(FORTUNE Magazine) – WHAT INVESTOR isn't nostalgic for the Eighties? It seemed all you had to do was plunk down your money and watch it grow like a line at a Madonna concert. Investors in stocks enjoyed the second-best bull decade on record, and for investors in bonds, it was the best decade ever. A wheeler-dealer like Donald Trump could put his name on a building, and overnight, seemingly, it was worth 30% more. ''The 1980s,'' says John Carroll, who manages GTE's $10.4 billion pension fund, ''were a once-in-a-lifetime experience.'' As you might have noticed, things have changed. So far the 1990s have brought investors an unreasonably large dose of unpleasant news: the ever costlier S&L crisis, sinking stock markets, quickening inflation, the real estate slump, the Gulf crisis, and the ongoing threat of recession. As for Trump, he is scrambling to avoid bankruptcy. Still, it's not time to slip into a camouflage suit, fill your backpack with gold, and head for the hills. No matter what happens over the next few months on Main Street or in Mecca, the worst thing an investor could do now is panic and sell everything. If you stay calm and adjust your portfolio to capitalize on the coming demographic and economic changes, the Nineties may even produce nice profits, despite the nasty start. An overview of investment prospects during the decade: -- Stocks still promise to be your best investment, with the market trudging upward more than downward and yielding total return at about the historical average rate, 10% or so a year. Or perhaps a bit better. Growth stocks are in. Takeover plays are out. -- Bonds should eventually prove a reasonably good buy, since most economists expect inflation to ease a bit from recent rates, though not right away. Over the decade, U.S. government long-term bonds should yield 9% to 10%. With inflation expected to stay around 4% or 5%, that implies real interest rates of 4% or more, somewhat above historical norms. -- Real estate looks unpromising. In much of the nation, a glut will hurt both commercial and residential sales for at least the next two or three years. -- Gold won't glitter unless inflation gallops or fear runs rampant. For investors, in short, the Nineties will not replay the Eighties. In that rewarding decade Standard & Poor's 500-stock index, given extra thrust by the takeover commotion, yielded total return at a compound annual rate of 17.6% -- a performance surpassed only by 19.4% in the great bull market of the 1950s. Another bull stampede of comparable magnitude isn't likely for a while. Heavy corporate debt and strong kicks of reality have slowed the takeover game. The prolonged economic expansion of the Eighties is winding down. ''You can't stretch the rubber band endlessly,'' observes Bruce Johnstone, manager of Fidelity's $4.2 billion Equity Income Fund. From an investor's perspective, if in no other way, the 1990s may be much like the 1960s, which followed a raging bull decade and provided about an average return for stocks. After a few bumpy years, the American economy should begin to recover as consumers and corporations slow down the accumulation of debt. The baby-boomers are getting older, raising families, and becoming more inclined to save. This should help lessen the cost of capital for business. Corporations, well aware of what befell heavily indebted adventurers like Campeau and Trump, will be wary of Eighties-style borrowing, and some, no doubt, will try to pay down their debts. Technological developments should help drive growth. New markets stemming from fiber optics, computer imaging, biogenetics, and other emerging technologies bode well for the stock market. And as the decade unfolds, expanding world trade should help buoy the U.S economy. Once they get moving, economies in Eastern Europe should expand rapidly. So should those in the Pacific Rim, though not as rapidly as in the Eighties. South America, already starting to reduce protectionist obstacles to imports, is likely to become a bigger trading partner and a better scene for investment. HOW CAN investors capitalize on these trends? In the decade ahead, as in any decade, the single most important determinant of investor success will be asset allocation -- how your assets are distributed among the various classes of investments, such as stocks, bonds, and real estate. ''It's the central question, which most people never really pinpoint,'' says Roger Hertog, executive vice president at the New York investment firm Sanford C. Bernstein. Over any considerable span of time, your returns depend much more on what proportion of your portfolio is in stocks than on what stocks you have in your portfolio. This proposition meets with automatic resistance, but it is firmly based on evidence. Ibbotson Associates and Brinson Partners, two firms based in Chicago, did an elaborate study of asset allocation, constructing a variety of model portfolios and seeing how they would have actually done over time. Analysis of the results indicated that allocation between classes of assets accounted for -- get ready for this -- 93% of the difference in returns between various portfolios. Selection of particular assets within classes accounted for no more than 7%. The specific figures, 93% and 7%, are not engraved in granite. Another study, equally painstaking, might well come up with somewhat different figures. The essential point is that deciding how to allocate your assets between stocks and bonds (or other kinds of investments) will have much greater impact on your returns in the Nineties than which particular stocks or bonds you buy. Though stocks should perform best in the decade ahead, the case for a heavy weighting of equities in your portfolio rests on far more than a forecast. The past 64 years of carefully documented financial market performance reveal the long-term superiority of stocks over any other type of investment. A dollar invested in the S&P 500 in 1926 would have grown to $500 today, assuming no taxes and reinvestment of all dividends. Under the same assumptions, a dollar invested in intermediate-term U.S. government bonds would have grown to only $22, and a dollar in Treasury bills to a meager $10, barely enough to beat inflation. It's not chance that puts stocks on top. Unlike competing investments, stocks offer ownership in companies, and companies grow. Bonds, real estate, and gold do not. The main message is that for most investors, asset allocation should tilt toward stocks. Over the long haul, holding stocks has proved a good safeguard against inflation. They're better than gold, for example. Since 1935 the S&P 500 has registered an average annual return of 7.3% after adjustment for inflation, compared with 0.3% for long-term government bonds and 0.4% for gold. EQUITIES MAY HAVE a winning record, but over the next several years the stock market bull may stumble. Recession may be just around the corner. Oil- fired inflation could return. Corporate debt is onerous. Don't load up on stocks if you can't wait out these problems. Indeed, never move into stocks if you can't afford to let the money sit for a spell. Stocks are a long-term investment. The longer the run, the wider and more certain the advantage. In a short run -- a few months, a year, a few years -- investing in stocks may or may not pay off. As many people who have done some in-and-out speculating can testify, it is very easy to lose money in stocks. To be fairly sure of making money, you have to be prepared to stay around, even through white-knuckle down years. Some investors may be tempted to wait until the economic clouds clear and then shift into stocks, hoping to avoid the big risks today and capture the high returns later on. Don't try it. The reward for staying in through the down spells is that you are in when the market goes up again. Come in a little late and you can miss a lot of the rise. Say you tried to time the stock market in the 1980s, a decade that looked even more ominous at its start. You may have been spared the 1982 lows, but if you happened to be out of the market during the first few months of the recovery, you missed two of the best months of the decade, August and October, which together accounted for 16% of the market's rise from August 1982 to the end of 1989. As Woody Allen once said, ''Eighty percent of success is showing up.'' Should you ever sell stocks? Not often. Many individual investors sell too soon, becoming in effect unintentional traders. When you get out and back in a lot, transaction costs and taxes bite. You have to do much better than the market just to stay even. But when careful thought and attention to facts tell you it is time to sell a particular holding, go ahead and sell. As the poet Robert Frost put it, ''Take care to sell your horse before he dies. The art of life is passing losses on.'' While asset allocation is crucial for successful investing, don't underestimate the importance of stock picking. It is easy to misinterpret the Ibbotson study's 7% figure, which despite appearances does not really say that stock selection is unimportant. The 7% applies to large aggregates of investors, but within any given pattern of asset allocation, some investors do much better than others over any period of time. Through luck or wisdom or diligence or whatever, they do better selecting. In the overall picture, their superior results are offset by the inferior results of other investors, and the net is that puny-seeming 7%. You can try to do better than that. Look for growth companies -- businesses with earnings steadily increasing at 15% or more a year -- to lead the market in the 1990s. These stocks tend to do well not because they are takeover plays or special situations but because they have promising long-term growth prospects. In the early Seventies, an assemblage of growth stocks renowned as the Nifty Fifty kept logging impressive returns long after the broad stock market had run out of steam. A similar elite group could emerge in the decade ahead as more investors turn to companies that can maintain strong growth even in a sluggish economy. For a list of analysts' favorite candidates, see the new Nifty Fifty on page 72. Some, like McCaw Cellular Communications, the biggest cellular phone company in the country, have pricing power, an important advantage in the competitive Nineties. Others, like Microsoft, are in expanding industries that can look forward to continuing growth in volume. Still others should benefit from new business trends. James Moltz, chief strategist at C.J. Lawrence Morgan Grenfell, a New York investment firm, likes two lesser-known companies, both of which have the word ''safety'' in their names. That itself may say something about the 1990s. FlightSafety, which trains pilots, should thrive as regional airlines, increasingly unable to afford to do their own training, contract it out. Safety-Kleen, which recycles hazardous fluids from gas stations, car dealerships, and factories, should profit from America's heightened concern for the environment.

Growth stocks looked rather pricey earlier this year, but they have fallen along with the rest of the market and are now more attractive. Historically, growth stocks have sold at about 1.5 times the market multiple. Today they can be bought at only a slight premium. Says Robert Elliott, senior executive vice president of Bessemer Trust, which invests $8 billion primarily for wealthy individuals: ''Now looks like a good time to buy.'' WITH EXPANSION of world trade in prospect, also consider export-driven stocks. These companies are well positioned to profit from new growth in foreign markets like Eastern Europe, the Pacific Rim, and South America. Bessemer's Elliott favors stocks like GE and Westinghouse, heavy manufacturers that should benefit from increased foreign demand for capital goods. OK, you say, if stocks are so much better than bonds, why bother with bonds? Why not put the whole bundle into stocks? For a good reason: That would be too risky. While stocks are far superior over the long run, life is a succession of short runs. And in a short run, stocks may, and often do, perform badly. If you have to sell stocks to raise needed cash, the timing may be disadvantageous because you are selling at a loss, or because it would be well to stay in for the coming upturn, or both. Accordingly, a prudent investor, while leaning toward stocks, will have a portion of his assets in bonds (as well as keeping a reserve of cash, which no investor should be without). Long-term bonds generally do well in hard times, but they are also vulnerable to inflation, which pushes interest rates up and bond prices down. So unless you are sure you see years of slower inflation ahead, it would be prudent to shun long-term bonds and buy intermediate Treasuries with maturities of two to ten years. These are usually referred to as notes, but they are bonds nonetheless. Intermediates provide nearly the same yield as long-term bonds, with much less inflation risk. When interest rates move up one percentage point, the price of, say, a 30-year bond with a 10% coupon will decline 9%, while a five- year bond will drop only 4%. Long-term bonds get hit harder to make up for the possibility of all those extra years of below-market interest payments. The ride can be harrowing. If you bought a 20-year $10,000 Treasury bond in 1980, you would have had a steady stream of income over the decade, but your bond's value would have fluctuated between $12,000 and $6,950. If inflation gets bad enough, intermediate bonds can get savaged too, but the argument for moderate inflation over most of this decade is compelling. Tough global competition will continue to apply anti-inflationary pressure by forcing U.S. corporations to keep costs and wages down. The Federal Reserve Board, moreover, seems determined to resist inflation. Richard Berner, Salomon's director of bond research, argues that the Fed, having learned its lesson during the days of devastating inflation in the late 1970s and early 1980s, won't ease the money supply too much. ''The Fed,'' he says, ''doesn't want to go through the pain of bringing down high inflation again.''

It's also likely that real interest rates will stay positive, at about 4%. In the early Eighties the federal government lifted the controls on what banks could pay on deposit accounts. This allowed real interest rates throughout the system to rise to whatever the market demanded. Morgan Stanley senior economist Robert Gay points to another factor. ''Real interest rates should stay very high,'' he argues, ''because of an increasing global demand for capital.'' The industrialized world, Gay believes, needs investment capital to rebuild its infrastructure of roads and airports, and countries in South America and Eastern Europe need it to expand their economies. No matter what your investment situation, be wary of junk bonds, which are called that for a reason. Of less than investment quality, junk bonds are currently yielding around 18%, or double the yield on ten-year government bonds. The high yields are attractive, but if a recession comes in the 1990s, and some economists think it will come sooner rather than later, the default rate on junk bonds will rise dramatically. Further, junk bond funds, the most common route in for individual investors, face an additional risk of illiquidity. When investors seek to abandon the market in droves, as they did during the Campeau financial scare a year ago, junk funds are forced to sell bonds at distressed prices in order to raise cash. That locks in losses. Say your portfolio is tuned up with a comfortable mixture of stocks and intermediate bonds. Should you invest in those two other stalwarts, real estate and gold? If you do, don't count on making much profit. In the 1970s and 1980s many Americans regarded their homes as their best investment, and in some markets in the Northeast and along the West Coast, that certainly proved to be the case. In the Northeast the median price of existing homes boomed 85% from 1984 through 1989. Over the U.S. as a whole, however, housing prices haven't climbed nearly that much. Overall, the real value of similar-quality housing in the U.S. has remained virtually flat since double-digit inflation ended early in the Reagan Administration. According to the National Association of Realtors, the median price for the resale of a house notched up an average of 4.6% a year nationwide in the 1980s, very close to the average annual increase in the consumer price index. REAL ESTATE won't do much better in the Nineties. In markets where there is now a glut in housing, the hope of hefty appreciation will be slim for at least the next few years. A house, though, is not primarily an investment -- it is a place to live. The true alternative to buying a house or apartment is not investing in something else but renting a house or apartment. And because of the tax breaks, owning is usually more rational than renting. The same unexciting outlook can be applied to commercial real estate. Ken Rosen, chairman of the Center for Real Estate and Urban Economics at Berkeley, believes that most of the country is suffering from at least a two-year oversupply of office buildings and strip shopping centers. Thousands of properties that were once owned by bankrupt S&Ls and will soon be sold off by the federal government have cast an additional pall over the outlook. In some markets like New England and parts of Southern California, he sees prices dropping 10% to 15% more before recovering. Because of the current glut, Berkeley's Rosen generally cautions real estate investors to wait before jumping in, if they jump in at all. Says he: ''You can't be too patient in this market.'' If you want real estate securities in your portfolio, look for areas of the country that might do well for particular reasons. For example, commercial real estate in Texas, Oklahoma, and Colorado is starting to recover. (For more ideas on real estate investments, see article on page 25.) WHAT ABOUT that other reputed inflation fighter, gold? In times of runaway inflation, as investment folk wisdom goes, people flock to gold as a safe haven. Lately, though, gold has proved to be a lousy hedge. Say you were unfortunate enough to buy some on January 21, 1980, at $850 an ounce. Today your investment is worth about $400 an ounce. Even in the wake of the Iraqi invasion of Kuwait, gold has appreciated only about 5%. If you take a long, long view, gold does keep up with inflation. It is said that an ounce of gold has been roughly worth the price of a business suit or equivalent garb for the past 700 years or so. But with stocks you can run ahead of inflation.

Some people buy gold because if all else fails it can be used as money even when paper can't. Says Bessemer's Elliott: ''It's the doomsday scenario.'' His clients reserve about 1% of their portfolios for gold, but that seems to have more to do with feeling better than with doing well. In sum, the investment outlook for the Nineties can be characterized as less good than in the Eighties but not bad. Right now, with so many boats rocking, perhaps the most important thing is not to let grim news make you overly pessimistic. Says Princeton's Burton Malkiel, author of the classic A Random - Walk Down Wall Street: ''It's very hard not to get pessimistic when everyone else is pessimistic.'' The decade has only started, after all. If you hang on to your investments and approach new ones prudently, you can probably find a reasonably safe and profitable path between fear and greed.

CHART: NOT AVAILABLE CREDIT: SOURCE FOR HISTORICAL NUMBERS: IBBOTSON ASSOCIATES CAPTION: THE NOT-BAD NINETIES Don't expect a repeat of the Eighties, but both stocks and bonds should do better than in the Sixties and Seventies. The figures represent compound annual return. Financial analysts supplied the forecast for the new decade -- STOCKS -- LONG-TERM BONDS -- TREASURY BILLS

CHART: NOT AVAILABLE CREDIT: SOURCE FOR FIGURES: WRIGHT INVESTORS' SERVICE CAPTION: A NIFTY FIFTY FOR THE NINETIES