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Amid debt default worries, investors should keep calm, carry on

Washington's government shutdown is threatening to morph into something far worse—a government debt default that some believe could plunge the nation into a crippling depression.

For ordinary Americans, that worst-case scenario could mean tumbling stock markets, a possible interruption in Social Security and Medicare payments and substantial losses in bonds, where regular investors have piled the vast majority of their cash over the past decade.

The reality is likely to be something less extreme -- though still disruptive.

Financial pros say now's a good time for investors of all stripes and at all stages of life to think about using the lessons learned since the financial crisis of 2008 to help protect their money.

Lesson No. 1 is: Keep calm and carry on.

(Read more: First a default, then a depression? Some think so)  

"Investors should not panic and should stay the course, remaining focused on their strategic asset allocations," Ashvin Chhabra, chief investment officer at Merrill Lynch Wealth Management, said in a report for clients.

"We urge investors to distinguish between political posturing that may lead to short-term market volatility and those decisions that may have implications for long-term returns," he said.

Few analysts or economists believe even the current batch of Washington warriors would allow a default to happen. So making rash investing decisions based on scary headlines could have severe consequences.

Once you’re calm and collected, then you can make rational decisions, which should revolve around some basic ideas: Have enough cash to carry you through the rough times, cut your debt and take a close look at how you have allocated your investments.

The goal is to have a portfolio of investments, whether it’s in your 401(k) or in individual stocks, bonds and cash, which reflect your appetite for risk and the reality of a dysfunctional Washington.

(Read more: Washington baits, Wall St. doesn't bite on panic)  

Dump the debt, raise the cash
Just as many think Washington needs to go on a debt diet, so should individual Americans. Even though consumers have been more cautious about using their credit cards amid the slow recovery, they have still been taking on more debt to purchase cars and to go back to school.

"People need, on an individual basis, to continuously reduce their personal levels of debt," said Julie Murphy Casserly, president of JMC Wealth Management in Chicago. "People today for the most part don't have adequate short-term buckets to move through stuff like the things going on in Washington."

At the same time, people should think about increasing the amount of cash they have on hand to weather hard times.

For generations, financial advisors have said clients should hold four to six months of cash to brace against unforeseen crises.

Casserly said she thinks the new paradigm could be twice that—or more.

"Is six months enough? These cycles last much longer now. The average debt crisis takes a decade to clear out of the system. We had the worst ever, so it's going to take more than a decade," she said. "I'm really wanting people to have somewhere between like nine to 15 months."

Of course, many Americans may find it difficult to build up a rainy day fund after years of high unemployment and relatively stagnant wages. The nation’s median household income was $51,107 in 2012, which experts say is about the same as the mid-1990s after adjusting for inflation.

Banking analyst Dick Bove at Rafferty Capital Markets has predicted that a debt default could lead to a full-blown depression. Even though most economists don't expect anything that dire, it's a scenario that can't be dismissed.

In the event of a default, the government could end up having to prioritize which bills it pays and programs it funds with whatever cash it has on hand. The uncertainty serves as a reminder of how important cash is in a post-crisis, dysfunctional-Washington world.

"I'm still shocked at how numb people are to having high debt levels," Casserly said.

What’s the right balance?
Political turmoil in 2013 has included not only the government shutdown and debt ceiling battle but also a series of tax increases and spending cuts that Wall Street analysts and Federal Reserve Chairman Ben Bernanke expected to clobber the economy.

And while growth may be a shade under par, the stock market has roared, sending the S&P 500 index up more than 18 percent since the year began.

The downside of such an aggressive move, though, is that individual portfolios can get out of whack.

A balanced portfolio should reflect investor risk appetite, with a healthy mix of not merely stocks and bonds, but also the different categories within those broad investment classes — domestic vs. international, growth vs. value, high-yield bonds vs. investment grade, just to name a few.

As part of that rebalance process, investors may want to take a fresh look at international markets.

U.S.-centric stocks have been dominating the landscape for the past two years as Europe has meandered through its debt crisis and China's economy has slowed.

That trend has changed over the past quarter or so, with many foreign markets doing quite well. Investors can play global markets easily through exchange-traded funds that track market indexes.

"While September was a good month for U.S. stocks, it was even better (for) international markets," Bespoke Investment Group said in an analysis.

Get protection
Those with a shorter-term time frame have a variety of means to insure against quick market downturns.

The CBOE Volatility Index, commonly known as the VIX, allows investors to buy options that pay off in the event the market declines. A basic put option on the S&P 500—the ability to sell the index at a designated price point—is also an easy way to get better sleep in the event of a near-term market downturn.

Patience, though, can sometimes be the ultimate portfolio protection.

(Read more: Get out the rally hats: Shutdowns are bullish!

Incorporating all the lessons above, especially not panicking, can pay off in times of turmoil.

Quincy Krosby, chief market strategist at Prudential Annuities, said the clear signal from the markets is that a default is not going to happen.

"It behooves investors to take precaution," Krosby said. "But the overriding thinking is they want to take advantage of a buying opportunity."