Wilbur Ross made his name as a turnaround king, a buyer who has targeted distressed investments and has known how to benefit from calamity. All of which means he’s now in his element. The chairman of private equity firm Invesco, which manages more than $8 billion, invested in catastrophe-insurance companies after Hurricane Katrina in 2005 and bought mortgage-servicing firms after the subprime crisis hit. Here, Ross advises on how much risk to take on and what to do if you’re caught in the vortex.

Can Main Street possibly escape the Wall Street cataclysm?

Neither Main Street nor Wall Street can recover until both recover. The “real” economy and the “credit” economy are one and the same: You can’t have real estate transactions or commerce without debt.

If stabilizing the housing market is key to ending a recession, what needs to happen?

If prices stabilize or even start to rise, then people won’t be so terrified and they’ll start spending more aggressively. The first step is to get banks to where they’ll continue to make new mortgages. If you don’t have new loans, you can’t have stability. So we have to hope that bankers will overcome their own shell shock and start making loans again.

What lessons from the 1987 crash apply today?

The problems then were not as severe in the broader economy. Today, consumers and investors are upset—they have lost faith in the big institutions. The big guessing game is, Who’s going to blow up next? And that’s why so many people have fled into Treasurys. When Morgan Stanley got money from Mitsubishi, that was very important, because it was one of the few big messes that got solved without direct federal intervention.

How much risk should the average investor take on?

An older investor should have a more conservative portfolio with shorter maturities and maybe more Treasurys than a 50 percent allocation. For a person who’s 100 percent in Treasurys, moving a quarter into high-grade and a quarter into high-yield is probably a smart thing to do, particularly if the high-yield is tax-free bonds.

What should someone do after riding the market all the way down?

Whichever stocks you don’t feel are very high quality for the long term, it’s probably just as well to sell them, take the tax loss, and put the money back into stronger things.

If your grandchildren wanted to invest for the long term, what should they do right now?

For someone with a 20- or 30-year time horizon, now would be a good time to put some money to work in equities. Someone with a smaller portfolio should go into mutual funds so they can get diversification and professional management.

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