Hobson Answers Your Money Questions

Susan, from Tamaqua, Pa., asked: My husband and I have life insurance policies with AIG. Should we keep on holding them or cash them in? If we would cash them in, I would not know a safe place to invest the money. My husband feels we should cash them in now while there is still money instead of losing everything that we have put into them over the last 30+ years. I feel we are better to see what happens next. What do you think?

Hobson answered: Hi Susan, if you have a personal insurance policy with AIG (and many do -- as AIG is a leading U.S. provider of property and casualty insurance in more than 130 countries) you are still covered. The problems occurred at the corporate level and most policies are with separate, related companies managed at a state level. Your policy is protected by the state insurance commission and ultimately by local state guaranty funds.

Cheri McPhee, from Berkeley, Ill., asked: What happens to my checking, savings and mortgage accounts if my bank, WaMu, goes under?

Hobson answered: Hello Cheri, your accounts in WaMu are protected by the Federal Deposit Insurance Corporation. The basic FDIC coverage insures $100,000 per depositor per bank and up to $250,000 for some retirement accounts. So, it is safe to say if your money is in one of 8,494 FDICc-insured banks (like WaMu), it is in safekeeping. If this is going to keep you up at night, you can always elect to spread your accounts across other FDIC-insured banks. Whatever you decide to do, keep your money in the bank and not under you mattress! In 75 years, no depositor in an FDIC-insured bank has ever lost a penny of insured deposits. There's every reason to have faith and trust in our banking system, which is the bedrock of our financial system.

Joycelyn, from Fort Worth, Texas, asked: Hi Mellody, I always watch you on GMA. Just wanted to know if I continue to see my 401K shrink because of the turmoil, will it just be better to keep contributing to it to get my company's matching offer, but put it in cash? Not sure what to do and I hate to see the amount keep falling day after day.

Hobson answered: Yes, keep at it! When the market is down, one of my favorite market factors comes into play -- that of dollar cost averaging. Dollar cost averaging is the approach to investing a set dollar amount over a specific period of time, which allows you to buy more stock when prices are low and less when prices are high. At the end of the day, the price balances out, and you are able to take advantage of both the upside and downside of the market. At minimum, contribute enough to take advantage of your company's match -- this is the equivalent of free money and you do not want to miss out on this opportunity!

Louise from Snyder, Pa., asked: My husband and I are 50 and 51. We feel we are far enough from retirement that we should hold steady and ride this wave. Is there any way that we could take advantage of the market while it's down?

Hobson answered: Hello Louise, my advice to you is to sit tight. Think of the stock market as on sale right now. You can take advantage of the low prices and find some great, solid companies selling at a discount. One of my favorite sayings is that bull markets always follow bears. After the last bear market, stocks zoomed up almost 33 percent just one year later. You do not want to miss out on this rebound.

Tim, from Duncan, Okla., asked: I work for a major employer and invest in The Stock and Savings plan and 401K Plan. 401K diversification is my main concern. Mutual Funds, stocks, bonds, not sure where to go with this. Can you shed a bit of light on what to do in times like these? I want to make sure I can provide for my retirement in 12 or so years.

Hobson answered: Hi Tim, You are spot on to be concerned about diversification. My recommended allocations by age are:

30s and younger: 100 percent stocks/stock mutual funds

40s: 80 percent stocks/stock mutual funds and 20 percent bonds

50s: 75 percent stocks/stock mutual funds and 25 percent bonds

60s: 70 percent stocks/stock mutual funds and 30 percent bonds

70s and older: 50 percent stocks/stock mutual funds and 50 percent bonds

This is the identical asset allocation I have suggested over the years on "Good Morning America," and I do not believe the allocation should shift because of recent market volatility. While I am biased toward stock investments, I have always counseled diversification across different types of stocks, which helps to mitigate risk. To that end, make sure you are not overweighted in company stock and that your equity diversification is comprised of a variety of mutual funds instead of individual securities.

Kristine, from Columbia, Mo., asked: I am 23 years old and am ready to begin a Roth IRA account but I find myself apprehensive due to the fall in stocks. Is now a good time to start a retirement fund?

Hobson answered: Hello Kristine, now is actually a great time for you to open up a Roth IRA. At 23, time is on your side and you are at a great age to start saving for your retirement. It is never too early!