Asset classes these days are either overpriced, risky, or too highly correlated. How can you participate in the market without getting eaten alive? MoneyShow's Howard R. Gold, also of The Independent Agenda, walks through his ideal portfolio for non-ideal times.

I recently got two e-mails that I think perfectly illustrate the dilemma many investors face now. The first came from technical analyst Mark Arbeter of S&P Capital IQ, who wrote:

“We think that the stock market is close to beginning a consistent move higher, with prices entering a very narrow bullish channel where pullbacks are shallow, leaving many investors on the sidelines. Generally, those that are underweight equities during this advancing phase are left frustrated waiting for a decent-sized pullback that never materializes. This type of consistent push higher, if it occurs, will be a very welcome sight for those already in and calling for higher prices...We see the S&P 500 heading up to 1,450 by September, 1,500 by October, and potentially as high as 1,600 by the first quarter of 2013.

“I find it almost unprecedented to see such fear concerning stocks and the economy, with the market well above its most recent (June) low, and over 100% above its last bear market low from March 2009."

The second was from the fundamentally oriented bear, John Mauldin, who analyzed the market’s price-to-earnings ratio for his Thoughts from the Frontline newsletter:

“The stock market and earnings analysts do not expect a decline in [earnings per share] over the next few years. The forecasts too often anchor on the recent past and extrapolate (in a burst of hope) current trends well into the future...The current cycle is now extended not only in duration but also in magnitude. It's hard to deny that EPS is vulnerable to decline over the next few years.

“When the decline in earnings occurs, it will not be minimal. The decline to the historical average would be 30% to 40%. These cycles, however, rarely stop at average. More often, they move well above and below the long-term trend line...We've all seen that the stock market reacts to surprises quite negatively. There is no reason why investors should walk blindly into this storm.”

And there you have it: risk vs. caution, fear vs. greed.

We have a stock market that has performed surprisingly well given all that has been thrown at it (especially Europe) and entering a highly favorable seasonal pattern.

But we also have a cyclical bull market that’s nearly 3 1/2 years old, a slowing global economy, and as Mauldin observes, an earnings cycle that’s starting to look a little tired. Plus, market pros are addicted to injections by the Federal Reserve and other central banks, giving an air of artificiality to the whole bull market. Meanwhile, retail investors have been burned so badly they don’t want anything to do with stocks.

So, what the heck do you do with your money at a time like this?

The alternatives all look terrible. Bank deposits and money market funds are paying zero or even negative real returns. Yields on Treasuries are laughable and rates on investment grade corporate bonds have plummeted, as have those of high-yield bonds. Commodities, except for agricultural-based ones, have languished.

All the “alternative” asset classes that supposedly offer diversification—like real estate investment trusts—have moved up sharply with stocks. Gold and silver have underperformed boring old US stocks for nearly the last year. So have once-torrid emerging markets.

So, prices of “safe” assets have moved to stratospheric levels while risky assets are moving together more than at any time in recent memory. Is it any wonder Vanguard founder John Bogle himself told The New York Times that this is the worst period for individual investors he’s seen in more than 60 years?

NEXT: What Should You Do?