Pay dirt: Taking advantage of the economy

Jim Paulsen, chief investment strategist for Wells Capital Management, said having a diversified portfolio of mutual funds saved for retirement should be first on everyone's list. After that, consider so-called consumer discretionary stocks, or retailers that sell goods that aren't necessities. Paulsen likes this area of the market because he questions whether consumers are really going to avoid the malls. Retailers also "don't possess the risk of the financial stocks" that have been affected by subprime mortgage losses.

Certified Financial Planner Marcus Winbush suggests investors look for global trends to follow, such as the demand for food and energy. Although they're "kind of pricey," Winbush of Breneman Winbush and Associates in Rochester thinks investing in commodities is a good long-term play.

Winbush also has tiptoed into the bruised financial services sector, investing in Goldman Sachs because it has less subprime exposure than some of its peers. He also owns Barclays and HSBC because both companies have been "forthright with [subprime-related] write-offs."

It's definitely a buyer's market. And sellers are being more realistic about what their house can fetch in today's market, meaning lower prices and a willingness to negotiate.

Foreclosures have also increased the number of for-sale signs on lawns, and if you're handy, there are plenty of abandoned homes in need of some love. In the first quarter, the median sales price of foreclosed properties was 15.9 percent lower compared with the same quarter in 2006. For traditional properties, the price fell 3.5 percent during that same period, according to research from the Minneapolis Area Association of Realtors.

If you're considering a real estate investment, be realistic about what you can afford in terms of repairs and how many months you can get by without having a tenant. Who wants to be another failed speculator?

Future boat, camper or motorcycle owners will find "there's lots of choice now," said Brian Livingston, co-owner of Midwest Recreational Clearinghouse, which sells repossessed big-ticket toys. "People are having a tough time and the first thing that goes is the RV and the boats."

Deals abound, on Craigslist and at retailers. Crystal-Pierz Marine held a used-boat auction to help sellers and buyers come together, and the company is now paying the sales tax on any boat if buyers apply their federal economic- stimulus rebates toward the purchase.

Cash affords you flexibility and security. Cash helps you to weather the unexpected and it's good to have lying around for when the next investment opportunity strikes.

Granted, cash doesn't net you much in terms of interest, and inflation eats away what little that's earned. But if you're unsure of your next move, hoarding money in an online savings account yielding around 3 percent is an idea.

Or consider opening a world currency account through a bank such as Everbank (although this requires at least $2,500). This account acts as a way to hedge against the dollar's decline by earning interest in the currency of your choice.

What's happening in the broader economy matters to all of us, as well it should. And thinking about how you can help is as important as figuring out how to profit. Since this is a money column, I'll also mention that charitable contributions are not only good for the world, but they will also reduce your tax bill if you itemize.

It's not foolproof and you can lose your dough, but consider earning money by lending money. Credit is tight and loans for some are hard to come by. Become the banker using a peer-to-peer lending site such as www.prosper.com, or www.zopa.com to lend money to people in need. Help a family member or friend buy a house using www.virginmoney.com. Or lend money to an entrepreneur in a developing country and earn a small monetary return with sites such as www.microplace.com.

Kara McGuire writes about money. 612-673-7293 or kara@startribune.com