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.

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

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.