- The Washington Times - Monday, January 31, 2005

Josephine Murphy says she learned to be more careful about her stock market investments after the technology bust of five years ago.

Her stocks in America Online, Cisco Systems and other companies tumbled.

“What I mostly lost money on was the things my stockbroker suggested I buy when tech items were hot,” said the Falls Church librarian. “Now I’m more suspicious. I make my own decisions.”

Like many investors, Mrs. Murphy again is venturing into stock investments as the market improves.

Despite a moderate decline in January from oil prices and Iraqi war concerns, analysts predict steady gains for the stock market this year.

Mrs. Murphy expects to set aside about 8 percent of her annual income for investment, which she puts mostly in stocks but also in bonds and savings accounts.

In 2004, investors put $177.5 billion into stock funds alone.

“It looks like it will be the largest flow since 2000,” said Chris Wloszczyna, spokesman for the Investment Company Institute, the trade group for the mutual fund industry.

Investors put a record $309.4 billion in mutual funds in 2000, only to be disappointed as the bubble burst and the stock market tanked.

In 2003, they invested $152.3 billion.

Their optimism this year is fueled by stock market gains that are edging toward a record.

The Dow ended 2004 at 10,783, or 8.7 percent lower than its Jan. 14, 2000, record of 11,722. Just over two years ago, it fell to a low of 7,286.

However, in the past two years it has made steady gains. In 2003, the Dow was up 25.32 percent. Last year, it rose 3.15 percent.

The Standard & Poor’s 500 index increased 28.69 percent in 2003 and 10.88 percent in 2004.

“The U.S. stock market and economy will continue to prosper in 2005, albeit modestly,” according to a report from Merrill Lynch Investment Managers.

The Merrill Lynch prediction is based partly on U.S. corporations’ controlling a record amount of cash, with more than $1 trillion they can invest on behalf of their stockholders.

Much of it is expected to be invested “with emphasis on the health care, technology and financial services sectors,” said Robert Doll, president of Merrill Lynch Investment Managers.

However, the companies must deal with shareholders who are more skeptical than during the heyday of the 1990s.

The National Association of Investors Corp. (NAIC), a nonprofit investment-education organization, reports small investors are cautious about venturing into the stock market again after getting burned by the dot-com bust.

“Certainly, they are putting more into equity funds now than they were a year ago,” said Ken Janke, NAIC chairman.

He predicted an average return of about 10 percent on stock investments this year.

However, he warned that unforeseeable events, such as war in Iraq, oil prices and natural disasters, could overturn any predictions.

“Whenever you have those uncertainties in the short term, you have problems,” Mr. Janke said.

An NAIC poll of investors in November found half of respondents agreed that now is a good time for new investors to enter the stock market. However, 40 percent said they would prefer less-risky investments, such as bonds or savings accounts.

Most investors in the Washington area said they plan to check carefully the stocks they buy before investing.

“I got burned in the technology area, and now I’ve become a bit more cautious,” said Anne Uno, a financial planner from McLean who says she is investing to earn money for retirement.

Unlike some of her 300 clients, she is willing to take some risks with her investments.

“They say don’t go into the stock market unless you can lose some funds,” Miss Uno said. “I understand that.”

Her stocks in the telecommunications industry lost 39 percent of their value when the stock market bottomed out two years ago. Now she is looking for more reliable stocks, such as in public utilities and real estate.

This year, she plans to invest 8 percent to 10 percent of her income, divided 70 percent into stocks, 25 percent into corporate bonds, and 5 percent into a savings account.

Bernard Gordon, a Department of Interior computer specialist from Waldorf, Md., said he hopes for a 15 percent return on stocks he invests in this year, but only after carefully checking the companies’ earnings records.

“It takes a lot more research now than in the past, when you could play it safe,” Mr. Gordon said.

He prefers stocks such as Cisco Systems, Comcast and Oracle. He also owns some corporate bonds but, because of their lower yields, he uses them merely to balance his portfolio while the stock market is rising.

Lorna Daniels, a retired former congressional administrative assistant from Arlington, said she is investing in the stock market again after being scared away in recent years by corporate scandals, such as the Enron and WorldCom affairs.

“They’re cleaning up their act,” Mrs. Daniels said, referring to legislative reforms. “In the past, everybody just let the corporations on their own. I think it will be much safer for the investors.”

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