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Top Analyst Predicts Good Years Ahead For Stocks

- Alan Lavine and Gail Liberman

What can you expect to earn in stocks, bonds and cash for the next several years?

Robert Doll, chief investment officer with Merrill Lynch, New York, says stocks will outperform bonds and cash. Cash investments are considered bank CDs, U.S. Treasury bills and money market funds.

Doll expects the economy to grow 4 percent in 2003. Interest rates will rise as the economy picks up steam. The demand for money due to good business conditions push up interest rates.

Doll's forecast calls for stocks to grow at about 8 percent annually over the next five to 10 years. That doesn't mean you will earn 8 percent a year. That means if you look at the percentage gain on your investments, you will average 8 percent. In any give year, your stocks could be in the black or in the red.

Bonds are expected to average 5 percent. Meanwhile, cash will earn about 2 percent annually.

Be advised: A forecast produces an estimate of an average return. But that means you have a 50-50 chance, for example, of earning 8 percent annually in stocks. It could be more or less. Historically, two-thirds of the time, stocks returned about -11 percent to + 23 percent over the past seven decades. There is no sure thing when you invest in stocks. That's why you need to keep some money in bonds, cash or inflation hedges like gold. The simplest way to diversify is to invest in an asset-allocation fund that owns different assets.

Of course, if you invest in stocks, bonds and cash, you will not earn as high a return as a 100 percent stake in stocks. By contrast, when the stock market declines due to a bear market, you will lose less. Based on Doll's forecast, if you put 60 percent in stocks and the rest in bonds, you should average about 6.5 percent annually over the next several years. Your holdings, however, will be half a risky.

Doll also says that commodities like gold and energy should perform well. Commodity investments have been overlooked for a number of years. But prices are rising. Improved global economic growth, as well as a rise in inflation should bode well for commodity prices.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).

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