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Stocks regain allure for local investors

| Sunday, Aug. 17, 2003

Karen Bavaro thinks this is a good time to invest in the stock market. Of course, her perspective is framed by a unique historic window.

Bavaro, a dental hygienist in Beaver County, founded a 25-member stock club in 2000, when the market was at an all-time high. The Dow Jones Industrial Average had topped 10,000 and was heading up. Then the dot-com bubble burst and the market promptly crashed.

It had been nothing but downhill from there until March, when the market turned and has risen steadily, albeit with some volatility.

"I'm continuing to watch it, and I probably will invest more," said Bavaro, 53, of Monaca, who bought several stocks in February that were trading at their 52-week low prices. "I do a lot of shopping to see what's out there."

Whether individual investors will ever regain their faith in the market that seemed to be minting millionaires in the late 1990s -- or at least padding 401(k) accounts to prompt dreams of early retirement -- remains to be seen.

In June, AMG Data Services reported that $19.9 billion flowed into stock funds, the largest inflow since March 2002, and the fourth consecutive monthly increase. Stocks were off some in July, with AMG recording a $414 million outflow of cash during the final week.

Earlier this summer, the investment Bible, Barron's, and the New York Times proclaimed that small investors are leading the new bull market.

Mellon Private Wealth Management, a unit of Mellon Financial Corp., moved its clients from a 25 percent stake in the stock market to 30 percent in early May, taking the money from fixed income funds, said Daniel P. Crawford, senior director of portfolio management. The organization manages money for investors with $1.25 million or more.

"Our outlook on equity investment (stocks) is more favorable than several months ago," Crawford said. "The risk-return ratio favors stocks over bonds."

Mellon has not exactly had calls from clients urging more stock investment, he said, but when someone has gotten nervous and wanted to remain heavily invested in bonds, "we would try to talk them out of it."

He is especially optimistic about emerging markets in lesser-developed countries such as China, Latin America and Hungary, and Mellon has taken money from mid-cap stocks to fund emerging market investments.

Crawford anticipates a summer slowdown with a generally upward trend through year's end.

"We are optimistic over the longer term, or we would not have made that call" to increase stock holdings, he said. "I don't think you can say it will be straight up from here, but in the longer term, you can say we're fairly optimistic."

Sanford Aderson, president of Luttner Financial Group Ltd., Downtown, said he is not seeing much call at all from individual investors to return to stock investments -- and quite rightly so, in his opinion.

"There has clearly been an increase in the markets, but our perspective has always been that the investing public ought to be focusing first on protecting their families, insuring that if the principal earner dies or is incapacitated, the rest of the family will be able to live their life," he said. "The '90s made that a challenge. People thought the rapid growth was going to solve all the problems."

Many individual investors, no doubt, are following their advisers back into the stock market, Aderson said. He expects that young people in their 30s will invest heavily. But older people with an eye toward retirement will never get over the losses of the 2000 crash.

"There's a large segment of the population, the older investor, who lost a lot of money in the bear market," Aderson said. "I don't think their money, in the same proportion, will ever come back in."

Indeed, membership in Bavaro's Millennium Stock Club plummeted during its first few months from 25 to 12.

"They were very uncomfortable when things started to drop," said Bavaro, who invests with the club and on her own.

In fact, a joke was making the circuit at her office: What Karen's club buys, sell it, because it's going to drop. "We did start it at a bad time," she admitted.

Another investment club, Les Femmes, meets monthly at the First United Methodist Church in Aliquippa, Beaver County. The club was founded in October 2000 and has witnessed similar ups and downs, said founder and professional investment adviser, Pamela M. Roesch.

"We were down a couple of thousand, but we've come back," she said. "It just goes to show you that if you pick quality and you're patient and you don't move in and out, you'll be able to weather it."

Sharon Griffeth, a Les Femmes member and school teacher, lost one-third of the value in her 401(k) in the bear market. "It hasn't moved yet," said Griffeth, 39, of Moon. "I just looked the other day, and it was still pretty bad."

Yet she is setting aside money for stock purchases. "I do think it's probably a good time to invest," she said. "I don't think things are real stable, but I do think there are some good buys out there."

President Bush's tax cut will make dividend stocks more attractive, Griffeth predicted, because it lowers the tax rate on dividends to 15 percent instead of taxing dividends as income. Other deals in today's economy are freeing up money for potential investors: zero percent financing on new car purchases, for example, and lower mortgage payments achieved through refinancing at a better rate.

Peg Gardner, president of Les Femmes Stock Club, said she would love to invest in stocks right now, but her layoff last year has pinched her wallet. Gardner, 68, of Conway, Beaver County, traded a secretary/receptionist job for work at Lowe's in the garden area.

"I personally think it's a good time to buy," she said. "Some stock prices are low. But people have to have the money to invest."

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