Investing in stock market a good bet in long run

There hasn’t been any really good news for investors for … well, for so long it’s hard to remember. After all, we’re closing on the third anniversary of the bear market.

Still, there have been a few hopeful signs. It turns out the economy grew faster in the fourth quarter of 2002 than earlier reports had indicated. Companies appear to be rebuilding inventories. Growth in consumer spending, while still very slow, was better than earlier numbers had shown.

It makes you wonder whether the economy could really get going if we didn’t have this elephant in the room — the prospect of war with Iraq.

Investors are reacting to the war risk in the only sensible way, by refusing to bid up stocks in case the worst happens — Iraq unleashes gas and germs, fighting in Baghdad grinds on for months, oil prices soar higher …

But, watching the news the other night, I was struck by a film clip from the last Gulf war, showing masses of Iraqi soldiers surrendering. Surely, Iraq is weaker today than it was then, and the United States is stronger. Don’t the odds favor a quick victory?

With the war out of the way, won’t the economy just take off?

It could turn out that way. Or, better yet, maybe there won’t be a war at all.

Of course, none of us knows what will happen. And there are many other uncertainties in the air. What will happen to the president’s tax-cut proposals? Will he sell Congress on his ideas for tax-free investment programs? How bad will the federal deficit get? Will state budget shortfalls get even worse?

It’s enough to make an investor’s head spin.

At least, it ought to be.

Oddly, as an investor I find myself unexpectedly calm. Call it fatalism if you like, but I feel I don’t have to agonize over any big decisions, as there doesn’t seem to be anything I can do. Whatever will happen will happen.

Also, I cling to some articles of faith:

Investors rarely succeed at timing the market — trying to anticipate the peaks and valleys. Over long periods, it’s better to plod along, continuing to put new money to work every month or quarter, regardless of whether prices seem high or low.

Over periods of 10 years and more, stocks almost always rack up better returns than the main investment alternatives, bonds and cash.

In the past, the financial markets have always recovered, eventually.

Sure, there are periods — most of them short — when these rules are overturned. Bonds did do far better than stocks last year, for example.

But it’s too late to buy bonds or bond funds now. Interest rates are so low that they’re more likely to go up than down. A low-rate bond bought today will tumble in price if it can’t compete with new bonds paying higher interest rates a year from now.

Lots has been made of the fact that the big stock indexes have fallen so far in the past three years — 42 percent for the Standard & Poor’s 500, 27 percent for the Dow Jones industrial average and 73 percent for the Nasdaq.

If the S&P 500 started returning 6 percent a year, it would take nearly 10 years to get back to those old peaks.

But for most investors it would take nowhere near that long to get back into the black. Indeed, I suspect most of us are there even now. After all, how many investors put all their money into stocks right at the peak in early 2000?

In fact, the S&P 500 and Dow are higher today than they were in 1997 and earlier. So the average stock or stock fund bought before then is still a winner.

More important: New money put into the market now, or old money kept there, will double in 12 years at a modest annual return of 6 percent. That’s not bad at all — even better considering the small toll taken by today’s low inflation.

An investor who focuses on the market peaks is like a roulette player who thinks only about the winnings he gave back to the casino, while forgetting that he went home a winner anyway.

Like you, I don’t know whether the market indexes will end this year higher than they are now, or lower. But if I sold all my investments and moved to the sidelines with a pile of cash, I’d hate myself if all these political and economic troubles dissipated and I’d missed the rebound.

The United States has a marvelous economic system, a great entrepreneurial spirit and fine workers. Over the long term, the average public company is going to grow, and stock prices will rise to reflect that.