Wall Street Woes: Where to Put Your Cash

Sept. 15, 2008 — -- Bank deposits remain insured, credit card payments will be processed as usual, and home buyers with good credit and a down payment will still be able to obtain a mortgage.

Keep these thoughts in mind as you consider your response to the collapse of Lehman Brothers and the fire sale of Merrill Lynch. Yes, Wall Street is in crisis, but no, the U.S. financial system is not falling apart.

That's why small-time investors and borrowers must resist the urge to panic after a stunning weekend for the nation's financial markets. For most of us, it will be business as usual today, tomorrow and the next day.

We'll keep going to work, adding to our retirement plans and paying down our debts. And that's what you want to keep doing as we wait for housing prices to stabilize and stock prices to recover.

The truth is it's tough to know exactly what the fallout will be from the current turmoil that can all be traced back to a price decline in a heavily mortgaged housing sector.

But there are steps you can take -- and steps to avoid -- to prepare yourself for the eventual recovery.

Think no one would do something so extreme? Think again.

I know folks so spooked by the 9/11 attacks that they did just that. For a year or two, it seemed like a smart move, but then their savings wallowed as the stock market went on a terrific run. Don't put yourself in that position this time around.

One option might be to invest a portion of money in a short-term bond fund, which is less volatile than a stock fund but offers the potential for a higher rate of return than a bank account. Bond values, as you may know, rise and fall with changes in interest rates (up when rates fall, down when rates rise). But a short-term bond fund will fluctuate less than one holding long-term bonds.