Time to Get Back in the Market?

Hammered by three years of plunging stock prices and shrinking nest eggs, many hard-hit investors now regard the financial scene with shuddering dread.

But the nation's most popular Wall Street watcher isn't retreating. In fact, he's telling retirement savers to shed their gloom and get back in the stock market. "I think it's the good bet—the bet that smart people are making right now," says Louis Rukeyser, the financial commentator whose TV programs have been a mainstay for millions since 1970.

A self-professed optimist who believes Americans "have much to be happy about," Rukeyser thinks the bear market ended last October and sees healthy gains in the years ahead.

The market "is not going straight to the skies," he tells the AARP Bulletin. "The economy will have bumps. … But I believe that looking down the road a few years, people are going to look back and say …'I can't imagine they were giving away those best companies in the world at those bargain prices.' "

GOOD ANNUAL RETURNS AHEAD

In contrast to billionaire investor Warren Buffett, who predicted last month that the stock market would produce anemic returns of 6 to 7 percent in coming years, Rukeyser says good annual returns—including some in the double digits—are likely.

"If we can get the economy moving a little more briskly and assure that [corporate] corruption has been dealt with," he says, "then there's not going to be an ongoing problem for any investor coming in."

As for the Iraqi war, he characterizes it as a nonevent in economic terms, having produced neither the international turmoil nor the skyrocketing gasoline prices that some had predicted.

To support his rosy view, Rukeyser points out that as of mid-May all the major stock market indexes were higher for the year, with the Nasdaq index up 35 percent since October. "But you'd never know it from talking to most investors," he says.

His comments came in a one-hour telephone interview sandwiched between his travels on the lecture circuit, preparations for his weekly CNBC show, "Louis Rukeyser's Wall Street," and tending to his other enterprises, including two investment newsletters and a website, www.Rukeyser.com.

While other commentators may hedge, the 70-year-old Rukeyser lays it on the line bluntly, often with impish wit. In the course of the interview, he not only took on the legendary Buffett but criticized Federal Reserve Board Chairman Alan Greenspan (for "premature and excessive tightening" of the money supply) and lashed out at purveyors of "hyperpessimism."

Throughout, he displayed the same kind of lively intelligence that has won him a long list of awards and the praise of such experts as economist John Kenneth Galbraith, who called his program "the only one … on business and economics … worth watching."

For 32 years Rukeyser was a fixture on PBS, until that relationship ended last year, leading to his switch to CNBC. His program there has since become that channel's most watched and is carried as well, on a delayed basis, by some 170 public TV stations.

PERILS OF EXCESSIVE CAUTION

Rukeyser says he gets letters every day from older people who, fearful of losing their money, put the overwhelming majority of it into fixed-income investments and now find their income whittled to a fraction of what it used to be.

"I am deeply sympathetic to these people," he says, "but I really think that you have to take some risk in life." Being too conservative, he says, is "as big an error as being too rash."

"At a time when money market funds are yielding less than 1 percent and bond yields are near historic lows," he asks, "what else are you going to do with your money? I think that for patient, persevering investors the stock market will continue to be a major good bet."

When it comes to fashioning a portfolio, Rukeyser says, people should stick to tried and true principles.

No matter what your age, he says, you should aim for a balanced portfolio that includes bonds and other fixed-income investments as well as "a basket of solid, quality, dividend-paying companies at the top of their industries."

And over the next two to five years, Rukeyser sees the technology, financial services and health services sectors as especially good bets.

"The total abandonment of technology [stocks] was excessive," he says. "The future is technology."

While he believes that the proportion of stocks in one's portfolio should decline as people age, he says there is no one formula to determine the right proportions, since everyone's situation is different.

Since the 1970s, Rukeyser has been a big fan of no-load mutual funds, which he continues to endorse today. [See 6 Practical Investing Tips from Louis Rukeyser.]

Rukeyser says that as battered investors look back over the last three years they may be able to take some consolation from the fact they were victims of an unprecedented "quintuple whammy" that was "not a standard, single bear market but really a succession of bear markets." It consisted, he says, of these events:

• the bursting of the Internet bubble, with its " ludicrous " stock prices;
• the recession;
• the events of 9/11;
• the corporate and accounting scandals; and
• " the geopolitical uncertainty climaxing in the Iraqi war. "

Of all five events, Rukeyser believes 9/11 has had the most lasting effect. "I don't think any of us," he says, "is going to go to sleep for the rest of our lives with the same sense of security we had before Sept. 11, 2001. … There is a nervousness and a lack of confidence still," which affects all phases of life, including investing.

Rukeyser says corporate scandals have also shaken the public trust. The most recent, involving accusations of unwarranted analyst claims and conflicts of interest, led last month to a record $1.4 billion settlement between regulators and 10 of the nation's biggest investment firms.

While Rukeyser says "it would be naïve and untrue" to believe all the rotten apples have been chucked out, he thinks "Wall Street is a considerably cleaned-up operation compared to where it was a few years ago" and that investors need not fear that the entire game is rigged.

Despite recent concern by the Federal Reserve about the possibility of deflation—a condition of widespread falling prices and wages—Rukeyser thinks it will be less of a threat in coming years than inflation. He adds that the Fed's comments signal that it is unlikely to boost short-term interest rates any time soon, which in turn will probably keep money market fund interest rates very low.

A PROMISING CLIMATE

On the bright side, Rukeyser believes that, in addition to current low inflation, rising productivity, the spread of freedom globally and the opening of new markets all add up to a promising investment climate.

In his opinion, the extremes of confidence and optimism that characterized the late 1990s have given way to extremes of pessimism and insecurity today. But, he says, "I think people should consider the possibility now that something might go right."