But seriously:

No, I'm not pitching panic and would caution against rash moves.  A friend of a friend managed, during the 1987 crash, to panic, sell and buy in such a way that he turned a million dollars (his own money) into a half-million in the space of a week.  He was trying to sell along with the rest of the herd, and then wound up buying back in at a peak.  He was weak-minded and a real herd-follower and it cost him.  Not that he learned much from it.

"The basic rule for investors is to never panic," said A.C. Moore, chief investment strategist for Dunvegan Associates Inc. in Santa Barbara.

"And never means never."

"That advice can be hard to stomach when 401(k) plans or personal investment portfolios are taking on water. It may be especially tough today."

"But for investors whose portfolios are properly diversified among stocks, bonds and cash, selling now would lock in losses and reduce the chances that they can profit when the market eventually rebounds."

As to risk due to fraud or bankruptcy at your broker, SIPC covers you for $500,000 of securities that might have gone missing.

now here's my advice:  don't listen to anything that you hear on t.v. especially if the advice is coming from wall street (analyst, strategist, portfolio mgr, etc...)  they only have their own interest at heart.  the idea that you should never panic and always stay invested for the long-term is a wall street canard designed to keep the little guy from getting out when things are bad.  ever wonder why the little guy always gets hit the worst and left holding the bag?  there are times when you should not be invested in stocks.  this is one of them.  the economy is bad and getting worse.  the reverberations from all the financial chaos has not even worked its way through.  the fallout hasn't even hit yet...  how many of these "experts" telling you to "never panic" warned you about the current mess?  none, probably since they were all too busy telling you that the "bottom was in" and that it was time to buy!

neither candidate knows what to do about the current crisis.  obama blames bush (when he should be blaming greenspan) and mccain says it'll never happen again, but doesn't say what he'll do about the current mess.  both candidates made weak, pathetic comments about the fannie and freddie bailouts when it is a complete outrage that any taxpayer money went into those pigs.  there were plenty of options besides bailing them out (nationalizing them)...  but, of course, politicians never want to offer the bitter medicine.  they want to slink off with a few words about protecting homeowners (total b.s.)

The end of Lehman Brothers and Merrill Lynch, two of the largest Wall Street investment banks, one week after the government takeover of the mortgage finance giants Fannie Mae and Freddie Mac, marks a new stage in the convulsive crisis of American capitalism. ...

A sea change is unfolding in the US and world economy that portends a catastrophe of dimensions not seen since the Great Depression of the 1930s.

The fall of icons of American capitalism such as 158-year-old Lehman Brothers and 94-year-old Merrill Lynch can only lead to the further discrediting of the "free market" ideology of the US ruling elite, as well as its political and economic system. The spectacle of giants of capitalism drowning in debt piled up over decades of reckless speculation must inevitably discredit the social class--the American capitalist class--which is responsible for the debacle.

Question: Are investments in mutual funds and accounts at other stock brokerage houses at risk? How does one know if it's time to panic and sell?

it depends. the recent and current wave of failures is primarily associated with huge losses in the sub-prime mortgage market, and the ripple effect it's had.

when you get that annual report, i strongly urge you to skip all the 4-color frou-frou, and go right to the "notes to the financials" section. that's where all the required disclosures are. it is by far the single most important, and interesting, section of the entire report.

in it, there should be various disclosures relating to loans, notes and accounts receivable. as well, investments should be analyzed to see how they're valued; if it isn't by the "mark-to-market" method, the actual vs balance sheet value may be widely disparate amounts.

check and see what your fund is investing in. if it isn't involved in the financial markets, you're probably pretty safe, unless it's heavily vested in the buggy whip industry. in that case, i recommend you sell!

as a rule, diversity = safety. the more diverse a funds investments, the less likely it is to nose dive, if one of them goes belly up.