I realize that people like me aren’t supposed to send e-mails like that, but I couldn’t stop myself. My brain told me, “Follow your system; history says it works.” My gut cried, “Are you crazy? Save what you can!”

Fear makes you stupid. To be on the other end of unhinged e-mails like this is what advisers are for. Mine reminded me about crises past and how stocks had recovered. Still, under his calm, his gut was screaming, too. “It’s a dangerous time,” he couldn’t stop himself from saying.

Besides my retirement account, I have a taxable account that I manage myself. Both are invested in low-cost, no-load mutual funds, allocated across various types of securities. Both are rebalanced periodically to maintain their original allocations. I should be weathering this shock as I did all previous ones: make regular contributions, rebalance and wait.

But this is the kind of collapse that sends you back to first principles. Were my allocations right in the first place? Stressed financial planners are asking themselves the same thing.

Take the question of safety. Planners traditionally have said, “Keep money safe if you’ll need it within two or three years,” for expenses such as tuition, taxes, buying a house or future daily bills. Money you won’t touch for longer periods can go into riskier investments, for higher returns.

That worked fine in the three market cycles during 1980 to 2000. After stocks dropped, it took less than two years for them to recover their previous peaks.

Then came the 2000–2002 bear market, which took more than six years to recover, followed by the current plunge. In a classic case of barn-door thinking, planners are reworking their definition of “safe.” Many now say that money needed in the next five years should go into bank CDs, bank money-market accounts and short-term bond funds. These investments pay more than you’d get from money funds that buy Treasuries, many of which now cost more in fees than the near-zero interest you earn. Treasury bonds are the only investment bubble left.

My OMG question was whether I had put too much of my retirement account into stocks. The rule of thumb is to subtract your age from 110 and consider that the percentage of your portfolio to put at risk. If you’re 50, you’d go 60 percent into stocks with 40 percent in bonds.

 
Gimme Shelter: For now, money-market funds may be as safe as bank accounts
Illustration: Mark Matcho for Newsweek

If you’re scared, you have reason. We’re BATTLING a financial collapse in the teeth of a spreading recession, not only in the United States but in the other industrialized countries, too. The risks fall especially hard on workers in their 50s and 60s who are hoping to retire (or fearing it, if their companies are pushing them out). But anyone trying to defend a paycheck or personal investments will be facing tougher times. Amid the rubble, only a few things are safe.

• Your insured bank account is safe. Some of the customers of struggling Washington Mutual are moving their money to other banks. That’s a waste of time. Deposits up to $100,000 are totally safe—insured by the Federal Deposit Insurance Corp. Odds are that WaMu won’t fail; it will be sold with government help. In cases of failure, the FDIC arrives on Friday night and moves the accounts to a new bank, which opens for business as usual Monday morning. Over the weekend, you can even use debit cards and ATMs. If there’s no buyer, the FDIC liquidates the bank, mailing out checks for insured deposits immediately. They will always be paid off. By contrast, uninsured deposits are at risk. If you have more than, say, $95,000 in your account, move the excess money to another bank so it, too, can be insured. No sense tempting fate. More than $100,000 can be insured in a single bank if you have different types of accounts—details at www.fdic.gov.
  
• Your money-market mutual fund is safer than it was last week. Money funds serve as checking or savings accounts that pay higher interest rates than you’d get at a bank. Your money is supposed to be safe. For every dollar you put in, you expect to get a dollar back, plus interest, any time you want. These funds aren’t FDIC-insured, but, in their 37 years of life, they’ve never lost a penny for individuals.
  
• That is, until last week. On Wednesday, the Reserve Fund group’s giant Primary Fund—owned by Bruce Bent, the man who invented the business—got stuck with $785 million in worthless commercial paper from the failed investment bank Lehman Brothers. The fund “broke the buck,” meaning that each dollar dropped in value to 97 cents. Redemptions were frozen for seven days, but not before $27.3 billion—more than 40 percent of Primary’s assets—flew out the door, according to Peter Crane, publisher of Money Fund Intelligence. The Primary Fund didn’t return calls.

All the marketing mail you get about retail partners from your credit-card company may be annoying, but take another look. You may be leaving money on the table. Most major credit cards now have their own online shopping portals, stocked with big-name retailers like Target, JCPenney and Zappos. Click from the card company’s site to the merchant of your choice, and you can bump up the amount of money that shows up as cash back on your card. For example, use a Chase cash-back card to shop at Lands’ End through the Chase Rewards Plus program, and you can get as much as $15 in rebates for every $100 you spend. “These programs are a win-win-win,” says Justin McHenry of indexcreditcards.com, who reviewed several portals for NEWSWEEK. Here are four major programs available with no-fee cards:

• Shop Discover (discover card.com/shopcenter). This is the most generous of the programs, according to McHenry. It offers cash rebates as high as 20 percent.
• Chase Rewards Plus (chasecreditcards.com). An online mall with many of the same merchants offered by Discover, though the rebates aren’t always as good. Rebates earned via this portal don’t count against annual cash-back caps that the cards hold.

The sinking stock market could be forecasting the results of the November presidential election— or vice versa. Stocks will behave differently after Nov. 4, depending on who wins. TIP SHEET’S Linda Stern asked Jeffrey Hirsch, editor of the Stock Trader’s Almanac, to read the tea leaves.

STERN: What does the year-to-date performance of the stock market predict about the election’s outcome?
HIRSCH: This is a stock market that was in trouble, even before last week’s sell-offs, and the malaise we’ve been experiencing makes the ouster of the incumbent party more likely. Strong Septembers and Octobers usually lead to an incumbent-party win. You would think despite the closeness of the polls that we still are going to see Democrats retake the White House.

Given all that you know about election-year patterns, how would you expect stocks to perform through the election and for the rest of the year?
Election years are traditionally up years. Incumbent administrations shamelessly attempt to massage the economy so voters will keep them in power. But sometimes overpowering events occur and the market crumbles, as it did last week. The bailing-out was too little, too late, and I think we’re going to continue to have market weakness through October. Once we have the settlement on the election, the market would be more inclined to be happy.

Stock traders can talk about numbers all they want. But it’s emotions that move the market. Anyone who spent last week checking their 401(k), biting their nails, calling their broker and selling everything already knows that.

Now researchers are getting more focused on exactly how investors let their moods move their money. “There is an important relationship between emotional intelligence and investment behavior,” says John Ameriks, of Vanguard Investments. He’s seen investors engage in a host of self-defeating, psychologically driven behaviors.

Sometimes they simply freeze in the face of market turmoil. Or they trade too much. They fall in love with loser stocks they have chosen, and refuse to sell them until they’ve recovered—which may never happen. They follow the pack in and out of tech firms, real estate, oil-company stocks and the Dow, rationalizing that it’s safer to stay with the crowd. They bounce between fear and greed, buying high and selling low. People who are emotional tend to trade more often than people who are emotionally controlled, says Ameriks, and all that trading tends to be unprofitable.

Car sales are flat, dealers are hungry and the price of gasoline is still threatening to revisit the $4-a-gallon levels it saw in July. Does that make it an ideal time to sell the clunker and spring for a fuel-efficient hybrid?

Maybe not. It’s true that as gas prices rise, hybrids will pay for themselves more quickly than they used to. But the combination of getting a low price when you trade or sell your existing car and the extra amount you’ll pay for a hybrid means it’s probably more cost-effective to keep the heap for a while longer. Even if you need a new car, you’d probably be better off buying a regular-engine compact car instead of a hybrid, suggests Jesse Toprak of Edmunds.com. Those regular compacts are almost as fuel-efficient as most hybrids and cost far less. The best candidates for saving money on hybrids are people who drive at least 15,000 miles a year, mostly in city traffic, and “keep a car until the wheels fall off,” says Toprak.

Don’t worry, get busy. These sites will help you figure out how to respond to the Wall Street tumult and how safe your money is now.

• fdic.gov/edie: Use the calculator at this site to see how much of your bank deposits are insured.
• sipc.org: Yes, your brokerage accounts are covered, to a point. The Securities Investor Protection Corp. lays it out.
• naic.org: Find your state’s insurance rules and guarantees via the National Association of Insurance Commissioners Web site.
• finra.org: The brokerage industry’s own cop explains what to do if your broker gets sold or goes belly up.
• treasurydirect.gov: Feel like fleeing to safety? Here’s where you can buy Treasury bills and bonds.

A number of companies are starting to offer consumers free peeks at their credit scores, and not just their credit reports. That’s handy because it’s the score that lenders use to decide how much to charge in interest and whether to approve you for loans or credit cards.

You can get free credit scores at eloan.com, creditkarma.com and credit.com. The hitch is that they offer scores devised by the credit-reporting companies, mostly Trans-Union and Experian, and not the most widely used score developed by Fair Isaac Corp. (FICO). It will still cost you $16 to get a copy of your FICO score at myfico.com.

Why bother? If you’re getting ready to borrow money, your score can make a big difference—particularly in the current tight economy. A high score (760, say) can save you about $250 a month in interest over a middling (650) score on a 30-year fixed rate $300,000 mortgage.

Vacation-home owners are about to lose a sizable tax break. Until now, they could move to their retreat, live in it for two years, then sell and take full advantage of the capital-gains exclusion of up to $500,000 per couple ($250,000 for singles) that applies to primary homes. But Washington closed that loophole in the housing-relief legislation that passed this summer.

Under the new rules, that exclusion will be prorated by the amount of time the owner actually used the home as a primary residence. So if you owned the home for 10 years, but lived in it only the last two, you’d be able to exclude 20 percent of the gain.

Illustration: Mark Matcho for Newsweek

Working part time can be good for your life and your checking account. But you need to know how to do it.

Louise Richardson of Parker, Colo., likes to work. But with four teenagers in her house and a firefighter for a husband, she prefers to do it part time. Through a placement service called 10 til 2, she landed a 15-hour-a-week job as an event planner. “It’s given us more financial freedom. My kids don’t see me as the person who cooks and cleans all day. But they also see that my family is my priority,” she says. “It allows you to have that balance between work and family.”

More than 25 million Americans—twice as many women as men—work part time. They’re moms, dads, retirees and people who are sick of the rat race. Employers are making it easier to work fewer hours: 36 percent now give employees the chance to work part time, according to a survey of 90 employers released last week by Hewitt Associates, a human-resources consulting company. The survey also found that 31 percent of employers now offer flextime, 46 percent permit job sharing and 39 percent allow telecommuting. TIP SHEET gives some tips on how to work part time successfully:

Click, Save: More than 1,100 bloggers are devoting their Web space to family frugality
Illustration: Alex Nabaum for Newsweek

Cheap is the new cool, and just in the nick of time. Economic worries, $4-a-gallon gas, a weak job market and stuck salaries are scaring everyone into taking another look at their expenses. Happily, much of the belt-tightening can be painless if done right. Here’s how to run your own squeeze play.

Go for the big bucks first. Insurance is in a category that Greg Karp, author of “Living Rich by Spending Smart” (FT Press. $17.99), calls “low-hanging fruit.” It’s easy to pluck big savings from your policies by raising your deductibles, comparison-shopping all your policies at least once a year, turning to one company for your auto and homeowner’s insurance, and using all the safe-driver, good-student, home-security-system discounts you have coming to you. Raise the deductibles on your car insurance from $200 to $1,000 and you can save as much as 40 percent on your premiums. Do the same with your homeowner’s insurance, and set the savings aside to cover the higher deductibles.

Control your electronics. If you “need” a full menu of cable channels, a home phone and high-speed Internet, you can probably save hundreds of dollars a year by bundling all your services and getting competitive quotes from your local cable and phone companies, says Consumer Reports. You can often find a $99-a-month deal for all three. But if you break up that bundle and really focus on the services you need, you might save more. You can cut your cell-phone bill with a prepaid phone deal, or ramp up your cell-phone use and cut your landline altogether. You can use an Internet-based phone service like skype.com ($3 per month) or magicjack.com (a one-time $40 device fee) instead of placing long-distance calls from your home phone. Every six months, call your phone and cable companies to ask if they have cheaper plans.

Focus on food. There are two different approaches to saving on groceries. The Sara Brady way involves downloading coupons from sites like hotcouponworld.com, shopping the local sales and pairing coupons to low prices in a way that’s so artful she’ll get $21 worth of goods, plus $17 in coupons back, for spending $11. This requires spreadsheets, a couple of hours of comparing items, three to five shopping trips a week, and the discipline not to stock up on stuff you don’t want just because you have a coupon. Mary Webber of frugalfamilykitchen.com goes the other way, advocating a less-shopping-is-better approach. She goes to the grocery once every other week and steers clear of packaged and processed foods.

Cut your restaurant budget. It’s one of the biggest money pits. The average household spends almost half its $6,000 annual food budget eating out. Put prepared meals in the freezer and skip the stop for rotisserie chicken. When you do eat out, use coupons from sites like entertainment.com and restaurant.com. And, you’ve heard it before, but here’s one more try: brew your own coffee. You can buy a nice travel cup for the cost of two overpriced lattes. By the end of your first week, you’ll have $15 extra that you can take to the bank.

• Leave your retirement account alone. Chances are, you’re already in diversified mutual funds that will moderate your losses, so don’t sell in fear, says Jane King, of Fairfield Financial Advisors in Wellesley, Mass. Rather, keep buying into today’s cheaper market by continuing your regular contributions.

• Lock in tax losses now. If you’re losing money on stocks outside of tax-protected retirement accounts, sell shares on bad days. You’ll be able to use those losses to cut your 2008 taxes. Don’t buy the same security back for at least 31 days, to protect that tax break.

By Linda Stern 

If you missed your chance five years ago, this might be a good time to refinance your home mortgage. The credit crunch has paradoxically produced the lowest interest rates in years. Rates on 30-year loans are below 6 percent, and 15-year loans are skirting the 5 percent level.

A refi now should appeal to three groups in particular: those who have dangerous interest-only or negative-amortization mortgages, those whose credit scores have improved significantly since they got the loans they have now and those whose variable loans reset last summer to 7 percent or higher.

Folks who have big loans— so-called jumbo mortgages of more than $417,000—should wait and see. The federal stimulus package is supposed to help rates on those loans, but that effect may not kick in until spring.

“Activity around college campuses will really hold up, better than the market as a whole,” says Walter Molony, a spokesman for the National Association of Realtors. “It’s driven by supply and demand.” College enrollment has been growing twice as fast as the general population, and more students are taking five years to graduate. Juxtapose that wave with the supply of aging and “barracks-like” dorms, and you have a great niche for investment, says Michael Dowd of Millennium Credit Markets, a Boston firm that arranges financing for privately owned dorm buildings.