Put Your Cash to Work: Part II

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(Even with the economic outlook improving, wary investors are still parking more than $3.6 trillion in cash on the sidelines. In this five-part series, we offer tips for making that money productive again.)

Michael Schutzler has seen ugly economic times before: The 47-year-old Seattle career coach lost his shirt in the dot-com bust. But the most recent turmoil has done anything but scare him ? it?s galvanizing him into action. Since April, he?s put about half of his seven-figure nest egg into solid companies that are trading on the cheap, like Disney and Microsoft.

?I had a hot bowling ball in my gut when I jumped back in,? he says, but he?s convinced that he needs to own stocks if he wants to recover in the long run. ?If I keep my money under the mattress, I won?t make up my losses in a million years.?

It?s not as though today?s stock market is giving investors a clear green light. This summer, stocks lost steam after spring?s big rally. Many strategists expect these sharp moves and swift reversals to become the new norm.

Unsettling? Sure. But all the more reason to grit your teeth and get back in, experts say. The key is to invest a bit more selectively, with an eye toward firms that can withstand a prolonged economic downturn with their strong brands, solid businesses and cash-rich balance sheets, like 3M and Cisco Systems.

?What you don?t want to do is throw a Hail Mary pass and take on more risk to catch up,? says Austin, Texas-based financial? adviser Carlos Lowenberg Jr. The good news is these high-quality stocks are still inexpensive, even after the market?s nearly 50 percent run-up. The spring rally was led by riskier firms, like Citigroup and Bank of America, that more than doubled in value.

Planners are also steering investors toward stocks that pay consistent, generous dividends. Veteran investors like Vanguard founder John Bogle say stock prices won?t rise as much as they did during the bull and bubble markets of the past two decades, but dividends will help make up for that. In fact, dividends have historically accounted for 43 percent of the wealth that investors got from stocks.

Global strategists see even greater opportunities abroad. Since those payouts are made in foreign currencies, they also offer a hedge if the dollar weakens further, as Pimco bond guru Bill Gross warns. International stock picking can be tricky, so many planners recommend mutual funds like Matthews Asia Pacific Equity Income and Lord Abbett?s International Dividend Income fund.

Because experts expect the market to stay volatile, many are talking up the value of dollar-cost averaging ? investing in stocks a little at a time over steady intervals. That goes a long way toward blunting the disappointment of buying when prices are high and offers the occasional thrill of getting in near the bottom.

Even the professionals are using the strategy. Since October, John Montgomery, head of the $2.7 billion Bridgeway Asset Management, has started cooking organic meals to rein in the household budget so he can put more into his funds every month. ?You don?t get many lifetime opportunities to invest this cheaply,? he says.

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2009 Coypright The New York Times Syndicate