Wall Street chaos: How to plan your money

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Issue #1: America's Money - Everyday on CNN

NEW YORK (CNNMoney.com) -- The phrase "run on the bank" is really something you never want to hear. Yet that's what best describes Bear Stearns' swift demise - and it has caused investors to wonder if such a run could happen elsewhere.

From the average person's perspective, it's a little hard to know how worried, if at all, to be about your money right now.

While certified financial planners are concerned about the financial news coming out of Wall Street these days, they are far from running scared on behalf of their clients. In fact, they're still encouraging them to stay invested in a well-allocated portfolio.

But they do see value in taking certain prudent measures - many of which make solid sense even when the financial markets aren't as rocky as they are now.

Consider the money you've got in the bank. The Federal Deposit Insurance Corp. will insure your money in checking, savings, certificates of deposit and money market deposit accounts up to $100,000. That's per depositor, per institution. In some instances, you may qualify for more coverage, but generally speaking $100,000 is the cut-off for deposit accounts.

So if you have more than $100,000 combined in all your accounts at one bank, you might consider moving some of it to another institution. "That's a good general rule of thumb," said Jim Whiddon of JWA Financial Group in Dallas.

If you're not willing to move money because you'd sacrifice convenience or possibly some yield, "then pay attention to the credit quality of the underlying bank," said Gary Schatsky of Independent Financial Counselors in New York.

Having access to a cash cushion, wherever you park it, is a big plus.

"In a recession, the secret to getting through it is having cash," said Mari Adam of Adam Financial in Boca Raton, Fla.

Adam would typically recommend having access to enough money to cover three months' worth of expenses. But now an even better idea is six months' worth, she said. That doesn't mean you need to keep every spare dollar in your bank accounts - access to a line of credit or some liquidity in your portfolio will do the trick.

Keeping an eye out for yield and return is always smart. But you may find it in some surprising places these days, especially given the hit savings rates have taken from all the Fed rate cuts. Adam said she is getting a better return on her short-term CDs (1 year or less) than on the 10-year Treasury.

The hunt for value

If you're an optimistic contrarian, you're probably thinking - correctly, many experts say - that some companies are getting punished unfairly in this environment and that long-term they're solid bets. After all, whatever happens with the mortgage mess, everyone is still going to need toilet paper, right?

But rather than placing your bets on an individual stock or sector to find long-term winners, Schatsky recommends looking for a solid value fund and let the fund manager do all the research on undervalued companies for you.

The same goes for bonds. If you're looking to expand the bond portion of your portfolio, he recommends looking for a fund that is more focused on shorter-term, high-quality bonds such as Vanguard Short-Term Investment Grade Bond Fund (VFSTX).

The personal finance self-exam

There are still a lot of unknowns about the Bear Stearns fallout. But the biggest opportunity it presents for the perplexed investor and saver is to get smart about their investment exposure.

"It's a wake-up call to look at your portfolio. How is the overall portfolio allocated?" said Schatsky. Don't just consider your 401(k) or your brokerage account in isolation.

Consider the allocation across all accounts and figure out if the breakdown between stocks and bonds is right for you. "Markets like this truly test risk tolerance," Schatsky noted.

Then, Adam said, do what you you should have been doing all along: get rid of any investment that is toxic regardless of the events surrounding the mortgage meltdown on Wall Street.