Dark Days: 10 Money Moves to Make Now

By BRETT ARENDS

Brett Arends: What to buy, what to sell, and other strategies to use this tumult to your advantage.

The markets are waking up to the inevitable.
In Europe, Greece is bust -- the country's short-term bonds yield more than 100%. Here at home, the economy is slowing, Washington is paralyzed, and the Fed is out of bullets.
How much worse will it get? Will the markets crash as they did in 2008? Will the economy tumble into another recession?
Despite the yakking, nobody really knows. Predictions have a very poor track record.
But the present we do know. And here are ten smart money moves you can make right now.
1. Refinance. If you haven't already, now's the time. Mortgage rates are following Treasury yields down and are tumbling below 4%. A good deal.
2. Secure that credit while you can. Were you thinking about getting a credit card? An overdraft facility? A home equity line? There's no time like the present. There's a good chance it's going to get tougher, not easier, ahead.
3. Cut your costs. I hate to be the bearer of the bad news, but financial markets are signalling bad times ahead. They were bad enough already: One middle-aged man in four already lacks a full-time job, a rate not seen since the Depression. Washington is paralyzed, the Fed is out of bullets. Take a tough line with your family budgets. You may need those extra dollars down the road.
4. Sell some inflation-protected bonds. Treasury Inflation-Protected Securities have usually been among my favorite investments, especially for older and more conservative investors. But they've done so well that they no longer offer a good deal. Short-term TIPS now guarantee you will lose purchasing power - even before taxes, and even if we take the official inflation rate at face value. Longer-term TIPS still offer a positive return in real terms, but it's meager.
5. Sell some Treasury bonds. Yes, they've boomed as investors have "rushed to safety." But they work like a seesaw: The higher the price goes, the lower the yield. The ten-year bond now yields 1.75pc, a pitiful amount and far below inflation. Maybe the bonds go even higher from here, and the yields go even lower. It could happen. But at these levels the risks are asymmetric.
6. Sell some small-cap stocks. Yes, they've already fallen a long way: The Russell 2000 index has dropped from 870 a few months ago to 645. And ordinarily I'd rather buy something than sell it after it's fallen. But in this case, the recent fall is deceptive. Small company shares still aren't cheap by historic standards. And they typically suffer most in any slump.
7. Buy blue chips. Looking for something on sale? Try the top of the pile. Top-quality large-cap stocks offer a decent deal no matter what happens. In a slump you can enjoy good dividends. And if the market recovers you'll get a decent capital gain as well.
8. Ramp up 401(k) and IRA contributions. Ramp them up? Yes. If stocks get much cheaper, this will be a great buying opportunity, and you should take advantage. And if the economy gets a lot worse, be aware that in a worse-case scenario money in a 401(k) and an IRA is sheltered from creditors as well as taxes.
9. Fund 529 plans for your children. All of the same arguments for your 401(k) apply to these tax-sheltered college savings accounts, although under federal rules the protection from creditors phases in over two years.
10. Buy gold. Too late? Maybe not. Gold's come down nearly $200 in the panic, as investors liquidate everything. Yet gold is under-owned. Hardly anyone has any, despite the hype. And it is portfolio insurance against exactly this kind of mayhem.