Inflation-protected investments never fall from favor even as deflation looms

Q. I have been self-employed for 25 years and have never been comfortable in the stock market. I had some money in mutual funds but pulled it when the economy began to tank. I have a little money in IRAs that I redirected to money market funds for the time being. I know you value Treasury Inflation-Protected Securities. Would it be better for me to go through someone like Edward Jones or to purchase them myself? And, is there any other form of investment you recommend?
F.S., by e-mail

A. What does capitalism have in common with a bicycle? They only work when in motion.

Right now the bicycle of capitalism isn't moving. The consequence is the trust that literally makes the world work has ceased to exist. In this environment the only "safe" place for your money is in US Treasury obligations, and that's where all the money is going, witness the extremely low yields on Treasury securities.

I don't think you, probably a novice investor, should be buying any kind of security in the retail resale market. There is simply too much opportunity to get skinned. What you can do, within the limit of how much you are allowed to buy, is put some money in I Savings Bonds from your taxable accounts and invest in a TIPS fund in your tax-deferred accounts.

TIPS have tumbled in recent months because investors' inflation expectations have fallen dramatically. I still believe, however, that any time you can get a real return, after inflation, of 2 percent, TIPS are a reasonable buy.

We may be deflating at the moment, but government is moving very quickly to "reflate."

Q. I'm 71 and hope to live to at least 90. Should I hold on to my foreign securities? I own Fidelity Spartan International Index fund, currently down about 48 percent, and Vanguard International Equity Index fund and Vanguard Emerging Markets ETF, down about 58 percent. I don't need any more capital losses, because I've got so much to carry forward already.
B.N., Austin, Texas

A. Here are some of the under-recognized "benefits" from this steep decline:

1. Many funds have loss carryforwards and unrealized losses that will eliminate any capital gains distributions for years. This amounts to a de facto tax cut on future returns. That's a good thing. You may not "need" more capital loss carryforwards, but they still make international investing relatively attractive.

2. By selling one broad international fund and buying another, you can realize capital losses and carry them forward to provide tax savings on other income sources, albeit limited to $3,000 a year.

3. International equities are selling at lower valuations than domestics. A ranking of valuations around the world done by the Leuthold Group showed the US market was more expensive than 40 of the 45 ranked markets. That suggests that international equities may offer larger opportunity.

Scott Burns is a syndicated columnist. He can be reached at scott@scottburns.com.