How should investors respond to turmoil?

What is a regular investor to make of the turbulence on Wall Street and in Washington?

Q. Why did the stock market fall so far so fast Monday?

The element of surprise surely didn't help, since everyone was expecting the bailout bill to pass. There may have been a bit of investor disgust thrown in, too, a sense that our representatives in Washington just don't get it.

Fear may be the biggest driver, however – the worry that it may be weeks or longer before companies can get the affordable, short-term loans they need to finance their operations. Without easy access to that money, it's hard to run a profit-making operation on a day-to-day basis, let alone grow over the long haul.

Q. Is any investment truly safe right now?

As long as you trust the U.S. government, sure. Plenty of banks, like HSBC Direct, Capital One and Dollar Savings Direct are offering online savings accounts paying 3.25 to 3.75 percent. These accounts have all the normal FDIC protections. Also, the Treasury Department is currently insuring the holdings of money market mutual funds whose investors had money in the funds as of Sept. 19, as long as the fund company pays to participate.

Q. My retirement portfolio has been wrecked by this. How should I respond?

Continue to save. Big losses mean you'll need that much more time, or good news, to bring your balances back to where they need to be for you to retire comfortably. If your company matches your contributions, this is a great time to take advantage of its largess.

As for whether you should pile into beaten-down stocks, no one knows how much further the markets will fall or how long they'll take to bounce back. But people who move their savings to ultrasafe investments and then leave them there usually miss out on the gains when the markets come back. If you need to do that to sleep at night, then do what you have to do. But unless you have a huge real estate portfolio or an inheritance coming, it may cost you in quality of life come retirement time.

Q. With things looking increasingly gloomy, though, why not allocate extra cash to other types of savings or paying down debt?

This can make a lot of sense. If you're saving for a down payment on a house, you could put enough money in your retirement account to match any employer contribution and then use whatever extra money you have left for the down payment fund, which should be in an ultrasafe account. The same logic goes for a teenager's college fund. There are nice tax breaks on 529 college savings accounts, too.

And yes, paying down debt, especially high-interest credit card debt, is always a good idea, though it's probably best to take advantage of any employer match on retirement savings first.