One Man's Method for Getting Through the Current Economic Conditions

Andrew Tobias - Money and Other Subjects

However hard it is to know how to navigate these waters, one thing is simple and applies to everyone: live frugally, light on the land, saving for the future, and recognizing that many of the best things in life are free, or nearly so.

Hence it makes sense, I think, to spread your money—if you’re fortunate enough to have enough to spread—over the “four prongs” I have written about from time to time: some cash/liquid money first (money-market funds, T-bills, whatever); an inflation hedge in case the world reflates (your home, stocks over the long run, though inflation would kill most stocks at first); a deflation hedge (long-term Treasuries); and a “prosperity hedge” in case we really have already hit bottom (stocks). How you best weight these prongs depends on your own circumstances (80-year-old widows and 29-year-old eye surgeons are not the same) and your own view of what might happen (or at least your own view of how unhappy you would be if certain things happened, so you can try to stay within your tolerance for pain).

So it's all about asset allocation. Here's the plan, in step form:

1. Liquidity (Cash)
2. Inflation hedge (real estate -- there may never be a better time to buy some)
   
3. Deflation hedge (US Treasuries)
   
4. Prosperity -- or "muddle through" -- (Stocks)

It may be easiest, and most prudent, to split out your allocations 4 equal ways -- 25 percent cash, 25 percent real estate (your house qualifies, but only that portion above which you'd be paying rent), 25 percent in safe US bonds, and 25 percent in a stock index.