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Tumultuous times always start investors wondering if they should change the mix in their portfolios. Should they reweight to interest-bearing investments or switch to defensive stocks? What’s safe when the world’s largest economy is in crisis and threatening to take the rest of us into recession?

If fortune favors the brave, now might be a great time to get into the share market or top up your equity holdings. Prices are low, dividend yields higher and history shows that markets always recover and reward those who bought in immediately after a slump. The picture this time around is not so clear, however. Even those who see good value in shares say they could still fall further and some of the traditional safe haven stocks have lost their defensive qualities.

Cash offers safety and with the cash rate at 7 per cent and internet savings accounts offering around that level, the returns are reasonable. However, the days of high rates are numbered as inflation pressures ease and central banks pour money into the system to encourage stability. The Reserve Bank’s rate cut in early September, the first in seven years, was seen as the first of more to come and is making interest-bearing securities less attractive.

Property, another safe haven, has become murkier since listed property trusts geared up and went off shore. Tony Veale, executive chairman of fund manager GDI Property, believes nervousness about listed trusts will continue for some time because it is so difficult for investors to work out exactly what is in them. He warns investors to be cautious despite the attractive yields. Veale believes “plain vanilla” property trusts, and property syndicates, will make a comeback but says until then, investors will swing back to owning property directly.

He says there are opportunities because there are fewer buyers in the market. Institutions are suddenly overweight in property because the value of their stock holdings has fallen, listed trusts aren’t buying, and banks are cautious about lending. “We have bought a couple of office buildings this year with yields of 10 per cent plus, last year that was impossible,” says Veale.

He says it is a good time for investors with access to funds, a message that applies to the stock market as companies find it harder to get credit and those carrying a high debt fall from favor. If the economy looks headed for a recession, the defensive stocks will shine again on the basis that people still buy food and alcohol, gamble even when money is tight and that utility bills don’t change much.

Many utility and infrastructure stocks are carrying too much debt to be considered defensive according to Helen Breier, investment officer with Lachlan Wealth Management. However, she likes Origin and AGL, which have utility operations as well as exploration arms. Telstra is cheaper after its recent dip and telecoms are as recession-proof as any of the other defensives, says Breier.

Investors who see food as defensive generally buy the retailers in Australia, as there are few other choices. Wesfarmers, the owner of Coles supermarkets, is not a pure food play and has fallen because of its debt and exposure to the lower coal price. Breier says that Metcash is comparatively cheaper than the sector favorite, Woolworths, and is often overlooked despite being a significant player in the grocery market through its IGA brand.

Gold has reinforced its reputation as a safe haven in recent weeks. Apart from buying the major producers such as Newcrest or Lihir, or derivatives, investors can buy a gold bullion security on the Australian Stock Exchange, which offers a share in gold bullion held in a London vault. However, Breier warns that in a volatile market such as this, gold stocks could fall quickly if sentiment turns and financial stocks rebound.

Commodity Warrants Australia’s managing director, Peter McGuire, says interest in commodities has picked up. “I think the nervousness from the equity and property markets is making people aware of the commodity sector – from international hedge funds to the retail investors,” he says. “What has happened has made people aware that the commodity sector is alive and kicking.” Gold metals and oil have stood out among the commodities. McGuire says the soft (food) commodities have not recovered to their highs but prices are still robust and he sees precious metals continuing to rise.

Russell Investments strategist Andrew Pease says it is a classic rule of investment that investors are the most confident when the risk is the greatest and points to the high stock market in the middle of last year as an example of investors pouring in just before prices began to weaken. “Now when the market has fallen by a third everyone is fearful.”

Yet Pease says that although stocks may drop further, investors with anything more than a six-month time frame may well look back at 2008 as one of the great entry points to the share market. He says the current environment shows the benefits of a diversified long term asset allocation plan and the best strategy for investors now is to stick to their investment plan.