Stock Market Tumble: What You Should Do With Your Money

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The downgrade of the U.S. credit rating has led to a sharp downturn in the stock market. Not only is Wall Street worried, but so are ordinary Americans as they question how to handle their retirement nest eggs, children's college funds, along with any other cash or other investments they may have.

So how should you handle your personal finances in this tumultuous financial time?

Mellody Hobson, president of Ariel Investments and "Good Morning America" personal finance contributor, appeared on "GMA" today to answer a few key questions about where people should be putting their money right now:

Q: Are there lessons from the 2008 financial crisis that we did not learn, and that can help us weather what's happening now?

A: Hobson said the one major lesson people haven't learned from 2008 is to not panic sell in reaction to bad economic news. Those who take a long-term view of investing must realize that this is a great time to buy, she said. Adding that there is no point in selling high, Hobson also pointed out that the market is still 65 percent above the bottom, which most people consider was March 9, 2009.

Q: How worried should I be about what's happening on Wall Street?

A: Hobson said she knows people are feeling pain and anguish about the sell-offs of Friday and Monday, but she noted that those who sell during the worry will lock in losses. Stock market history proves that very clearly, she said.

Q: Should I move some of my money out of the stock market?

A: Hobson said she believes now would be the worst time to act, adding that the market would get its footing back at some point and that volatility would end. The market is trading on fear and emotion now, and those have nothing to do with the fundamentals of American businesses, Hobson said. She also pointed out that American companies are stronger than they were before the financial crisis of 2008, with a great deal of cash on their balance sheets. Most companies have been beating their earnings expectations, she said, noting that the S&P 500 companies have $800 billion in cash.

Q: Is now a good time to invest in the market and buy stocks?

A: Hobson said she would not rush in and buy a lot but said she would buy a little. Those who have money just sitting there should not rush to put it into the market all at once, she added. Someone with $10,000 should only consider putting $1,000 each month, she said.

She called what's happening right now is the trifecta of fear: the S&P downgrade of the U.S. credit rating, instability in Europe and mixed economic data in the U.S. Negative sentiment on the market is as high as it's been in recent years, and it's usually very hard for the negativity to stay so high for long, she said.

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