Investors should tread carefully when it comes to the stock markets given continuing political and economic unrest, PIMCO CEO and co-CIO Mohamed El-Erian (left) told CNBC Tuesday.

“It’s too early to declare victory,” said the PIMCO executive, emphasizing the debt crisis in Europe as well as instability in the Middle East and the need for the economy’s “cyclical bounce to translate into a secular bounce.”

El-Erian suggests that investors should carefully allocate funds, be underweight stocks at these valuations, and be overweight certain commodities, such as oil and gold. With respect to bonds, he sees those with shorter duration, i.e., a target of seven years or less, as optimal.

“You want to have selective commodities. You want to have gold and oil because of the geopolitical risk in your portfolio,” he explained. The key investing rules to follow at this time, El-Erian adds, are “prudence, patience and optionaiity.”

Still, he notes, the Federal Reserve and other banks don’t have all the answers on long-term economic stability. “Even the central bankers are beginning to announce that it is not just about the effects, it’s about the costs and risks,” he noted.

What is most needed, El-Erian adds, is a “handoff to more sustainable policies” that goes further than monetary easing. (He predicted Friday that the Fed is likely to implement QE3.)

“They need help,” the PIMCO exec continued. “They are a bridge, and they have to be a bridge to somewhere. So far the other government agencies are on the sidelines.”

Meanwhile, investors should look at the current stock-market upswing cautiously, he adds.

“There’s more to do,” El-Erian said. “It’s critical that nothing be done to interrupt this wonderful cyclical bounce. We want the cyclical bounce to translate into a secular bounce, because that’s what the markets need to sustain the wonderful returns so far this year.”

For another view on how investors should arrange their portfolios check out BlackRock’s Fink Advises 100% Allocation to Equities at AdvisorOne.