Your Money: Look for steady earners in this stormy market

With the stock and bond markets as stormy as weekend visitor Hurricane Irene, stick with safe havens, including companies that generate income. U.S. or European stocks with 3 percent to 4 percent dividends are a good start.

Why? Low interest rates and inflation are eating into portfolio returns. One consequence of our Federal Reserve's zero-interest-rate policy (until 2013, says Fed Chairman Ben S. Bernanke) is that it's hard to keep up positive returns on your portfolio. Low interest rates increase the likelihood of negative real returns on cash and bonds, which for many families represent a large portion of their investments.

JPMorgan Chase & Co. chief investment strategist Michael Cembalest offered some numbers to help illuminate this zero-interest-rate conundrum. Using Yale economist Robert Shiller's data, he looked at the realized real returns on long-term bonds since 1871. With the exception of the two World Wars and in the early 1970s, long-term bonds and cash generally delivered positive real returns.

Near-zero interest rates (also known as the ZIRP, or zero-interest-rate policy of the Fed) and the lingering effects of the latest recession "have now created another vortex of evaporating real returns on cash and bonds, with implications for family spending," Cembalest said.

Assume you are earning a 3 percent after-tax portfolio return on your investment of $1 million, or about $30,000 a year. But if you are spending 3.5 percent of liquid net worth, and inflation is coming in at 3 percent, after 10 years, the portfolio will have been drained of a quarter of its real value.

Dividend-generating companies can help fight the effects of low interest rates and inflation by producing income. To find dividend-yielding companies, Catherine Maniscalco Avery, of Catherine Avery Investment Management L.L.C., of New Canaan, Conn., includes criteria such as a stock-market value exceeding $1 billion, a dividend yield of at least 1.5 percent, long-term positive cash flows, and a debt-to-equity ratio of 55 percent or less.

An easy way to start looking? I like Seeking Alpha's Dividend Investing Primer (http://seekingalpha.com/article/252479), which explains all of the factors that go into choosing a dividend-paying company: How long it has been issuing dividends, whether the company has increased the dividend historically, and whether it is paying dividends from cash flow (rather than borrowing to pay dividends).

Another haven investors have sought amid market turmoil and a weaker dollar is gold. Gold prices have been rising at a compound 16.8 percent per year since the metal's run began 11 years ago from a base of $255 an ounce, according to Ross Norman, CEO of the commodities brokerage Sharps Pixley Ltd. in London.

Last week, the gold exchange-traded fund (ETF), SPDR Gold Shares (symbol: GLD) briefly surpassed the SPDR S&P 500 ETF (SPY) as the largest ETF by assets at $76.6 billion to SPY's $74.4 billion.

Gold's run has also resulted from worries about the U.S. dollar. "When U.S. interest rates are as low as they are today, dollar-denominated investments don't have as much appeal, and thus the value of the dollar tends to fall," explained Wasif Latif, of USAA Investment Advisors.

Aside from its value relative to other currencies, the dollar also faces the destructive threat of inflation. According to Latif, the Federal Reserve's current easy-money policy is a textbook example of how to create an inflationary environment.

To buffer your portfolio from periodic declines in the dollar vs. other currencies, consider currency ETFs such as CurrencyShares. Issued by a relative newcomer to the ETF game, Precidian Investments, these are sponsored by Rydex and backed by actual deposits at JPMorgan bank, rather than some other currency ETFs, which trade swaps and other types of derivatives. For instance, if you are bullish on the Canadian loonie, and believe it will strengthen against other currencies, you can buy CurrencyShares Canadian Dollar Trust (FXC).

Beware of tax consequences for U.S. investors, as currency investments can result in your gains being taxed at the marginal rate, and always check with an adviser or tax accountant before investing.