Five ways to shield your money from recession

— -- The classic definition of a recession is when the nation suffers two consecutive quarters of declining gross domestic product. But to non-economists, recession means higher unemployment, lower interest rates and hard times — particularly if you're retired or nearing retirement.

You can guard against the worst effects of recession, though, if you follow a few simple steps.

Consider these five strategies: Build up some cash. Avoid the temptation of high-yield securities, such as junk bonds. Look for bargains in the stock market that pay solid dividends. If you're nearing retirement — or are semi-retired — prepare for the possibility of losing your job. And if you're really worried, spend some of your retirement money on a financial planner.

Cash isn't trash

In Wall Street parlance, "cash" is any investment that can be turned quickly and painlessly into spending money. Your money market account at a bank, for example, is considered cash. So is your money market mutual fund. Treasury bills and other short-term interest-bearing investments are considered cash, too.

Thanks to the Federal Reserve Board's recent series of interest-rate cuts, yields on cash investments are somewhere between very low and minuscule. A three-month Treasury bill yields a scant 2.2%. The average money market fund yields more — 3.4% — but such yields will be falling in the next few weeks as the funds replace their older, higher-yielding investments with new, lower-yielding ones.

Still, cash remains one of your best investments in a recession. Why?

•Safety. A 2% yield looks pretty good compared with, say, a 10% loss in the stock market.

•Liquidity. Your biggest risk in a recession is the loss of your job, if you're still employed or semi-employed. If you need to tap your savings for living expenses, a cash account is your best bet. Stocks tend to suffer in a recession, and you don't want to have to sell stocks in a falling market.

How much of your portfolio should you have in cash? If you're still working, you want cash equal to about three months' worth of living expenses in a non-retirement account. (You'd pay tax and penalties if you took an early withdrawal from a retirement account before age 59½.)