PICKINGS ARE SLIM IN MARKET FEW OPTIONS LEFT TO INVESTORS.

Byline: Barbara Correa Staff Writer

After three years of a brutal bear market and declining interest rates, small investors are facing a sobering truth heading into 2003: alternative options to the stock market have pretty much run out.

All of the traditional forms of safe investment are either yielding next to nothing because of low rates, or have already been run up by investors turned skittish amid economic and global uncertainty.

With the federal funds rate at 1.25 percent, a 41-year low, certificates of deposit and savings accounts are offering returns below the rate of inflation. Bonds are now in the toilet. Gold, the haven of havens in troublesome times, is trading at 5 1/2-year highs, making it a no-no for people averse to buying high.

Smart investing now requires some strategizing, said Dorothy Strackbein Koetz, president of the Financial Planning Association of the West Valley in Woodland Hills. It also requires investors to understand that nothing ventured really does mean nothing gained.

Koetz advises investors who aren't sure how they feel about going back into the market to put cash into a money market account and set up a dollar cost averaging arrangement.

In dollar cost averaging, the investor takes the same dollar amount or percentage of savings each month and buys a stock or mutual fund with it, so that the purchase price averages out over time.

The method takes the wild card of trying to time the market out of the investing equation and builds discipline for long-term investing. ``If you wait and watch the market and try to pick the day, it just doesn't happen,'' said Koetz.

As for regular mutual fund investing, financial planners expect the battered large-cap sector to shine in 2003, as investors shift from low-yielding bond markets.

A stock's capitalization classification is the price of the common stock multiplied by the total number of shares that the company has outstanding, with larger cap companies connoting a greater degree of stability.

But over the past several years, the sector has frequently been outperformed by smaller stocks. Now market watchers expect a rebound, as investors flock to the familiar. ``It's probably the turn for large cap growth funds,'' said David Weible, a certified financial planner at Envision Wealth Management in Burbank.

Investors must continue to diversify their money, mixing some bond funds into an aggressive growth strategy, even though declining yields mean the best days for bonds are probably over, said Weible.

For investors looking for fixed income alternatives to government bonds or CDs, Weible recommends guaranteed fixed annuities and corporate bonds.

With annuities, the principle investment is backed by an insurance company, which agrees to pay out a specific interest rate for a set term, typically from five to seven years. Annuities' returns are averaging 3 1/2 percent to 4 percent.

Other options include direct-investment real-estate investment trusts and highly rated corporate bonds, currently averaging 5 percent.

The problem with these three alternatives is they can require minimum investments of $10,000 or other investor profile restrictions, making them unsuitable for investors putting in less than around $250,000, he said.

Which brings Joe Investor back to the inevitable: wading back into stocks at some point.

``If they're looking for a return above 4 (percent) or 5 percent,'' said Weible, ``the stock market would be the best place.''