Q and A
With the blue-chip indicator sinking below 10,000 for the first time in four years, many are wondering how much lower it could go and how vulnerable are their holdings in stocks, CDs and other investments as the credit crisis continues.
The Associated Press addresses some of the concerns, based on interviews with experts.
Q: Where’s the best place to keep money I may need in the short term?
A: Much like your overall portfolio, you might want to consider diversifying even your cash reserves. Right now, for example, rates on tax-free money-market funds are better than certificates of deposit, or CDs. To mitigate any difference, consider splitting your money between the two.
To find the best rates for CDs and money-market accounts, check , which includes listings from online banks.
Q: What’s the difference between a money-market mutual fund and a money-market deposit account?
A: Both are generally safe ways to keep money readily available while drawing a modest amount of interest to offset inflation.
While a money-market fund generally offers a greater yield than a money-market account, it also carries modestly higher risk.
Unlike other mutual funds that invest in stocks and bonds, money funds are limited to safer short-term debt. The safest typically invest in government debt such as Treasury bills, while funds offering slightly higher returns invest in the short-term corporate debt of firms with high credit ratings.
Q: What should investors who are within five years of retirement do when they see their portfolio’s value declining sharply?
A: If you’re near retirement, you may want to fight your instincts to retreat. “If you can afford it, consider increasing retirement contributions in the final years of your working life,” said Christine Fahlund of T. Rowe Price. “You’ll be taking advantage of the market conditions and buying into the market when it’s low.”
Q: How should investors whose college funds have taken a hit respond to the market?
A: The date for when the child is going to school plays a key role. Investors should reduce a college fund’s exposure to the stock market as the enrollment date approaches. However, if the child isn’t heading off to school soon, “this is a better time to buy stocks than to sell,” said Alan Gayle of Atlanta-based RidgeWorth Capital Management.
The AP personal-finance team compiled this report.
