When the financial world seems in shambles, what's an ordinary investor to do?

There's no denying the last few weeks have been enough to make anyone queasy. Like a rowboat in stormy seas, the Wall Street markets have been tossed about, walloped by debt ceiling debates, a debt rating downgrade and massive debt worries overseas.

For many investors watching their retirement accounts, it's nerve-wracking. Some are bailing out of stocks and into bonds. Some are grasping for gold as a tangible nugget of safety. Others are wondering if they're better off in CDs and money-market funds. Or maybe even the mattress.

Regardless, the advice from most investment advisers is consistently the same: Don't panic. Hang in there.

It's the same advice heard in October 1987, when the Dow Jones plummeted nearly 23 percent – in one day; the same as in 2000, when the tech-stock bubble burst and blew away so many investors' holdings; the same as just three years ago, when markets tanked.

"The message hasn't changed. Basically, hold pat and try to ignore the market's vagaries," said Brad Barber, a UC Davis graduate school professor who specializes in investor psychology.

"Be level-headed and take the long-term view, not the short-term, in your investment planning," added Barber, who said he didn't lose a wink of sleep during the last three weeks of economic whiplash.

When it comes to watching the day-to-day fluctuations of his own investment and retirement accounts, "I don't even look."

But not everyone can be so unruffled.

"If my clients can't sleep at night, there's no point in keeping them in equities and telling them to ride it out," said Rashida Lilani, a certified financial planner with Lilani Wealth Management in Roseville. But, she noted, many of them have "learned to discount the panic talk and tune out some of the TV and media headlines that focus only on the negative news."

In the last few days, the Dow has broken records for consecutive flips of 400 points or more. Yet over the past eight decades, stock prices have been on a steady upward trajectory, albeit punctuated with short-term peaks and valleys.

Still, it may be time to tweak. For those nearing retirement, Lilani recommends a slight shift in their 401(k) or investment accounts to stocks paying a healthy dividend or fixed-income instruments such as government bonds or emerging-market bonds in Asia and other countries.

For those still in their prime working years, it's a good time to adjust your retirement fund allocations.

"Be sure you're not concentrated in just Europe or Asia. Be sure you're spread across different geographic areas and different economies of the world," Lilani said. "Bonds, stocks, maybe a little gold in an ETF (exchange-traded fund). Look at real estate investment trusts (REITs), some of which are paying 6 (percent) to 7 percent."

Certified financial planner Laura Pajak, a partner with Foord Van Bruggen Ebersole & Pajak Financial Services in Sacramento, said she doesn't recommend that anyone bail out of stocks.

"It's a slam dunk. If you're in your 20s, 30, 40s or even 50s, you're not using this money immediately. It's not to buy a car next year, or to put on a new roof. It's to help augment your retirement at 65. The money still has a long life on it."

But, she notes, the standard recommended retirement asset mix – 80/20 percent stocks-to-bonds in your younger years or 60/40 percent as you get closer to retirement – are only models. The choice depends entirely on your comfort level.

Safer assets pay less

Pajak has clients in their early 70s who are happily sticking with 80 percent stocks because they "can't stand" being in CDs and money markets that earn such paltry interest. But she also has a 30-something client whose "fear factor" means he's only comfortable with a 50/50 mix of stocks and bonds.

"If you are feeling physical or psychological effects (of the market), then stocks aren't the place to park your money," said UCD's Barber. That means going to safer assets like Treasurys, CDs or savings accounts, which traditionally pay lower interest rates. The tradeoff is you'll have to work longer, save more and likely have less to live on in retirement, he said.

Regardless, financial advisers say these market dips are potent reminders that we all need to set aside some savings – a cash reserve for fiscal emergencies, whether it's a job layoff, unexpected medical bills or a market swoon. Most experts recommend at least three – but ideally six – months of savings: the amount you'd need to pay your mortgage/rent, food, bills, tuition, etc. until your paycheck or income accounts recover.

It's a lesson many people learned the hard way from the recession. "People now appreciate much more the value of having a chunk of your financial picture that's not tied up in the market," said Tina Florence, a certified financial planner with Lane Florence LLC in Folsom. "If you have $100 in your savings account, you'll always have $100 in an FDIC-insured account. But if you have $100 in your bond fund brokerage account, it's not guaranteed. It could be $85 tomorrow."

'Keep a cool head'

If you've got a little extra investing money, the stock market now resembles an after-Christmas clearance sale.

This week, the editor of Kiplinger's personal finance magazine, Knight Kiplinger, repeated his prediction that in a few years, "we'll look back on this period as one of the great buying opportunities of a lifetime."

"The hardest thing for most investors to do is to go against the crowd, to keep a cool head when other investors are losing theirs," he wrote.

Kiplinger initially wrote that advice in 2008, when global circumstances and the Dow's drop-off were far worse than now.

In a new note issued this week, Kiplinger said he continued to systematically contribute to his 401(k) and investment accounts during the recent downturn, which meant he reaped the stock market's upswing of the last few years.

"If you bailed out during the bottom, then felt you missed the run-up in 2010, this might be an opportunity to start getting back in," said financial planner Pajak.

"If you're willing to buy, stocks are on sale," although she recommends buying funds in a 401(k), IRAs or other retirement accounts, as opposed to shopping for individual stocks.

Some messages never change: The key to surviving the short-term upheaval is sticking with a balanced, diversified mix of stocks and bonds and avoiding trying to time the market.

Too many people flee to cash in times of fear or run to stock in times of exuberance, said UCD's Barber. Either way, "that's managing your portfolio through the rearview mirror. And it's not a good idea."

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Have a personal finance question? Call The Bee's Claudia Buck at (916) 321-1968.

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