Cash works best in a recession.<p>When the stocks drop in value, you change your cash into stocks, buying more stocks than everyone else. Buy low, sell high.<p>Its like the old saying goes. A bull wins the fight by striking upwards, putting money down immediately. A bear wins the fight by waiting, and ducking down and grappling, waiting for the key moment to strike... striking the bull from below.<p>You save up cash before the crash, then you strike/buy up when things are cheap. The bulls can't do this because they already put their money into the market and have no cash remaining.<p>--------<p>Bonds are a bit weird. We all know that interest rates are going up, which means everyone knows that its best to hold onto cash right now, and wait for another +.75% gain by the end of September. Anyone buying bonds today is probably getting a bad deal (either that, or is hedging in case interest rates decline surprisingly).<p>-------<p>EDIT: By "cash", I mean savings accounts, high-yield savings accounts, money markets, and 1 to 2 month treasuries/CDs