How to Invest Now

By Jean Chatzky

The Dow had run up 10% in the three months ending July 5, and the NASDAQ nearly double that. Which caused a friend of mine to ponder, on her commute home from Manhattan (where much pondering is done), What should I do with my investments? "Last week I told my husband to sell everything because we weren't going to see prices like this for quite some time," she says. "Of course, he didn't. But now I'm not sure that was the right call. I certainly can't tell from the papers." Or magazines.

The economic indicators have been downright schizophrenic. "If you look at GDP and output, you see an economy that isn't doing great, but at least it's O.K., it's growing," says Mark Zandi, chief economist at economy.com "If you look at jobs, the economy stinks."

How can things be so good--and bad--simultaneously? Daniel Mitchell, a UCLA professor of management and public policy, says this sort of clashing data is a hallmark of an economy at a turning point. The lag in job growth only exacerbates the problem. "It takes a while for employers to conclude that [the good news] is real," he says. "They don't want to be caught hiring people and have to lay them off again." The market, however, is a leading indicator. It's betting on recovery.

How on earth are you to read these tea leaves? You can find other information sources, Mitchell suggests. Each month the Conference Board www.conference-board.org publishes an index of 10 leading economic indicators, including new consumer-goods orders and manufacturing hours worked. (The index rose a sharp 1% in May after a slight gain in April.) On the job front, check out hiring firm Manpower manpower.com) whose quarterly surveys ask employers whether they're planning to expand or shrink their staff. (The June release reported the weakest quarter in 12 years.) Or you may decide that daily ignorance is bliss. Says financial adviser Harold Evensky of Coral Gables, Fla.: "Investors should stop thinking about economic news and start investing."

The key is to decide on your asset allocation--how much you want to keep in stocks, in bonds and in cash. Evensky takes his clients' cash needs for the next two years off the top and puts them aside. Then, for the vast majority of his clients, he returns to a mix of 40% bonds and 60% stocks, the default position for most professional pension managers.

But what if you're certain prices are heading south? Sell, says Evensky. That is, if you think you'd be unloading in a panic later. A far better scenario is to find an allocation you can live with and stop trying to read the market. "The world won't go broke," he says. "And if you have a diversified portfolio, you won't go broke. Let the talking heads worry about it." --With reporting by Cybele Weisser

Questions? You can e-mail Jean at moneytalk@moneymail.com

With reporting by Cybele Weisser