Peter Bickley: Stick to your views as the angst index rises

Last time I appeared here I came over all optimistic about the prospects for 2011. Since then some unkind souls have upped the ante by lowering forecasts for the year, while retailers have muttered about lower sales and the general angst index has been on the rise. But I have set out my case and I stand by it.

Yet you don't need 20-20 vision to see how it could all go horribly wrong. And some of the possibilities are really scary. For me the dilemma isn't so much sorting out a central view, it's how far to hedge against alternative outcomes. Adding to the general air of bonhomie, some of the risks are basically uninsurable, unless hiding under the bed with a sack full of gold sovereigns is your kind of thing.

An upside surprise from America was a building block for my positive central view and our American friends have duly obliged with a tax package that should help the economy to grow at something like 4 per cent this year.

Lunches, though, are never free and the bill for this one is an even bigger blow-out in the deficit, which looks ominously like a major train crash waiting to happen.

Back home, the doom- sayers might be right because the data over the coming months will be horrid; I think it then gets better but it might not. The piece I wrote many months ago questioning (wrongly, I now think) the feasibility of aggressive deficit reduction without trashing the economy might after all be right. The UK might stagflate, and the 'flate' part is a worry. Prices have been rising way faster than the official target for so long now that you begin to wonder whether it's more than just a habit. Bank of England Governor Mervyn King is right to point out that this is not true inflation, rather a string of one-off factors. But it does start to sound a bit like your portfolio manager arguing that if we just exclude this or that problem stock, performance has actually been fine.

Before the wheels fell off, many of us agonised over the scale of global imbalances, with excess savings on one side and excessive debt on the other. The determination of governments like the UK's to trim deficits may be hair shirt stuff but it does address the nub of the old issue. US policy does not and those imbalances, far from being forced downwards by the global blow-up, are again on the rise. Unwinding them could, once again, be very messy.

Too much gloom is bad for morale and I'm the optimist around here, remember. But big risks with what we so delicately call "fat tails" cannot just be ignored. My advice is to keep it simple and don't pay silly fees for complex strategies that no one understands. Start with that old dependable - diversification.

Bonds may look prohibitively expensive so find something bond-like instead. Infrastructure funds, for example, should be defensive if riskier assets tumble.Commodities are desirable but risky; and avoid bubbles - I love emerging markets but so does everyone else, so be ready to back off. Domestic UK exposure might be difficult in 2011 but look beyond whizzy stuff like growth. Despite the market's rise chunky dividend yields are plentiful.

Above all be true to yourself. You don't have to agree with mine but you do have to have a view. Kick the tyres and check the oil often but do not be deflected from your view of tomorrow by bad headlines today.

• Peter Bickley is a consultant economist