By Elizabeth O'Brien SmartMoney

As the drumbeat of bad news continues, investors may be wondering how much worse the economy could get. The answer, according to some on Wall Street, is a lot worse. Some of the biggest investment houses put the chances of a depression at about 20%. What does that mean, exactly? A one-in-five chance of breadlines, 25% unemployment and money under the mattress? One common definition of depression is a 10% peak-to-trough drop in the inflation-adjusted gross domestic product. One of the only times that happened in modern history was during the Great Depression. Like recessions, depressions are determined retroactively, so it's too early to say exactly where we stand. So far, "this is a cakewalk compared to the Great Depression," says Professor Giulio Gallarotti, a political economist at Wesleyan University. Inflation-adjusted GDP fell 33% from 1929 to 1932 and 18.2% from 1937 to 1939, Gallarotti says. By comparison, real GDP fell 0.5% in the third quarter of 2008.

So what should you do to position your portfolio for this unlikely — though not unimaginable — scenario? We asked three financial professionals to weigh in — and got three very different answers.

Jim Swanson, chief investment strategist, MFS Investment Management:

Treasury Inflation-Protected Securities may outperform other asset classes in a depression. When a TIPS bond matures, investors are paid the inflation-adjusted principal or the original principal, whichever is greater. TIPS are generally thought of as a hedge against inflation, says Swanson, but they can also do well in the deflationary periods that generally accompany sharp downturns. At least their principal won't decline, which is more than you can say about many other assets. When inflation eventually returns, you're protected against that as well. Swanson also notes it's just as important, if not more so, to protect your earning power in an economic meltdown. Keep your professional network strong and your job skills fresh. "You need something to sell that people need," he says.

Bill Grenier, chief investment officer, UMB Asset Management:

Regardless of where the economy's headed, it's time for investors to shift from a bunker mentality to a more opportunistic mindset. Those with money stashed all in cash will miss out on the juicy yields that high-grade corporate bonds offer now, more than 7% in some cases. Investors should keep 10% to 20% of their portfolios in cash as a "pool of flexibility" to allow them to buy assets on the cheap, says Grenier. Another 5% to 10% should be invested in precious metals offerings like the SPDR Gold Shares exchange-traded fund (gld) . (The fund is backed by gold bullion.)

Alan Lancz, financial advisor, Alan B. Lancz & Associates:

Dividend-paying stocks offer particular comfort when the stock market's in negative territory. Lancz recently bought ketchup maker Heinz (hnz), which pays a 4.6% yield, and American Waterworks (awk), a water utility that pays out 3.9%. Those who remain bearish on the stock market can buy ETFs that short market indexes. The ProShares Short S&P 500 (sh) tries to post the inverse return of the broad market. Investors should keep in mind the return on these ETFs is calculated daily, not, say, at year's end, so those who want to sell their shares need to watch their timing to reap the full benefit.