Q. I am a Couch Potato investor. From regular news stories--- and some of your columns--- one might deduce the financial end is near. Should I stay the course or trim the sails?
---F. S., San Antonio, TX

A. The day-to-day news is dismal. You aren’t alone in your concern. I have received more reader mail worrying about a complete economic collapse in the last few months than during any period since I started writing this column in January 1977. We’ve had plenty of things to worry about during those 31 years, and Western civilization is still standing.

The odds are better for staying the course than for “trimming the sails.” Here are a two of the reasons:

First, guessing the future is hazardous at best. Thirty years ago most of the people who were convinced the world was ending sold stocks and bonds to buy gold. Some rode gold up from less than $100 an ounce to more than $800. Then they rode it back down while stocks and bonds soared for years. Interest rates fell, and the price-to-earnings multiples of stocks grew from below the historical average to far above the historical average.

The people who benefited from all this upheaval were the people who stayed the course. They enjoyed a good return with less volatility.

Second, bonds and other fixed-income savings aren’t a haven. With the inflation rate well over the yield on creditworthy securities, the choice for moving from stocks to bonds is a flight from uncertainty to a negative certainty. In stocks you may lose money, but in bonds you are now certain to lose purchasing power.

If you have a choice between “may” and “certain,” choose “may.”

Rather than trim your investments, I suggest trimming your spending plans and buying smart. This means buying used cars instead of new and doing day-to-day shopping very carefully. Low returns and low yields have worked to more than double the value of attentive spending.

Q. My mother is 87, in fair health and has an income of $1,400 a month from Social Security and a small pension. She also owns a $90,000 home, has $250,000 in a Merrill Lynch fund, a $250,000 CD that earned 5.6 percent but expires next week, $225,000 in bonds, and $80,000 in a bank money market account earning about 2 percent.
She needs about $25,000 a year to live now, but will need $36,000 a year when she moves into an assisted-living community. How should she invest her money?---B. M., by email from Dallas, TX

A. You can do some real simplifying here. First, try to get her to move to assisted living now. The most positive reason to do this is that her relationships and support network will be better and more supportive if she enters before having a major health problem.

At that point she can sell her house and eliminate all the maintenance issues associated with owning an older home. The sale proceeds will provide part of the money she would need to buy a 10-year income annuity that will provide her with a monthly income of $1,600 a month for 10 years.

Note that this is NOT a life annuity. Basically, she is lending the insurance company $160,000, and they will pay it back to her in monthly installments of $1,600. This calculates to a yield of 3.7 percent on her investment, plus the return of principal. Added to her Social Security and pension income, it will provide the bulk of the monthly cash she needs.

The remaining $735,000 or so can then be invested in a balanced portfolio that can provide additional income and emergency funds as needed. A simple solution would be to invest in a single balanced fund such as the newly reopened Dodge and Cox Balanced fund (ticker: DODBX), Vanguard Wellington (ticker: VWELX), or Fidelity Puritan (ticker: FPURX). Another alternative is to build one of the Couch Potato Building Block Portfolios with exchange traded funds.