selling Short the past 12 mos from You!
using 10% of Money to Gamble with ...
anymore Long Plays?
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According to the Securities Investor Protection Corporation (SIPC), all brokerage firms that conduct business in the U.S. are required to be members of SIPC and to insure accounts up to $500,000. Investments that are in a brokerage firm that gets acquired - as in Merrill Lynch's case - files for bankruptcy or shuts down will still be covered by SIPC. (Of course that doesn't mean that the value of your non-cash investments won't drop depending on where they're invested.)
In most cases, brokerage firms offer supplemental insurance in addition to the $500,000 that's covered by SIPC in order to encourage investors to park more cash with them. Contact a Merrill Lynch/Bank of America advisor to find out their insurance limits.
AnnaMaria Andriotis, SmartMoney.com Reporter