Bear lairs in a troubled market

"Get me out of here!" It's a cry echoing across the land, as investors pull their money out of the US stock market and look for someplace – any place – to put their money now.

The choice for many has been bank savings accounts. But for those still in the market, the name of the game now is "risk management," says Ralph Acampora, chief technical analyst for investment house Prudential Securities Inc.

If you sell now, experts warn, you violate the cardinal rule of investing: Buy low and sell high.

"It's actually late to be selling now," says Brian Piskorowski, a market commentator also with Prudential. "Better to just grit your teeth and wait this market out." But along the way, you might do a little "cherry picking," he says. That is, make selective investments to keep you afloat, while waiting for a stock-market rebound.

We've looked for some fairly conservative "lairs" that beleaguered investors might enter during this bear market.

Like everything else about today's bear market, the seven steps below designed to protect your portfolio may or may not work:

Balanced mutual funds: Oh sure, they are "stodgy," but over time they can also act as a counterbalance to a declining market, or plod out slow but steady gains in an expanding market. They seldom, if ever, set markets ablaze.

"They're OK – better than giving up on the market entirely," says Russ Kinnel, who heads up equity analysis for Morningstar Inc., in Chicago.

The information firm reports funds in this category are down about 10.5 percent for the year through July 24, compared with a loss of 24 percent for the Standard & Poor's 500 index.

Balanced funds hold a mix of both stocks and bonds. So if stocks sag, like now, the bonds are often up. And ditto if bonds sag and stocks rise.

Mr. Kinnel recommends that investors create their own balanced portfolios by buying a solid stock fund and a solid bond fund. But for those who want to keep it simple, he likes the Dodge & Cox Balanced Fund (800-621-3979), for its strong leadership on both the bond and equity sides. Another pick: the Vanguard Wellington Fund (800-662-7447), which carries low expenses. Both funds would work well inside a tax-sheltered account, such as an IRA or 401(k) plan, he says, otherwise you'll face taxes on dividends and interest income.

For a nonsheltered account, he likes Vanguard Tax Managed Balanced Fund. Reason: The bond component includes municipal bonds, which can escape federal income taxes. The fund management also tries to hold down the tax bill on the stock side.

International stock funds: True, stock markets are down all over the world. But some are down less than others – or are poised for gains. For best returns, think Asia, says Andrew Clark, an analyst with information-firm Lipper Inc., in Denver.

Europe looks troubled at this juncture, he says. Ditto Latin America, given economic uncertainties in Brazil. But Russia and Mexico look inviting for gutsy investors, Mr. Clark says.

When buying, seek mutual funds that invest entirely outside the United States. International funds are unlike "global" funds, which also carry stocks of US firms.

Finally, Clark says, look for funds that "buy domestic-oriented firms, not just large companies that sell heavily to the US."

Larger export-oriented firms will face difficulties in the months ahead as the slumping US dollar ratchets up their costs and lowers their potential returns.

An example of an international fund that has beaten the US stock market: Fidelity Japan Small Company Stock Fund (800-343-3548). It's down about 6 percent this year.

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