*Facing huge losses, big names on Wall Street are selling themselves, in whole or in part, to other companies.

*The U.S. government has bailed out investment bank Bear Stearns, mortgage finance giants Fannie Mae and Freddie Mac, and insurance behemoth American International Group (AIG).

What's behind this slew of bad news? Several factors are involved, but a key culprit is the subprime mortgage crisis, which resulted in enormous losses suffered by financial institutions.

Yet, you shouldn't confuse the problems of certain financial services providers with the viability of our financial markets as a whole. We still have the most powerful and resilient economy in recorded history, and investment opportunities still abound.

Nonetheless, as an individual investor, you'll find it hard to ignore the recent market turmoil. How should you respond to this level of volatility?

Basically, you have these weapons at your disposal:

*Patience - It's usually not a good idea to let short-term market movements dictate your long-term investment strategy. If the current market decline led you to take a "time out" from investing, you might feel better for a few weeks or months, but you wouldn't be helping yourself achieve your long-term financial objectives. In the past, the market has fallen sharply after a variety of events - wars, assassinations, terrorist attacks, natural disasters, corporate scandals and so on - only to regain its footing and move on to new highs. And since the biggest gains can occur in the early stages of a market turnaround, you could miss out on the possibility for considerable growth if you're sitting on the investment sidelines.

*Diversification - If a market downturn primarily affects just one type of asset, such as domestic stocks, and your portfolio is dominated by that asset, you could take a big hit. But if you broaden your holdings to include international stocks, bonds, Treasury securities, certificates of deposit (CDs) and other investments, you can potentially reduce the effects of market volatility. (Keep in mind that diversification, by itself, cannot guarantee a profit or protect against a loss.)

*Quality - During market downturns, even quality stocks can lose value. But these same stocks have the potential to recover when the market turns around. Look for good, solid companies whose products are competitive and whose management has enunciated a strategy for future growth.

The last few months have been difficult ones for investors, and we may still have some shaky times ahead. But by showing patience, diversifying your holdings and buying quality investments, you can build a strong investment foundation - one that can potentially withstand all sorts of market shocks.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.