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The market drops and anxiety soars

By Judy Martel · Bankrate.com
Wednesday, May 26, 2010
Posted: 9 am ET

You probably don't need an official confirmation to know there's a lot of anxiety in the stock market right now. But here's one anyway: It's called the volatility index, (VIX) and it indicates the price investors will pay to insure themselves against big market moves. It's traded on the Chicago Board Options Exchange, and reached its highest level in more than a year last week, after having more than doubled in May. The index was higher still in 2008, but had been on the decline since mid-2009, as we pulled out of the recession.

To find the culprit, you need to look east, to Europe. There are a number of factors involved in the making of this global economic crisis, among them the failure of a 146-year-old Spanish bank, European bank debt of $2.8 trillion, and an uncertain fiscal rescue policy.

As further proof of erosion, European banks are being offered a higher Libor to borrow money. Libor is the rate banks use to lend to each other. When it's higher, it indicates a lower level of trust that the loan will be repaid. And, it can translate into higher borrowing rates for consumers on mortgages and credit cards.

Most experts say the plan of attack against market swings is to make sure you are invested in a balanced portfolio that's appropriate for your age and risk tolerance.  Certainly the concept of risk tolerance doesn't need to be explained since the recent market crash; we've all had that tough lesson in reality.

So tell us: What investment moves are you making during this market seesaw?

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