Journal MoneyLine columnist Neil Downing answered questions from readers Friday during an online chat at projo.com. Here’s a transcript of the conversation:

Q: Do I need to worry about Schwab and Vanguard or their money market funds? I am retired and have my savings mostly there, in CDs (under the FDIC insurance limit) and their money market and cash sweep funds.

A: If you have money invested at Vanguard, Schwab or another such mutual fund complex, you need to keep in mind that your account is held separately from the general assets (and liabilities) of the company itself. Thus, if the mutual fund or brokerage complex were to somehow fail, your assets would be protected. You’ve raised another question, regarding money market funds. Nearly all such funds have never had a problem; a few have — especially in this environment. It’s important to keep in mind that money market funds are not federally insured, but have been a safe haven — by and large.

Q: With banks combining, what happens if you have a CD in each of two banks under the FDIC insurance limit, and then the banks combine putting you over the FDIC limit?

A: This has happened repeatedly over the years as Rhode Island financial institutions have consolidated. What if it happens again? The combined bank would give you a lengthy grace period. During that time, you’d be all set — your CDs would be fully insured, as if you had the money on deposit at two institutions. At some point, however, you’d have to rearrange your deposits so that they would fall under federal deposit insurance limits for a single institution.

Q: Is there any safe way to invest my money these days?

A: I don’t mean to sound flip, but the stock market — and financial markets as a whole — do go through boom and bust cycles. There’s no way to know when the top — or bottom — will be reached. So it’s best not to try to time the market. Instead, invest regularly over time, and make sure you don’t put all your eggs in one basket. It also means diversifying. So, for instance, you’d want to have a portion of your investment portfolio in stocks (“equities”), and a portion in bonds. Expect that the invested assets are going to go up and down in value over time. Also, you’d want to establish a separate fund or account for emergencies — a job loss, a roof repair, that sort of thing. If you simply can’t sleep at night, stick all your money in something ultra safe, like short-term Treasury securities.

Q: I’m worried that all these government bailouts are really going to hurt the middle class now and our kids in the future. Are any of these actions going to eventually MAKE money for the little guys?

A: When financial markets become unstable, as they have lately, governments must intervene. That’s what happened with the insurance giant AIG. It’s also behind the comprehensive plan that the Treasury is in the process of crafting. Such bailouts will eventually cost the Treasury money — and that means taxpayers. Thus, in the long term, we will have to pay — and so will our children and grandchildren, as we pay off long-term government debt. But what’s the alternative — allowing financial giants to collapse? That would have an immediate and painful impact on everyone. Government bailouts tend to spread the pain out over decades. The real answer here is to make sure these things don’t happen again, but I’m not sure that’s possible. As for making money, well, Uncle Sam made money off of the bailout of Chrysler and some other big organizations. My bet is that the government will make money off of the AIG bailout, too. (I’m not sure, though, whether the Fannie Mae, Freddie Mac and Bear Stearns deals will bear such fruit.)

Q: I hear my mortgage company may be sold. How should I prepare myself? Or do I need to not worry?

A: In the olden days, you got your mortgage loan from a local bank or credit union. The local outfit kept the loan in its portfolio and provided servicing on it, too. But at many outfits, that’s changed. They now sell the mortgages to larger institutions. Those institutions, in turn, package them for sale as securities for big investors to buy. The servicing typically takes place from afar. So for you, it’s either one toll-free number or another. I wouldn’t worry. (My wife and I are lucky — we have our mortgage through a local credit union that holds the loan and provides the service. Our job is to make the payments — on time!)

Q: Would you advise folks to withdraw (close) their money market accounts today?

A: First, I need to make the distinction between money market accounts and money market mutual funds. Money market accounts are typically available at banks and credit unions and are federally insured (assuming you stay within federal insurance limits). Money market mutual funds are typically offered through brokerages and mutual fund complexes. The money market mutual funds are not federally insured, no matter what anyone tells you. They aim to keep the net asset value $1, and nearly all have done that and continue to do that, no matter the ups and downs of the economy. But a few have encountered a bit of trouble lately. If you’re really worried, there are two basic options: First, make sure your fund is with a giant that is so big that the giant will bail out the fund if needed (or the giant is so big, the government will bail it out if needed!). Second, if you’re really worried, make sure you invest in a fund that invests in something considered rock solid, such as short-term U.S. Treasury securities.

Q: What about my 401(k)? I am down 18 percent. I put in 8 percent of my pay weekly. Should I down my contribution to 6 percent? That is as low as I can go without losing the company match.

A: I think you’re right on target, contributing enough every period to get the company match. That way, you’re not leaving any money on the table. But why cut down your contribution from its current level? I say, keep investing, and make sure the underlying investments are well diversified. I have a 401(k). I’m 52 years old. I don’t expect to have to touch the account for another 15 or 20 years from now, if I’m lucky. By then, all of the current financial events will have passed. Bottom line: markets go up and down. The idea is that the value of your investments will be higher down the road, so you invest for the long haul.

Q: I have been thinking about buying some vacation property for a while now — something that I could rent out. I would have to tap in to my equity line of credit for the down payment. With it being a buyers market right now, do you think it is a wise investment? I am about 10 years away from retirement and would be using this as another way to diversify.

A: The market really needs you! Until home prices stabilize, the problems besetting the market won’t go away. So it’d be nice to see you step up and buy. But seriously, don’t do it for the good of the market; do it only if it makes long-term sense for you. I wouldn’t try to time the real estate market. But if I had the cash, I’d certainly be taking a tour of vacation areas, comparing prices, seeing if there were something available in my budget and price range. Also, you might want to think about buying vacation rental property, which could generate some tax breaks. At least get out during these lovely fall days and poke around.

Q: I keep seeing my retirement account go down and down .... although I have another 12 to 15 years to work I was thinking of going 100 percent conservative. My adviser says no because I am buying low. ... Do you agree with this?

A: I don’t know that you’re buying low. No one knows how low or high the market will go. So your best bet is to simply invest a little at a time over a long period of time. That way, you average out your prices. I certainly would not go all conservative. The reason is that people are living longer than they used to. Odds are you won’t need to tap your entire 401(k) account the very minute you retire; you’ll need it to keep generating for you over one, two or three decades after retirement. Also, in planning how to invest your 401(k), don’t forget to take into account your other investments and how they are positioned. By the way, I congratulate you for having consulted your adviser. Other readers should also consider paying a financial adviser for a little of his or her time to address their particular circumstances.

Q: What does a government bailout of troubled investment firms, like AIG, mean to the average taxpayer? Does it depend on the type of bailout? Will there be a trickle-down effect when it comes to paying our own taxes? I mean, where does all this money come from?

A: A few months ago, Uncle Sam showered Rhode Island — and all of America — with federal rebate checks. Where did the money come from? Uncle Sam borrowed the money from investors. The hope was that the rebate would be one tool to try to stimulate the nation’s slumping economy. So that’s the trade-off that Uncle Sam faces — borrowing from the future to try to ensure that the world as we know it today does not collapse. With the current bailouts, the hope is that markets will stabilize and eventually return to normal — and go up, generating additional tax revenue. That revenue can be used to pay down the gigantic federal debt (if we don’t spend the money in the meantime, on the Bridge to Nowhere and stuff like that). So, short answer — the money comes from you and me. We hope it’s a good investment.

Q: So, would I be better off refinancing through a local credit union?

A: I think you asked earlier about having your mortgage switched from one giant to another. You’re used to dealing with giants already, so why not continue? But if it bothers you, you could contact some local banks and credit unions and see if they’d hold your loan in their portfolio and service it locally. But then, you’d have to come up with the money to refinance, and the interest rate and other terms may not make financial sense for you. (Also, who’s to say that your local institution won’t sell your loan later on?) My recommendation is to stay put. Another factor to consider: It’s not clear how soon the current credit crunch will clear, so it’s not clear how quickly you’d be able to arrange for refinancing.

Q: My son will be going to college in two years. We have a 529 plan with some money in it, but most of our college savings is tied up in stocks. Is there a good strategy for slowly pulling that money out so we get the most out of the investments we have?

A: If someone were opening a 529 plan now, with only a two-year time horizon, the idea would be to put the money in something conservative and liquid, such as a short-term government bond fund, assuming the plan offered the option. But in your case, I wouldn’t take any action right now — especially in reaction to the recent turmoil. Why not let the markets calm down. Also, don’t forget that you presumably will have at least four years of education expenses, so you could start withdrawing in the child’s first year, and keep withdrawing after that. (This technique could well be complicated, however, by the cost of the college, financial aid available, and other factors.) Sorry I don’t have a better answer; my wife and I are struggling right now to pay college costs for our sophomore in college.)

Q: We’ve had a lot of comments across the spectrum of opinion this week from projo.com readers. Here’s one that represents a common theme:

“The banks have been loaning money like drunken sailors for the last 5-6 years to ANYBODY who wanted a house. Didn’t matter if you could actually afford one, they were happy to stretch the numbers and make a potentially bad loan. Now all these people from the "me" generation can’t pay their bills and the rest of us, who have been financially responsible HAVE to bail all these bums out."

A: There are many, many people who feel exactly the way you do. And you make a good point. For the truth is that quite a few mortgage brokers and others enticed people to obtain mortgages, people who could not afford them. And let’s not forget the borrowers — a lot of people stepped up and bought who had no business buying. (You buy a house based on your ability to pay, not on the notion that the price will appreciate year-in, year-out.) Also, the lenders and investment banks made big fees packaging these lousy loans and selling them on Wall Street. And now we’re being asked to bail them all out. I sense your frustration. But again, I need to ask: What’s the alternative? Let them eat cake? The problem is so big, and the parts of the economy so interconnected, we can’t just say the heck with it and let it collapse. If that happened, we’d all feel immediate, deep and long-lasting pain.

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