“The stock market soared Monday as war with Iraq now appears to be all but a certainty. The move was driven by traders who don’t want to miss a rally like the one that accompanied the outbreak of the short and successful Gulf War in 1991. Monday, the Dow Jones Industrial Average climbed 282.21 points to 8141.92, capping a nearly 10% rally since last Wednesday’s low,” writes Ruth Simon in today’s Wall Street Journal.

“But such ebullience is unlikely to last. War, of course, is uncertain, and anything short of a quick resolution will be viewed as a setback. What’s more, the looming conflict doesn’t change the gloomy economic news that has been weighing down stocks this year.”

“Wall Street is swooping into the void. Some of brokerage firms’ top sellers in recent months have been investments that are touted to hold their value even if the stock market slumps again.”

“The pitches are working. Investors poured $5.75 billion into such so-called principal-protected mutual funds last year, versus a total of just $500 million over the previous three years, according to Financial Research Corp., a research and consulting firm. Meanwhile, about half of the people purchasing variable annuities at Hartford Financial Services Group are opting for its new ‘Principal First’ guarantee.”

“The problem is that many of these products are so larded with fees and restrictions that they won’t go up much either if the current market rally has legs. What’s more, the downside protection often isn’t all it’s cracked up to be.”

“The growing sales of these principal-protected funds, notes and annuities underscores how a brutal three-year bear market has transformed the investing world. In early 2000, as stocks soared to unthinkable heights, Americans weren’t interested in investments unless they promised sizzling returns.”

“But many planners and financial experts are skeptical that these investments make sense for most people. They say investors can better moderate risk in their portfolios by buying a blend of low-cost stock and bond funds.”