How To Prepare For the Storm We Hope Won't Hit Us

With a new round of "quantitative easing" (printing new money so the Federal Reserve Bank can buy US Treasury Bonds that investors and China don't want to buy at such low interest rates) threatening to cause potentially crushing inflation, albeit while it is intended to fight-off looming near-term DEflation, Americans and others around the world are afraid.

Rightly so, as this could get ugly. It's a big storm brewing, but we don't know if it will hit us or pass us by. For those who want to prepare for it hitting us, here are some action items I recommend:

1) Make sure you have life and disability insurance enough to pay the bills for the family if you die or can't earn your living any more.

2) Pay-down or pay-off any credit cards and personal loans, including 2nd mortgages and HELOCs.

3) If you accomplish #2 above, then build-up cash reserves, preferably a year's worth of necessary family living expenses (food, shelter, transportation, health insurance and medicine, but no need to budget, in this case, for vacations and clothes and spa treatments).

4) If you have investments, diversify globally; 50% of your stocks/stock-mutual-funds should be investing in foreign developed and emerging markets, and same with your bonds/bond-mutual-funds.

5) To make #4 really work, do not use index funds or even traditional style-pure mutual funds; find global and flexible mutual funds with consistent management and outstanding long-term track records--the best among them were down only 25% or less during the 2008 40% market crash, and many were actually UP during the early-2009 market crash, and they have kept-up pretty well during the post-March 2009 market rally; these funds also often invest in currencies and commodities better than most of us ever could.

6) Be prepared to do radical things, like the adult children moving home, or the elderly grandparents moving-in.

7) Stay optimistic. There are some good signs. Ford Motor Company has made an astonishing turn-around, so other manufacturers can also.

8) Take prudent advantage of current low interest rates--re-finance your house and investment properties, buy that new car if you need to, consolidate debt you can't pay-off.

9) Make sure you have that cushion described in #2 and #3 above.

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