Safeguarding Your Money

Are there any safe havens left?
If you need money right away, it's the classic things—treasury bills, short-term deposits at the best banks. If the question is more about whether or not investments will be OK, well, it's not universal.

It seems like one supposed safe haven is crumbling after another. People have been advised to look to commodities, emerging markets, money-market funds and so on, but one by one, they're all being called into question.
I think money market funds are still safe. All their investments are short to begin with, and there's now a Treasury guarantee overlaying it. That's one of the programs designed to get us through the crunch. But those other things never struck me as safe. Who can be surprised that commodities or emerging markets are volatile? When it looked like volatility was only on the upside, we may have liked it, but that didn't make them safe. The same could be said for stocks.

Is the definition of safety shifting now? Have we been unreasonable in our expectations for high returns, and are fundamental changes in the system required to downplay the obsession with high returns each quarter?
Yes, that's shifting already. People got used to higher returns. First, we got used to high numbers because inflation was high. Then, we went from stocks being very cheap in the early 1980s and housing being cheap to both being more expensive, so it wasn't unusual to make 15 or 20 percent or more per year. Lost in all that shuffle is a financial truism: Over the long run, stocks return about 9 percent. So, if you're disappointed by 9 or 10 percent, as a prevalent view has been, well, expectations will just have to come down.

What would you recommend people do with their cash now, whether they're working with a long or short time horizon?
The advice I give, I try to take it myself: Don't think you have to make a decision today, don't think it's one single decision. If you're not sure, chop it up into smaller pieces. If you're thinking about stocks, don't put all your stock money to work at once. Make four decisions. Make 10 decisions. Put one-tenth of the money in. Take small steps, so you don't lose sleep over any one step.

Wall Street historian Ron Chernow has expressed concern that the size of these bailouts threatens to tax the federal government's resources so much that they won't be able to achieve their goal of restoring confidence. Do you agree?
I don't. A lot of this is recycling money, not spending money outright. The $700 billion is not spent, gone and never coming back. There will be at least some return on those assets they're buying.

But isn't the concern that most of that money might not come back?
Yes, it hinges on what price gets paid for those assets. There are a lot of smart people trying to figure that out, and the answer is not clear yet. We won't know the net cost of this thing for five years. People worried about the same thing during the Savings and Loan crisis during the 1980s, but the net cost of that turned out not to be as bad because of the recycling.