The Fed, the Crisis, and Your Portfolio

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Workers approaching retirement also should consider switching retirement plan contributions from stocks to "more stable investment options" like cash, says Frank Boucher, a planner based in Reston, Va.

However, most advisers say it would be a big mistake to raise cash by selling their stocks right now—"at the worst possible time you can imagine," says Cathy Pareto, a wealth manager based in Coral Gables, Fla. It's better to wait for stocks to recover—however long that might take—and use cash and even bonds to cover living expenses in the meantime.

"Short-term investors are getting squeezed by the credit crisis," Benningfield says. But if you're saving for retirement and have enough non-equity investments, "you can afford to wait."

Where is my money?

One scapegoat for the financial crisis is the rapid spread of financial instruments that few investors really understand. Ask your financial adviser about all your investments and make sure you feel comfortable with them. "If someone can't explain what they're investing you in, that's a big red flag," Ramnani says.

Examine any options, futures, exchange-traded funds, hedge funds, and commodity funds you hold. If they're too complex to understand, maybe they don't belong in your portfolio.

Also, several advisers said investors should be sure their cash holdings are secure. You might want to sacrifice a lower interest rate for a money market fund that you know is safe. Make sure cash in bank accounts is insured by the Federal Deposit Insurance Corporation.

Can I handle this much risk?

So far, this financial crisis feels more severe than any since the 1970s, and some are pointing to the Great Depression or earlier economic panics for comparisons. "Everybody's got to be a little nervous," Pareto says. "That's just human."

Boucher says this crisis might be a lesson to all investors: In search of big returns, maybe investors have taken on more risk than they can handle. If the declines in your portfolio are giving you serious heartburn, you might consider moving to a less risky portfolio after the markets settle down.

How does this affect my retirement plans?

For investors under age 50, this crisis "is a great opportunity," says Barbara Camaglia of Legacy Financial Advisers in Beachwood, Ohio. "You're going to have time to work through this, wherever it goes." She adds: "The real problem is for the person who is 50 and above."

With your stocks down 37% in a year, your dreams of early or even on-time retirement might be in jeopardy. So ask your advisers to crunch the numbers. Consider your budget and how much you're saving, Pareto says. Do you need to save more? Work longer? Live on less when you retire? When you have the facts, you can make an educated decision.

No one knows if the current market turmoil will last weeks, months, or years longer. The Fed's rate cuts failed to calm the financial markets on Oct. 8, and stocks slid lower again.

This sort of instability naturally causes some folks to panic, some to despair, and some to try to run away and hide altogether. But before you do anything impulsive, you might want to get some good advice first.

Steverman is a reporter for BusinessWeek's Investing channel.