Q I've read recently that some experts predict another financial crisis because of mounting debt. I've used "bear" mutual funds in the past with modest success. To protect a portfolio during retirement -- aside from keeping it well-balanced -- what do you find to be the wisest approach?

A Now is a good time for everyone to review their portfolio and, if you're worried, take steps to limit downside risk. Many folks may conclude that they're fine. That's because many investors constructed more-conservative portfolios following the turmoil of the past five years. Others have a long enough time horizon to weather any crisis without changing their asset allocation.

Still, the most troubling risk is Europe's sovereign debt crisis. Debt burdens in Greece, Ireland, Portugal and Italy are simply too great for their struggling economies. The European Union is trying to come up with a plan that relieves some of the financial pressure without triggering a European-wide bank crisis.

China's government raised its benchmark interest rate for the third time in 2011 on July 6. The government is trying to cool off inflation without slowing down economic growth too much -- always a tough maneuver. Global investors are starting to wonder if the debt-ceiling limit issue in Washington is careening out of control.

What to do? For most people who want to protect themselves from downside risk, my recommendation is to raise their exposure to "cash" rather than investing in more exotic securities like bear market mutual funds. In the financial markets "cash" doesn't mean the money in your pocket or in a desk drawer. It's Treasury bills and other high-quality short-term, interest-paying investments. With cash you reduce the amount of money at risk to a financial catastrophe or economic cataclysm.

The price of safety is a near-zero return on that portion of your portfolio. I'm OK with that. If that's anathema to you, then you could look into more speculative approaches that attempt to profit from crisis, such as bear market funds, volatility funds and gold funds.

Of course, the core cash holding is U.S. Treasury bills. What about the risk that the U.S. government will default? I think the risk that the U.S. government won't meet its debt obligations -- especially for short-term cash -- is so remote that it's close to zero. Even if there was an unexpected delay in payment, the federal government would make good on the debt.

Chris Farrell is economics editor for "Marketplace Money." Send your questions to cfarrell@mpr.org.