Step One: Protect The Nest Egg

Certificates of deposit (CDs): With the FDIC insuring up to $250,000 ($100,000 for non-retirement accounts after 2009), CDs are safe and offer interest rates higher than Treasury bonds. Consider shorter maturities if you think interest rates will rise. Check each Monday's

Richmond Times-Dispatch Metro Business section to find banks with very competitive CD rates.

Savings, money market, or guaranteed contracts accounts: Banks, such as Capital One, offer online, FDIC-insured savings accounts often yielding 1-2 percentage points more than money market funds. Certain retirement plans offer money market funds and guaranteed, interest-bearing contracts. Though low-yielding, these options may suit the risk-averse. A 2 percent return last year looks very good now. Ensure the money market fund invests in highly rated securities and/or that the guaranteed contract is creditworthy.

GNMAs and FNMAs: Backed by federal guarantees, these bonds pay a higher yield than Treasury bonds, CDs, savings and money market fund accounts. If interest rates stay low, your return will be better. However, be nimble, for if rates rise, you may be stuck with a low interest rate and a declining asset.

Corporate bonds: Corporate bond yields have increased since blue chips such as Lehman Brothers and Wachovia have imploded. Select carefully, prefer highly rated issues, and confirm that the issuing corporation has a strong balance sheet and no toxic debt.

High-yield bonds: These corporate bonds are known as junk bonds. In a recession, they are very risky as the issuing companies could go bankrupt -- and you could lose part or all of your investment.

Convertible bonds: These corporate bonds pay less interest than regular corporate bonds but offer upside if the company's stock appreciates above a set level. The key: stock-price appreciation.

Municipal bonds: There are two types: general obligation (GO) and revenue. GO bonds are for safe money. For example, a Virginia GO is guaranteed by the state of Virginia. Revenue bonds are riskier. A buyer only gets interest and principal if the project associated with the revenue bond succeeds. With many states and municipalities grappling with budget deficits, consider safe money in highly rated GOs only. Also, an insured bond is only as good as the insurance company that backs it.

Bond Mutual Funds: Bond mutual funds generally increase in value when interest rates fall, so the best time to buy is when rates are high and going down. They fall in value when interest rates increase, so now is a risky time to own a fund. Unlike individual bonds, funds do not have a maturity date for a return of your principal, so you are less certain to get your principal back. Many carry expensive annual fees of around 1 percent. If you buy, consider a high quality fund with a yield above money market funds and no exit fees, and sell if rates start to rise. Important: check fund performance in 2008. If a fund posted a double digit loss, it is speculative and not safe.

On the other hand, some commentators are now bullish. The payoff could be high. The Chinese market is off to a great start in 2009. The Dow Jones industrial average, after bottoming in 1932, doubled the next year ($100,000 in 1929 plummeted to $11,000 in 1932 then doubled to $22,000 a year later). Any allocation today is speculative. For safety, wait until the string of bankruptcies ends, interest rates normalize, bailouts cease, corporate profits improve, and the market advances 20 percent or more in what you believe is a sustainable bull trend.

Rule on holding stocks: If you did not already own a stock, would you buy it? If not, get rid of it.

Rule on stock mutual funds: Expect them to go down with their markets, and expect most foreign and U.S. stock funds to move in tandem.

Rule of intelligence: Obtain the one-year, three-year and five-year performances of each stock and bond mutual fund you own, of each fund's category, and of each fund's benchmark index. Demand that each of your funds is beating its category and index.

Preferred Stock: Preferred stock pays relatively high interest. If interest rates go up, the price of the stock will go down, so be nimble enough to exit if interest rates start to rise. Avoid financial or other poorly rated preferred stocks as they could plummet.

I was an avid stock investor from 1992 through 2007. I love my country and believe in the promise of America. I share these ideas so that you can protect your nest egg and invest armed with knowledge.

One last crucial piece of advice: Don't invest with an advisor because you like him. Use critical thinking. Bad investment decisions have real-life consequences.

Jeffrey R. Goodstein, a longtime hedge fund manager who lives in Richmond, has advised on U.S. and foreign stocks, bonds, and mutual funds for more than 20 years. He is also an attorney and published author. Contact him at . Neither the Richmond Times-Dispatch nor the author can or does offer investment advice; you should consult with and solely rely upon your investment advisor.