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Falling stock market
Solution: Don't panic, stay the course

Your brain is wired for panic. Don't give in. That means that the normal human reaction in a downturn is to turn fearful and sell - even though risk is lower than it was when stocks were higher and the rational move would be to buy.

Research into investor psychology shows that you're likely to see the risk in today's stock market as greater than it really is, just as last fall you saw it as less than it really was. And postwar market history suggests that if you act on that emotional perception, you'll regret it later when stocks rebound and leave you behind.

What do you do? Instead of relying on your gut feel for risk and reward today, you'll be far better off focusing on your long-term financial goals, allocating your assets accordingly and sticking to your plan. --Janice Revell

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Last updated July 17 2008: 1:39 PM ET
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