Annette Simon

Sunday, March 9, 2008

What's the best investment strategy during a period of stagflation?

As a defensive measure, it makes sense to increase your emergency savings pool to provide a cushion to draw upon if needed. We recommend keeping enough in savings to cover three to six months of expenses. If you are vulnerable in a downturn, double that.

The best strategy in any market environment is broad diversification. Determining the best allocation of stocks and bonds depends on many factors including:

* Time horizon (When will you need it?).

* Overall resources (Is this all you have, or just one pool?).

* Risk tolerance (Could you survive losing a percentage of your investment?).

As a rule, money needed in the near term and risk-intolerant investors should be invested more heavily in fixed-income securities. Those with investment horizons of more than 10 years, multiple pools of money and high risk tolerance can invest more in stocks.

© 2008 The Washington Post Company