The New Risk Tolerance A three-pronged strategy for where to park your cash in a recession

Here's a quick multiple-choice quiz for you: Where's the safest place to stash your cash?

a) Gold
b) Treasuries
c) An FDIC-insured checking account
d) Your mattress

If you picked A, B, C or D, you're probably losing money.

Think about it: The price of gold can fluctuate 30 percent or more in a matter of months--and has. Treasuries, while backed by the faith and credit of the U.S. government, can rise or fall depending on interest rates and other factors. And while it may help you sleep at night to park your cash in a bank account (or under your mattress), it probably won't keep pace with inflation.

Unfortunately, when it comes to investing, safety is a relative term. Who could have imagined five years ago that a blue chip company like General Motors would be in bankruptcy? And who could have predicted that states like New York and California would have trouble balancing their budgets and paying their bills?

That's why even the most conservative money managers believe that the best way to protect your cash is not to pull the covers over your head but to pursue a cash-protection strategy that rewards you for taking a little risk.

Chris Cordaro, chief investment officer of RegentAtlantic Capital, a wealth management firm in Chatham, N.J., has been advising his clients to adopt a three-pronged strategy that includes CDs, high-quality corporate bonds and Treasury Inflation-Protected Securities (TIPS). Not only does this strategy give his clients access to immediate cash and a hedge against inflation, it also lets them take advantage of the huge spread that now exists between corporate bonds and U.S. Treasuries.

"If you invest in a corporate bond that pays 5 percent, even if you're in the 50 percent tax bracket, you're still ahead of the game," Cordaro says.

And because Cordaro typically uses mutual funds to execute this strategy (as opposed to investing in individual bonds), he's able to offer his clients diversification across a variety of corporate issuers. This means that even if one company defaults or files for bankruptcy, the effect on the rest of the fund will be minimal. The downside to this approach is that mutual funds have no fixed maturity date, and therefore may fluctuate in value. That's why it's important to keep some of your money in cash, Cordaro says.

Of course, no strategy lasts forever. When market conditions change, it may be time to shift to Plan B.

"The time to move on is when the spreads come down, when you're no longer picking up a big incremental return over Treasuries," Cordaro says. "If we ever got back to where we were in the early '80s, when you could buy a 30-year, zero-coupon Treasury bond paying north of 15 percent interest, I would definitely stock up on those."

Rosalind Resnick is founder and CEO of Axxess Business Consulting, a New York City consulting firm that advises startups and small businesses, and author of Getting Rich Without Going Broke: How to Use Luck, Logic and Leverage to Build Your Own Successful Business. She can be reached at rosalind@abcbizhelp.com or through her website, abcbizhelp.com.