NEW YORK (MONEY Magazine) - Q. I want to invest up to $50,000 in gold bullion to hedge against a decline in the dollar's value. What is the best way for me to do this?

-- Linda N., Brooklyn

ANSWER The best way is with extreme caution. Gold casts a hypnotic spell as a symbol of unassailable value in times of crisis. But unless the bad times you're envisioning could devolve into last-chopper-out-of-Saigon-level stuff -- and Brooklyn ain't anywhere near 1970s Saigon, right, Linda? -- there's no need to store gold bricks in the back of a closet.

Just buy shares in an exchange-traded fund that tracks the price of gold, such as StreetTracks Gold Shares (Research). Don't overdo it, though. Gold zoomed past $530 an ounce in December, up 28 percent in five months and reaching prices last seen during Ronald Reagan's presidency, yet gold has been a lousy inflation hedge in recent decades. It generates no income. And it isn't the only protection against a weak or inflated dollar: Alternatives include international stocks and Treasury Inflation-Protected Securities.

Financial planner Allan Roth of Colorado Springs says gold can be useful for diversification but shouldn't exceed 5 percent of your holdings. "If you're investing $50,000 in precious metals, your portfolio should be worth more than $1 million."

Q. I was told in 1999 that money in an S&P 500 index fund would easily double in 7 1/2 years. But 6 1/2 years later, my $10,000 S&P investment is worth only $10,500. Is a CD a better choice?

-- Karen Kurz, Flushing, N.Y.

ANSWER Um, how soon do you need that money?

Over the past 20 years, the total return of Standard & Poor's 500-stock index has averaged 12.2 percent a year. At that rate, your money would have doubled in about six years -- and you would have earned much more than the average 6.2 percent that five-year certificates of deposit have yielded annually since 1984.

But long-term averages don't always translate into short-term forecasts, as you painfully learned after buying into the S&P only months before its peak in 2000. You'll never get a guarantee that, in any single year or set of years, the S&P will achieve its average return or outperform a CD.

So if you need the money soon and can't run the risk of an S&P decline in 2006, park it in a CD, which protects your principal and offers a fixed yield (lately 4.1 percent for a one-year CD). But if you can wait a decade for your money, stick with stocks because it's reasonable to bet they'll regain their traditional lead over CDs. Stay in a low-cost index fund, such as MONEY 65 entry Fidelity Spartan 500 (Research), and be patient. It's no sure thing, but history will be on your side.

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