Turn Short-Term Fear Into Long-Term Profit

The world is getting older fast. And no country has saved enough for its retirement. The problem will hit first in Japan and Europe, the world's most rapidly aging societies, where the impulse to bust the budget to pay retirement costs is likely to be irresistible. But the problem may be worst in China, which will be as old as the U.S. by 2030, but nowhere near as rich.

The dollar will continue to slide. Probably not as fast as the doomsayers now predict because Japan and the European Union have their own problems that will keep pressure on the yen and euro. But thanks to our huge trade deficit and the utterly feckless fiscal policy in Washington, the world isn't exactly clamoring to hold more U.S. dollars. The standard ways to hedge a weakening dollar are:

• Buy nondollar-denominated stocks, such as Nestlé.
• Buy U.S. stocks, such as General Electric(GE Quote), that do big business overseas. They will sell more products with a weaker dollar, and that overseas revenue will be worth more when translated back into dollars.
• Buy gold stocks, such as Newmont Mining and Glamis Gold(GLG Quote).

The U.S., with its combination of great wealth and relatively high rate of population increase (thanks to a relatively high birth rate and relatively open immigration policy), might be best positioned to muddle through. But it will require the baby boomers to cash in real estate by downsizing to cheaper geographies, and require that those boomers admit that the country can't afford to spend every last cent on prolonging their lives.

Best bet on the demographics of U.S. real estate: banks and land companies in low-cost retirement areas, such as the Carolinas, Georgia, Arkansas and parts of Texas. And if you're cynical about any attempts to control health care costs, as I am, look to companies that profit from the chronic diseases of old age.

Whether you follow my five trends or your own, here are three rules for using short-term volatility to improve your long-term profits.

• If your portfolio is underweighted in any of your long-term trends, use weakness to bring your exposure up to your target level. So, for example, I'd like to have about 15% of my portfolio in gold, given my belief in the inflation trend. This equally weighted portfolio -- all stocks start out with the same dollar investment -- is fully invested at 33 stocks. Right now I hold 30, and three of those are gold stocks: Newmont, Glamis Gold and Anglo-American (AAUK Quote). So, I'm going to add another gold stock by repurchasing GoldCorp(GG Quote) to bring my exposure up to 13%.
• Don't buy randomly just because a stock is cheaper than it was, and don't load up on sectors just because they've taken big hits. Keep to your asset-allocation goals, whatever they are. An unbalanced portfolio is dangerous at any time.
• Within your asset allocations, use weakness to trade up. So, for example, with this column I'm going to sell my position in Sysco(SYY Quote), the giant U.S. food distributor that has held up well in the selloff, but that recently announced disappointing inflation news, and buy Central European Distribution(CEDC Quote), a Polish producer, distributor and importer of vodka and other alcoholic beverages that has been hammered by bad news on an acquisition attempt and by the selloff in the emerging markets. The switch increases my nondollar holdings in the food sector.

I realize that none of this will eliminate your nervousness about the stock market and the recent selloff. Fear is sometimes just part of investing, to be honest. Everybody feels it at some moments. It's what you do when you feel afraid that counts.