Keep cool with a cautious approach

And according to the latest Westpac-Melbourne Institute index, there are other concerns depressing consumer sentiment to levels not seen since last August before the Reserve Bank began cutting interest rates.

So let's look at the factors that are making us nervous - and just what you can do about them.

Portfolio pain

The memory of the more than 50 per cent plunge in equity markets is raw - and we're still almost 40 per cent below the high of late 2007. A survey by our sister publication, Smart Investor magazine, found a full third of baby-boomer readers have had to delay their retirement as a result.

Continuing instability overseas is not helping. Europe is not yet out of the woods, the US recovery is looking less strong and Chinese growth - vital for our resources-rich pocket of the world - is slowing.

Many have reacted to recent ructions by selling down some stocks (19 per cent of Smart Investor respondents) selling out of others (11 per cent) and, for a few, selling everything (2 per cent).

And this fits with recent talk from the likes of former Future Fund head David Murray, Super System Review chair Jeremy Cooper and former Treasury boss Ken Henry that our super funds are overexposed to equities.

There are two key methods for dealing with an unstable investment environment - diversification and dividends.

You need to spread your wealth - in both super and money held outside it - across a range of different assets, keeping your allocation to equities and property age-appropriate. You should reduce these more risky growth assets as you get older.

On dividends, we have one of the highest-yielding markets in the world - more than 5 per cent - and favourable tax treatment pushes this up further. So even if share prices simply drift sideways, buy the right stocks and you can get decent returns.

Interest anxiety

The unilateral move by the big banks in February to raise interest rates when the RBA held them triggered an instant deterioration in how we felt. And it was a scary development.

But you don't have to wear it. Remember, the best variable rates are more than 1 per cent below the banks' advertised rates - you can get below 6.5 per cent - so the savings from switching are huge. Ask for a matching discount from your existing lender first.

Before you are spooked into fixing, be aware that institutions are clawing back there, too. In March, rates rose on more than 200 fixed loans, despite the Reserve abstaining, with the average two- and three-year fixed rate rising 20 basis points. If you do need repayment certainty, get in quick and hedge your interest-rate bets by only fixing half.

You can find the best deals on mozo.com.au.

For savers and retirees, the possibility of further official rate reductions - on soft housing, spending and confidence data - will also be causing unease. There have even been calls for a double cut to ease consumer pain.

The RBA is bound to be swayed by the inflation reading that's due on April 24 - but, for you, forewarned is forearmed.

Fears about job security

The high Australian dollar and our shopping strike are putting industries such as retail, tourism and manufacturing under pressure. Last week there was even a glitch in what is supposed to be powering our economy - resources - with a mine closure by BHP jeopardising 1400 jobs. But, so far at least, it's more expectation than reality.

Economists were actually shocked by an unexpectedly good unemployment reading on Thursday - 44,000 new jobs were created against expectations of just 6000. There was particular growth in part-time positions - 28,000 - with women especially benefiting (female employment overall is at a record high). The unemployment rate appears to be stable at 5.2 per cent.

And there are even signs of a coming upswing in employment. ANZ job ads and the ABS job-vacancy series are both showing strength. But it can't hurt to make yourself indispensable anyway.

Talk of a tough budget

The government remains hell-bent on returning the budget to surplus by 2012/13 as it has staked its political survival on it.

Naturally, the expectation of even more hardship to come is doing nothing to improve our money mood. Unfortunately, there's little we can do to head off any punitive changes until we at least know about them.

Wayne Swan, on this one, we're looking at you.

Nicole Pedersen-McKinnon is also the editor of Smart Investor magazine. Follow her on Twitter @NicolePedMcK.