I guess I’m mostly finished with all the talk of the end of our financial world, so I’ll summarize.
During periods of deflation, especially with increasing FUD (fear, uncertainty and doubt), you want to be in cash. During times of low inflation and decreasing FUD, you might want to carefully be in stocks. During times of high inflation, especially with increasing FUD, you want to own stuff.
Cash means currency (the US dollar or something stronger), bank certificates of deposit (because they have very small penalties if you cash them in early), very short term bonds (US treasury bonds and perhaps the municipal bonds of states in good financial shape), and money market funds.
Be careful not to think of bond funds, especially medium or long-term bond funds as cash. The value of bonds goes down when interest rates go up. With interest rates at historical lows, you don’t want to own bond funds or long-term bonds. (I’m trying not to give advice, but, if you are in an intermediate to long-term bond fund or treasuries due in 5 to 30 years, get out quickly.)
If your 401K lets you choose between a stock fund, a bond fund, and a money market fund, then right now you probably want to be in the money market fund. If you think the US economy is improving or showing signs of improvement, then you’d want to choose a stock fund. If you think interest rates are going down, then, and only then, would you choose the bond fund.
So, for now, forget bond funds. Pete