But Early Show money maven Ray Martin suggested strategies Thursday to help you navigate the waters during bear markets and keep your money as safe as possible.
Martin went through several different savings and investment tools, from bank savings accounts to mutual funds, and explained how "safe" each one is, and what to do if you put your money there.
Various Bank Accounts
We have $6.881 trillion in deposit institutions but, believe it or not, only $4.241 trillion of those deposits are insured, according to the latest Federal Deport Insurance Corporation year-end statement. That leaves a staggering gap of more than $2.6 trillion sitting in uninsured bank accounts.
Here's the basic rule of thumb to remember: If the money you have in the bank totals $100,000 or less, it is completely insured by the FDIC, and so will remain accessible to you, no matter what happens to your bank.
From FDIC Web site:
"The FDIC insures all deposits at insured banks, including checking, savings accounts, money market deposit accounts, and certificates of deposit (CDs), up to the insurance limit (of $100,000). ... "The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank."
Keep in mind that if you have, for instance, a checking account, savings account and CD at the same bank, and all accounts are in your name only, the three accounts are added together and the total is insured up to $100,000.
If all the accounts are joint accounts, with a spouse, for example, then the accounts are totaled and you are insured for up to $200,000 -- $100,000 apiece.
CDs Purchased Through a Brokerage Account
Although most certificates of deposit are purchased through commercial banks, it's also possible to buy them through a brokerage account. You can rest easy knowing that the CD you've purchased through a brokerage account is insured up to $100,000, just as a CD bought directly from a bank is.
There is one small difference, however: Let's say you have a CD worth $5,000 from your bank. You can get your hands on that money at any point, even if the bank fails. If you have a $5,000 CD purchased through a brokerage account and the bank originating the CD fails, you can still get your money -- BUT -- it will take longer; you can't necessarily get it immediately.
Money Market Funds
Americans have over $3 TRILLION invested in money markets, because they're considered such a safe investment. Even in the current volatile market, you can still consider your money in those funds "safe." As long as you're invested in a true money market fund that's registered with the Securities and Exchange Commission, that fund is required to follow certain rules designed to assure investor security. Also, if your account is operated by a major company such as Fidelity or JP Morgan, those companies are almost certain to step in to prevent any losses in their money market funds, if need be. While they're not compelled to do so, they would, in order to maintain their reputations.
Obviously, when we begin talking about money that people have invested in the stock market, that money is far from "safe" -- you're at the mercy of the bear!
Martin has been flooded with e-mails from viewers all saying essentially the same thing: their retirement accounts have lost $3,000, $10,000 -- what should they do? Should they be getting out of the market?
The answer is the same for everyone (sorry, no magic bullet here): Stay the course! Don't dump your stocks in favor of all bonds and cash. History is replete with times that individual investors threw in the towel, typically when market was at its worst. Then, inevitably, the market came back and those investors lost out.
While Martin doesn't think we have a market primed to come roaring back, he does believe we are nearing the end of the downturn in stocks. He explains that the market typically falls AHEAD of dour news, and recovers before individuals begin to feel an economic recovery themselves.
Martin also points out that his clients who have DIVERSIFIED portfolios -- those who have a good mix of cash, bonds, large-company, small-company and foreign stocks -- have only lost three-to-seven percent in the downturn. If your accounts have lost significantly more than that, it's a signal that you're not properly diversified. You should correct that problem immediately.
For Those In Or Nearing Retirement
General investing advice right now is certainly different for those who are retired or near retirement, and those who still have many years left in the workforce.
Obviously, it's harder for older adults to recover from a big loss -- they simply don't have the time to earn or save back what they've lost. But again, Martin says if these folks have properly balanced/diversified accounts, they should be OK. Individual circumstances vary, but in general, someone who's retired or a couple of years away from retiring should have about 45 percent in cash/bonds and 55 percent in other investments.
For Young People
Younger workers don't need to lose too much sleep over the current market. Sure, it stinks. But you still have time to earn back and save what you've lost, plus more. If anything, Martin encourages young workers/investors to be aggressive right now. Increase your savings/investments if possible: You can buy more shares when the market is low, and that can only benefit you when the market eventually bounces back.
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