Remember when you were in college and you never did your laundry? Something came up and you would rummage through the dirty clothes basket to pull out the least dirty, least wrinkled, least smelly shirt to wear at the last minute? Knowing that your mother would be horrified?

Well, that’s what it’s like right now trying to come up with a safe place to park your investments while the market declines. Nothing looks good. With inflation at 3% and money market funds well below that, even cash looks like it needs a good scrub.
I don’t know about you but I could use a little irrational exuberance about now…

 
So what should you do? In past communications I’ve told you to sit tight, make sure you have enough cash on hand and have faith that this too shall pass. But, as Keynes once said, “In the long run… we’re all dead.” Who wants to wait that long for the market to turn around?
Here’s what I think about when I contemplate a lingering world-wide recession:

1. Every single one of us is at theoretical risk of losing our job or having our income cut. No matter what we do and no matter how long we’ve been doing it. Have you planned for that? If you don’t have an emergency fund of 3-6 months of living expenses sitting in the bank, you need to look at where you are spending your money and make that a priority. Some would argue 3-6 months isn’t enough time to find a new job. If you feel that way, make sure your emergency fund reflects your views.

2. What if the market doesn’t return 6-8% over the next few years? Any debt (credit cards, student loan, auto or home loans) that is charging an effective interest rate higher than the 30-year Treasury rate (currently 3.75%) is a candidate for payoff or accelerated pay downs. This doesn’t mean you have to pay off your mortgage tomorrow, but understand your true cost of borrowing. It’s much easier to live within your means when you don’t have any monthly payments.

3. Consider alternative investments in moderation. All that glitters is not gold and even gold is looking a little lackluster lately. Don’t rush to diversify out of plain vanilla stocks and bonds without understanding the risk and potential return of commodities, currency ETFs and managed futures, to name a few. They certainly have a place in many portfolios, but where do they fit in yours?

4. Understand the international piece of your investment portfolio. You may have 20% “international” but is it all in Europe or all in Emerging Markets? Is your international allocation well-diversified globally? When is the last time you looked?

5. Keep saving. Keep putting money into retirement accounts, 529 plans, even your savings account. If the stock market stays flat the next few years, at a minimum this is money you haven’t frittered away that’s now available for your future. And did I mention the old adage, “Buy low, sell high?” You may be buying low for awhile…but it’s still a good plan.
As for wearing that dirty shirt in the basket, you do have a couple of other choices: you can go shopping for a new one or just do a little washing instead.

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