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With times as tough as they are, it's more important than ever to make the right decisions about saving and investing for your retirement. Yet many people are either avoiding stocks entirely or picking flashy, high-risk stocks that could crash and burn at any moment. Unless they change their ways soon, both groups will cause irreversible damage to their financial future.

Post-crash syndrome
It's no surprise that after all the problems in the financial markets over the past two years, investors still feel shellshocked about their investments right now. Looking back to late 2007, it hardly seemed possible that major stock indexes like the S&P 500 could lose well over half their value within 18 months. Regardless of warnings about the risks of owning stocks, few investors really grasped the possibility until it actually happened.

Now, it seems as though many investors have taken their toys and gone home, dumping their stocks and sticking with bonds and cash. Meanwhile, others look at the rally and wonder if they shouldn't be greedy and get while the getting is good. Unfortunately, either misstep could lead to financial disaster. The right answer is somewhere in the middle.

This one's too safe
Confronted with huge losses in the stock market during 2008, you may have asked one simple question: is anything going up? At the time, there was pretty much one answer: Treasury bonds.

In response, investors loaded up on bonds and bond mutual funds during 2009. In particular, bond funds set a record for net inflows, with nearly $400 billion moving into fixed-income funds and ETFs last year.

There's no denying that bonds give investors more certainty than stocks. With bonds, you know when and how much you'll get in interest every year and how much you'll get repaid when the bond matures. With stocks, you can never be certain you'll get anything back, let alone how much.

If you're already close to or in retirement and have more than enough money squirreled away in savings, then you might be able to afford to move most of your money into bonds. But what high-quality bonds won't do is help your money grow. So if you're like the vast majority of investors who still need at least some growth in their portfolios, bonds won't cut it. You can't afford to give up on stocks.

This one's too risky
That said, gambling on the wrong stocks isn't the right move either. But given the way things turned out last year, you may think otherwise. Those who were willing to put their entire investment at risk in bankruptcy-threatened stocks like Sirius XM Radio (Nasdaq: SIRI  ) and Ford Motor (NYSE: F  ) were richly rewarded, as predictions of financial armageddon didn't come to pass.

I'm not saying that all of those high-risk stocks are bad investments right now. But you won't see the same performance from them in the future, if for no other reason than that they've already seen such huge gains. For Ford to go from $1 to over $10 per share is one thing, but you can't realistically expect to see its shares at $100 anytime soon. The easy money has been made, and so those who expect to duplicate those returns year in and year out are deluding themselves.

5 stocks that are just right
That's why more conservative stocks might be the right play right now. Blue-chip companies like Procter & Gamble (NYSE: PG  ) and Wal-Mart (NYSE: WMT  ) , both of which held up reasonably well during the worst of the financial meltdown, have failed to keep up with the overall market in the current rally. Similarly, many steady dividend-paying stocks, like PepsiCo (NYSE: PEP  ) , AT&T (NYSE: T  ) , and Waste Management (NYSE: WM  ) , have also lagged behind the S&P's gains over the past year -- and they also offer attractive yields to investors.

Sure, a conservative approach may not seem exciting right now. You probably won't see your stocks double or triple in the next year, as many investors saw with riskier stocks last year. But conversely, you also probably won't lose your shirt if stocks start to fall again -- and with all the uncertainty in the market right now, there's every reason to think a correction may come sooner than later.

As tough as things are right now, though, make sure to take a measured approach to investing. Don't let uncertainty scare you out of the market, but don't let a false sense of security persuaded you to take big risks that you can't really afford.

Believe it or not, ordinary investors did a lot better during the past decade than you might think. Find out how they did it -- and how you can too -- by clicking here.

Fool contributor Dan Caplinger never finds money-making stocks boring. He doesn't own shares of the companies mentioned in this article. Waste Management and Wal-Mart are Motley Fool Inside Value picks. Ford Motor is a Motley Fool Stock Advisor recommendation. PepsiCo, Procter & Gamble, and Waste Management are Motley Fool Income Investor picks. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy won't bore you with the details.

Read/Post Comments (19) | Recommend This Article (76)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 03, 2010, at 1:25 PM, SuperJack62 wrote:

    A feeble, feeble attempt to slow Siri down. Rather sad too that people like this are turned loose and allowed to insult sophisticated investors. Probably was paid $75. for this article.

  • Report this Comment On February 03, 2010, at 6:03 PM, RobertC314 wrote:

    *Raises eyebrow at SuperJack*... Really? Unlike what some people think (and what I predict the following comments will seem to suggest), the world does not revolve around SiriusXM. As the article points out, it, like Ford, was a risky investment when companies were going bankrupt left and right.

    A good article, but I would have difficulty investing in AT&T right now. Services are getting cheaper, margins are getting squeezed, and they are no longer poised to make up for it with increased usage.

  • Report this Comment On February 03, 2010, at 6:17 PM, goalie37 wrote:

    The bond market right now is a huge game of chicken. Traders are trying to ride it until the very last minute. As Fools know, market timing is dangerous. These same people who became gun shy after stocks went down are about to go through a very familiar experience.

  • Report this Comment On February 03, 2010, at 6:54 PM, tafter wrote:

    1st of all, Ford was never in danger of going bankrupt. They didn't need any government money. Siri doesn't have any major loan obligations until 2012. And can any of these literal fools name us 1 company that ever went bankrupt with 18 + million monthly customers?

  • Report this Comment On February 03, 2010, at 8:16 PM, TMFGalagan wrote:

    @tafter asks:

    And can any of these literal fools name us 1 company that ever went bankrupt with 18 + million monthly customers?

    Sure thing. How about Worldcom? Over 20 million customers in 2002.


    dan (TMF Galagan)

  • Report this Comment On February 03, 2010, at 8:18 PM, TMFEditorsDesk wrote:


    WorldCom had around 20 million residential subscribers when it went bankrupt.

    -Anand (TMFBomb)

  • Report this Comment On February 03, 2010, at 8:18 PM, TMFEditorsDesk wrote:

    @TMF Galagan,

    Haha. We must have been posting concurrently, my Foolish friend.

    -Anand (TMFBomb)

  • Report this Comment On February 03, 2010, at 8:19 PM, cmfhousel wrote:

    AIG had over 75 million customers.

  • Report this Comment On February 03, 2010, at 10:24 PM, olee100 wrote:

    Re robertc314 's comments abut T - yes, and their service is lousy - ask anyone with an iPhone (and I've owned the stock for years)

  • Report this Comment On February 03, 2010, at 11:19 PM, jesse2159 wrote:

    Still pumping Sirus eh? Boy, you must have bought a ton of that stock, then watched it drop like a rock.

  • Report this Comment On February 04, 2010, at 12:12 AM, mrshastri wrote:

    Just buy an etf such as DVY and forget about individual stock selection.

  • Report this Comment On February 04, 2010, at 9:40 AM, gimponthego wrote:

    Bravo, Robert C! That is good stuff!

  • Report this Comment On February 04, 2010, at 11:13 AM, SuperJack62 wrote:

    Look, three TMFs participated in this discussion and they must all be foolish friends who are conspiring.

  • Report this Comment On February 04, 2010, at 1:24 PM, britpick wrote:

    SuperJack, I'm not a TMF but I support all the views expressed by the "say no to SIRI" camp. I tried the product and cancelled - why would I want to pay to listen to something that I get for free? On the other hand I'm happy to say I've got a 6 bagger in Ford and would have happily taken the same in SIRI, but I couldn't bring myself to buy it as I don't believe in the product or the company.

  • Report this Comment On February 04, 2010, at 2:48 PM, TMFGalagan wrote:

    @SuperJack62 -

    If conspiring to give people the facts is a crime, then I'm happy to be guilty as charged. :)


    dan (TMF Galagan)

  • Report this Comment On February 04, 2010, at 8:04 PM, SteveTheInvestor wrote:

    What's with the "@" this and "@" that? Seriously. What is the purpose?

  • Report this Comment On February 04, 2010, at 10:29 PM, TMFGalagan wrote:

    Hey Steve -

    It's borrowed from Twitter, where it's how people typically address each other. Especially in comments like these, the @ can help stand out from the rest of the text.

    Sometimes I just say "hey" or "hi" though.



  • Report this Comment On February 05, 2010, at 6:32 AM, SteveTheInvestor wrote:


    Ok. Got it now. I don't Twitter or I would have known. Thanks.

  • Report this Comment On February 05, 2010, at 2:16 PM, ggrins8317 wrote:

    I agree with the tenet of the article that bond investing is necessary for income and stock investing is necessary for growth. But when investing in bonds buy individual bonds and ladder them whether it's treasuries, corporates or muni's. And please note Treasuries ARE the only true non-correlated investment to stocks. Avoid bond funds and ETF's unless you are buying TIPS.

    I happen to own 4 of the 5 stocks mentioned and they do not all provide growth. WMT has been range bound for years and its dividend (2%) doesn't come close to T (6.7%) which I believe will be a growth opportunity over the next several years. PEP and PG are stars and are necessary core holdings for any portfolio.

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