Common financial questions answered

NEW YORK - There seems to be a wide range of reaction to what's happening in the financial sector. Lehman and Merrill Lynch are making headlines, AIG is too, and this is in a time where the U.S. economy has lacked stability for months.

But experts are quick to point out that there's a distinct difference between the U.S. economy's problems and those in a specific sector.

"The key thing to remember here is that the emphasis belongs on the word financial," Forbes.com writes. "The economy is not the problem; lousy lending standards and the excessive use of leverage are the problem."

But plenty of nerves are still frayed. For the average investor though, financial analysts say there is nothing to worry about.

"This really doesn't change the long-term game plan for consumers, such as saving for retirement, college education or other goals," said Greg McBride, senior financial analyst at Bankrate.com, on the BaltimoreSun.com.

Here are some answers to some common questions people have in this period of market instability.

Is there such a thing as a safe investment anymore?

"Your safest type of investment is putting it into a bank account, but this should really only be done with short-term investments," said McBride. "The comparatively low return on bank accounts will not grow the buying power of your nest egg. Also, if you place all your money in savings and checking, you leave yourself at risk for a bank failure."

What happens if the brokerage firm that manages my account goes bankrupt?

Securities that you have bought are still yours, even if your firm goes bankrupt. If anything does go wrong, you are still covered up to $500,000 by the Securities Investor Protection Corp., but only $100,000 of that can be used as cash.

Who should really be worried about these financial firms collapsing?

Really it's the employees and shareholders of the companies that go under, according to McBride. Also "consumers should worry if they spend more money than they make, if they haven't saved money, if they don't have an adequate emergency fund ... and they're not saving for the future," he said.

Should I consider ditching AIG and finding a new insurance policy elsewhere?

"A lot depends on what kind of insurance you talk about," Indiana University professor emeritus of insurance Joseph Belth told Money.com. "If you're talking about life insurance, you have to think about whether you can qualify with a new insurer, if your health has changed. But it's something you have to consider if the ratings decline into the vulnerable range."

Article courtesy of: myfoxprovidence.com