Flee, or Stay the Financial Course?

If you're worried about the dramatic ups and downs in the U.S. stock market, you can still count on one thing for sure: You're not alone. Plenty of people have panicked and sold off their mutual funds, raided their bank accounts or taken other ill-considered steps they may well regret later on -- or at least that's the perspective of financial planners, who unanimously advise against hasty decisions and instead advocate calm.

"You can't make good decisions when you are emotional. You have to calm down," says Frank Boucher, principal of Boucher Financial Planning Services in Reston, Va. "Sit back, take a deep breath, relax and when you are ready to deal with it without emotion, you are ready."

There's no doubt that the stock market has been volatile. In fact, October was one of the wildest months on record: The Standard & Poor's 500 stock index, to take just one measure, suffered its largest one-month decline since the "Black Tuesday" stock market crash of 1987, but also posted its biggest one-week gain in the last 34 years.

Such extreme volatility naturally engenders a perception of greater uncertainty. But uncertainty itself isn't a new phenomenon; rather, it's a constant presence, albeit to a greater or lesser degree, in free market economies, observes Karen Keatley, owner of Keatley Wealth Management in Charlotte, N.C.

"We've always been dealing with uncertainty. It's just that now we are all aware of it," she says.

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It's important to remember, Keatley adds, that the U.S. economy has suffered other extreme "bumps in the road" over the decades. Two examples are the bear market of 1973-74 and sky-high interest rates of 1981.

Time horizons dictate financial plans
If you're worried about your investments, financial planners say, you should first have a financial plan.

John Belluardo, president of Stewardship Financial Services in Tarrytown, N.Y., suggests this approach: Divide your money into three pots based on how soon you plan to spend it. Money you're planning to spend in the next five years should be considered "short term," money you'll want in the next five-to-10 years should be designated "medium term" and money you won't need for more than 10 years can be denoted "long term." Short-term money shouldn't be invested in the stock market; medium-term money might be put into a conservative mixture of stocks and bonds and only long-term funds can be invested more aggressively.

People who are close to retirement do need to take extra care of their savings in a climate of heightened uncertainty. Near-retirees should continue to fund their retirement accounts, but also should "start to build up a bankroll of relatively safe investments," Boucher says.

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