Q. A recent article suggests that incoming Federal Reserve Chairman Ben Bernanke faces quite a challenge: "a housing-bubble-triggered consumer recession and deflation, exacerbated by foreign flight from the dollar and bonds."

How should that affect my investment decisions?

---D.C., by email from Dallas


A. It shouldn't affect your investment decisions because neither event has happened and may not happen. After years of declining mortgage interest rates and rising home prices--- an environment that is forgiving in the extreme--- we may finally be facing a tougher period. It may not, for instance, be possible to make more money by where you buy your house than by where you work.

Some giddy and witless buyers of houses will get foreclosed.

That's not the same as a bursting housing bubble.

Similarly, while a good case can be made that foreign governments may, repeat may, buy fewer government securities in the future, the conditions that have brought foreign money to be invested in the United States haven't changed. If they change, it will probably be slowly.

Here are the two reasons Dr. Bernanke may have an easier time than many expect:

•  We're still the consumer of first and last resort. The world is a long way from developing a substitute for American buying power. As a consequence, foreign governments need us to maintain political stability. Think China.

•  The United States is the most developed and regulated financial market in the world. We have laws, contracts, property rights, and respect for intellectual property that are the envy of most nations. As a consequence, money that accumulates abroad is likely to continue to see the United States as a safe harbor. Foreigners will invest in our government bonds, and they will also buy expensive houses. Skeptics should listen to the languages spoken in places like Naples Florida and Scottsdale Arizona.

The uncertainties we face call for broad diversification of investments.


Q. We are a retired couple with about $1.15 million in stocks and bonds. We also own a house worth about $350,000 and we have no debt. We are considering placing, at some point, a large part of our savings--- say, $1 million--- into a joint life annuity with increasing payments in order to use up most of our savings if we live as long as the mortality tables predict. I am 71. My wife is 61.

Would there be any advantage in waiting a number of years before buying the annuity? Would this be too risky in that the insurance company paying the annuity could possibly go bankrupt? Are there other problems with this idea?

Our investments are in a variety of index funds, about 50 percent equities, 40 percent bonds, and 10 percent cash.

---W.B., by email from Houston


A. People who retire without a lifetime corporate pension--- a rapidly growing majority--- have good reasons to convert a portion of their savings into a lifetime annuity. The life annuity will provide a guaranteed income. It will eliminate the worry and hassle of investment management. The higher cash flow may also help preserve your remaining investments. So converting a portion of your savings into a life annuity is a good idea.

But the operative word is "portion." Just as keeping all your assets in one conventional portfolio asset--- such as stocks, high yield bonds, or REITs--- increases your risk, so does a commitment to putting all your assets in a single annuity contract, particularly with interest rates so low.

As an alternative, I suggest adding a life annuity to your portfolio this year. Think of it as an extension of your bond portfolio. Then, in a few more years, consider adding another life annuity. Having aged three years your joint life expectancy will be lower and the life annuity income will be higher. In any case, you should continue to keep a major part of your savings in marketable investments because you might need access to cash.