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Turbulence in Markets Creates Fear and Confusion

Many financial experts say 'don't panic'

En español | Investors are bracing for another roller coaster ride Monday following the downgrade of the U.S. cherished credit rating over the weekend and the spreading fiscal crisis in Europe.

The Standard & Poor's downgrade comes days after Thursday's drastic stock market drop that saw the Dow sink 513 points, or 4.3 percent, doing little to calm jittery nerves of investors across the country, with retirement savers worrying that their hard-earned accounts are being damaged beyond repair.

The Dow Jones Industrial Average closed nearly 61 points higher on Friday after Thursday's drastic stock market drop saw the Dow sink 513 points, or 4.3 percent, amid fears that a faltering U.S. economy and new financial discord in Europe could strangle global recovery.

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Bear eats stock market what to do with savings.

Bear market has investors fearful. — Photo by: James Balog/Getty Images

It was the worst single-day tumble in more than two and a half years.

"The nation seems to be gripped by this feeling of uncertainty about what's ahead for the next few weeks, and it's probably precipitated by the dragged-out, contentious fighting over the debt ceiling, which isn't completely resolved," says Bernard Baumohl, chief global economist at the Economic Outlook Group, a research and advisory firm in Princeton, N.J.

"It's not what investors want to see," he says. "Once we begin to see with more clarity where the economy is heading, the market will turn up."

Recover losses?

Younger investors have many years to recover losses when markets get caught in downdrafts. But older ones often worry they'll be forced to tap those savings for retirement expenses well before the losses are recovered.

For the older investor worried about the bottom line amid uncertainty, Baumohl counsels, "Stand pat on equities and don't do anything. There's been significant loss in the market in the last week and a half, so at this point, there's already a loss on paper."

When the market turns around and gains become more steady, Baumohl recommends that investors 55 and older allocate between 35 and 40 percent of their portfolios to liquid investments like short-term certificates of deposit and Treasuries; 20 percent to precious metals such as gold and silver, which do well in periods of uncertainty; and about 45 percent to equities.

He says half of those equities should be in domestic stocks and half in stocks in emerging countries like India and Brazil.

Next: Be proactive not reactive, says financial planner. >>

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