Most everyone agrees that investing one's money has been extremely challenging the last couple of years. With the bursting of the dot-com bubble, corporate scandals and lower stock prices, many people have been very reluctant to put -- or keep -- their money in the stock market. But with interest rates so low, investing in bonds or certificates of deposit isn't producing inspiring returns either.

Given low interest rates and a reluctance to invest in the stock market, we asked four alumni experts for their advice on how people can best manage their money -- profitably, but safely -- in this tough environment.

"People have been liquidating their equities with the equities downturn over the last few years, putting their money into cash and/or bonds," said Gerald Spitzer, BA '85. "But my feeling is that people react with emotions."

Spitzer, a vice president with Merrill Lynch's Private Client Group, said that the best time to buy stocks in general this year was the beginning of the Iraq war. "And that's the time -- if you had asked the average person -- he or she would have been least likely to buy stocks," he said.

Spitzer maintains that it is essential for people to establish asset allocation guidelines for themselves. This involves figuring out the right mixture of stocks, bonds and cash that is suitable for the individual, given his or her needs and tolerance for risk.

"The key is adhering to that asset allocation in good times and bad," he said, adding that it is important to keep rebalancing your portfolio so that your proportion of stocks and bonds remains fixed.

For example, let's say that in 1996 you decided that you should invest 60 percent of your money in stocks and 40 percent in bonds. Then at the end of 1997, with the big upswing in the stock market, your stocks have appreciated so much that 70 percent of the value of your portfolio is in stocks, and only 30 percent in bonds. If your needs and your risk profile had not changed, then you should have sold some stocks and used the proceeds to buy some bonds, to get your allocation back to 60-40.

But Spitzer warned that when the market is going up, and stock investments are doing well, people are reluctant to sell their stocks. Likewise, when the market is going down, and stocks are faring poorly, people are reluctant to buy more stocks to rebalance their portfolios.

"I think the hardest part of our business is getting clients to do the right thing -- sticking and adhering to their asset mix or their asset allocation model, which is based upon their risk profile," he said.

Don't expect quick windfalls

Historically, the stock market has always produced the best returns over the long run, Dina Naples Layish, BA '92, MBA '94 points out. She advises investing in stocks for the long term, but cautions that people must be patient and not expect quick windfalls.

"Investors have to plan for the long term, if they can, and wait for the stock market to go up," said Layish, a visiting assistant professor in the School of Management. "I don't think it's going to go up next week, I don't think it's going to go up next month. But I think in 10 years, the stock market will be higher than it is today."

But for short-term investing, there is risk. Even if the market did go up, not every investment would appreciate.

"It's a gamble ... So, if it's money that you need to put toward a house or to pay for someone's college education, that money shouldn't be gambled," Layish said. "We were spoiled in the '90s. Everybody wants wherever you invest (to go up) ... and we're just not going to see that again."

Lee Nesser, BA '92 is using the market downturn to build equity positions with his clients.

"What I'm doing with my clients is buying opportunistically. We're building positions now, building a base ... because a lot of my clients have been sitting on cash," said Nesser, a financial consultant with the Wealth and Asset Management Group at Lehman Brothers.

He said people were "shellshocked" by the market downturn, but are gradually starting to test the waters. One type of investment he recommends for jittery investors are principal-protected notes.

Principal-protected notes are securities that guarantee your principal while offering the opportunity to make money if the market goes in a favorable direction. In simplistic terms, they are typically made up of a zero-coupon note to provide for full or partial payment of principal at maturity, plus an option linked to the performance of a particular market asset, which pays out a return if the underlying asset moves in the expected direction.

Nesser said he is also recommending his clients put limit orders on their stocks, so that if they fall, there is a limit to how much money an investor will lose. With a limit order, a stock will automatically be sold if it falls to a predetermined price.

Choose stocks wisely

So how do you know what stocks to buy?

"The way to make money in the stock market over the long term is to identify individual companies that are run by good business men or women," said Allen Zwickler, BA '79, a managing director with First Manhattan Co.

"So, to the extent that I can identify businesses run by ethical people, and that have transparent accounting, that's what I look for. We make large investments in those companies, and we look to hold the shares for a long time."

Finally, Spitzer notes, there are ways to make the low-interest-rate environment work to your advantage.

"We are encouraging people to bundle their debt -- mortgages, credit cards, outstanding home equity lines. Bundle it and refinance the mortgages," he said. "With rates at 25-year lows, this is the time to bundle all your debt, if you can, and wrap it into a longer-term mortgage on your existing property."

-- Susan Spielberg '71