The Fed, the Crisis, and Your Portfolio

After the bold step by Bernanke & Co. to cut rates, what moves should you make? Here are five questions to ask your financial adviser—now

By Ben Steverman

Financial advisers are usually an unflappable bunch. When the markets are wild, investors turn to their financial planners for calm, consistent advice: Stick to the plan, think long term, don't do anything rash. Advisers have studied their history and know that markets go up, down, and sideways; proper investing requires patience.

But the confidence of even the most serene investors has been rocked lately. The U.S. stock market loses a third of its value in a year, the credit crunch grows more severe, and policymakers take unprecedented actions, including on Oct. 8 a worldwide coordinated cut in interest rates by central banks.

If the Federal Reserve can slash interest rates in the grip of a crisis, should investors be making bold moves of their own?

Obviously, your next move as an investor depends on the specifics of your current situation. That might require some professional advice.

There are plenty of questions no one can answer right now: When will the crisis end? Will stocks keep falling, and how far? When will they bounce back?

But an expert adviser should be able to offer important perspective nonetheless. So here are five questions you need to ask—either of your financial adviser or yourself —as the crisis deepens.

What are my actual losses?

From Oct. 9, 2007, the market peak, to Oct. 8, 2008, the broad Standard & Poor's 500-stock index fell 37%. But that doesn't mean all investors have become 37% poorer in the past year. If your portfolio was structured properly, especially if you're anywhere near retirement, you weren't invested 100% in stocks. Smart advisers try to diversify investments by putting some money in bonds, cash, and other safer investments.

"A lot of people are relieved to find they have less exposure to 'Wild West' equity markets than they thought they did," says Milo Benningfield of Benningfield Financial Advisers in San Francisco. Yes, actual gains for your investments in the past year would be a miracle, but you might still be richer (or less poor) than you fear.

Do I have enough cash?

In a risky time like this, the safest investment of all is cash. Many advisers tell clients to keep enough cash to cover two or three years of expenses.

Clients of financial planner Avani Ramnani of Athena Wealth Advisers in Jersey City, N.J., often work in the financial industry, and some are worried about their job security. While they're still cashing a paycheck, "I tell them to build cash reserves," she says.