How Deflation Affects Your Money

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4. Keep an eye on these sectors.

Some sectors and stocks may provide protection against deflation.

Companies with strong brands, an international presence, below-average debt and lots of cash are the safest bets because they should be the best-positioned to withstand an extended economic slowdown.

Using what happened in Japan as a gauge, investors should avoid food and beverage makers, household product manufacturers, as well as mining and other materials companies, according to Sam Stovall, chief investment strategist at Standard & Poor's. They would want to embrace energy and financial stocks and keep an eye on health care and technology.

Stovall recommended the following companies as good investments during deflation: drugstore operator CVS Caremark Corp. (Stock Quote: CVS), retailer Walmart Stores Inc. (Stock Quote: WMT), oilfield services company Schlumberger Ltd. (Stock Quote: SLB), credit card company Discover Financial Services LLC (Stock Quote: DFS), bank JPMorgan Chase & Co. (Stock Quote: JPM), drug distributor McKesson Corp. (Stock Quote: MCK), package deliverer FedEx Corp. (Stock Quote: FDX), defense contractor ITT Corp. (Stock Quote: ITT) and Korean steelmaker POSCO LLC (Stock Quote: PKX).
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5. Don't lose sleep over the risk.

Deflation can be difficult for people, and whole economies, to endure. But we're not there yet, and most economists think the chances are below 50-50.

"Our expectation is that the U.S. will skirt deflation, but that the low saving rates in the U.S., still-growing populations, and quick and decisive Federal Reserve moves to expand the money supply can avoid the trap," Standard & Poor's said in a report last week.

Unemployment and debt pose more immediate problems for the economy.

"I would tell people to calm down about it," says Webman of OppenheimerFunds. "It's not the greatest risk we're facing right now."

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