EXPERT ADVICE: Top investing minds take on the downturn
But legendary stock-picker Peter Lynch thinks bargains are so plentiful now, "you feel like a mosquito in a nudist colony."
And Burton Malkiel, author of the classic investing book "A Random Walk Down Wall Street," is sticking to his long-held belief in investing in index funds. That's because judging from history, what we're seeing now is "not anything terribly unusual," he says.
Two years into the financial crisis, our retirement savings have been halved. The unemployment rate is the highest it's been in a quarter-century. And around the globe, economies are suffering the sharpest downturns in decades.
BURTON MALKIEL, professor of economics at Princeton University and author of "A Random Walk Down Wall Street."
We turn to some top investing minds for their take on the situation. Their words have been edited and condensed.
On the economy
This recession is being compared in its severity to the Great Depression, and I suppose in terms of how fast unemployment is going up and how worldwide it is, it probably bears some similarity to the Great Depression.
But I want to emphasize I don't think we're going into a Great Depression. For one thing, the money supply dropped by 25 percent during the Great Depression. Today, the Federal Reserve's balance sheet is expanding dramatically.
And central banks around the world are doing the same thing with respect to fiscal policy. I think the Obama stimulus plan could be much better. I think it may even be too modest. But at any rate, it's a big stimulus plan. Relative to what we did in the Great Depression, this is real money.
On investing
What's going on now is not anything terribly unusual. There have been many, many periods in the past where the stock market has been absolutely terrible for a decade or more. Unless you think that all of the sudden, the whole U.S. economy is going to go into reverse and never going to return, I think the stock market will prove its worth again in the future.
Does that mean we're going to recover right now? Who knows. What we do know about the stock market is that, after very long periods of hibernation or decline, it typically produces quite generous returns. If you've got a 10- or 20-year horizon, this is probably a very good time to invest in stocks.
I'm an indexer. I'd buy a very broad total stock market fund. I think you ought to buy a total bond market fund that has safe Treasury bonds, and also corporate bonds which now have very generous spreads over Treasurys. I also think everybody should have a safe (cash) reserve for contingency. Money markets are a fine place to be.
PETER LYNCH, former manager of the flagship Magellan Fund at Fidelity Investments
On the economy
We've had 11 recessions since World War II and we've had a perfect score -- 11 recoveries. There are a lot of natural cushions in the economy now that weren't there in the 1930s. They keep things from getting out of control.
We have the Federal Deposit Insurance Co. (which insures bank deposits). We have social security. We have pensions. We have two-person, working families. We have unemployment payments. And we have a Federal Reserve with a brain.
On investing
I would not disagree that corporate bonds look attractive versus money markets. But I would think stocks are more attractive. But you have to have a time horizon further out than three weeks from Wednesday. Even one year, two years is not long enough. I'm very happy and content that five, 10, 15 years from now, corporate profits will be higher and the stock market will be a lot higher.
This dramatic decline in stock prices has affected great companies and good companies and mediocre companies. It's brought them all down. Bargains are all over the place. There are so many attractive stocks out there. But they keep going down. I've definitely been pounded. To use a golf analogy, I'd like to take a couple of mulligans.
