Bailout Doesn't Offer Market Clear Direction

In theory, the government's plan to buy up mortgage securities will also help the financial market, by putting an official price tag on mortgage-backed assets. The range of prices for securities backed by the riskiest subprime mortgages on the ABX Index, currently varies from 5 cents to 10 cents on the dollar, according to Tim Backshall, chief strategist at Credit Derivatives Research. Alt-A mortgages, which are less risky, vary from 10 cents to 20 cents on the dollar, while the best, prime loans are valued at 51 cents to 95 cents on the dollar.

Some financial firms will inevitably lose out on overvalued assets, but ultimately, taxpayers may not be on the hook for anything and may even profit from the bailout plan. The government has a much longer time horizon to sell troubled assets at a fair price -- one that it will set.

"It has luxuries that private owners just don't have," notes John Rekenthaler, vice president of research at Morningstar. "It won't have to mark to market or raise capital."

Rekenthaler's research of past financial crises finds varying results for portfolios -- whether all-stock or bond-balanced. For instance, it took the market three years to post significant gains after the savings and loan crisis of the 1980s, but the dot-com crash took at least five years. In most cases, the balanced portfolio outperformed the one that held only stocks.

When it comes to buying up riskier assets, Ronald Albahary, head of strategic investment solutions, North America at Schroders, is working to determine the midpoint of the current downturn to begin reweighting portfolios.