Q:My 401(k) balance has dropped like a rock.  What investments do you recommend?

A : These are difficult times in the market.  The answer depends largely on your time horizon.  If you have some time to wait out the current financial storm, there are some excellent opportunities out there. 

We recommend looking past the valley of the current crisis situation and determining what the world will look like after the storm clouds have passed. 

With this picture in mind, we think that inflation will return sooner than most people think, so investments in TIPS (Treasury Inflation Protected Securities) are undervalued.  Similarly, there are some great values in municipal bonds right now, which are yielding more than U.S. Treasury bonds (which is rare). 

New stock investments in high-quality companies will likely pay off handsomely over time.

Eventually, cash and U.S. Treasuries, which have outperformed other asset classes lately, will lag risk-based assets. 

We would avoid U.S. Treasuries, as you are essentially giving the government a low-interest loan at these yield levels.

Do you have a question that we can answer about your finances, investments or career?  Each month, we will answer questions from our readers in this segment.  If you have a question, send a note to ask@sensiblesteward.com, and check back next month to see if we answer your question in our monthly newsletter.  We look forward to hearing from you.