The economy will recover this year but at a pace slow enough to cause challenges for investors, a panel of financial experts told CNBC on Thursday.
Growth likely will be in the 2 percent range once the economy starts to turn around in the third quarter or so, but the slow rate as well as aggressive government involvement will create a new reality that investors will have to face.
"The recovery's going to be slow and I think for the next relatively long period of years we're going to be thinking normal growth in the US is more like 2 percent real rather than 3 percent real," said Jack Bogle, founder of the Vanguard Group.
The panel spoke a day after President Obama proposed aggressive new regulations to revamp the financial services industry, which in itself came on the heels of ramped-up rhetoric on a looming health care overhaul.
Investors will have to keep abreast with the rapid pace of change going forward, said Bob Doll, vice chairman at BlackRock.
"Predicting what politicians (are) going to do is very difficult. It's difficult enough to predict where the economy might be or where a business strategy for a corporation is. But the vicissitudes of Washington and how quickly they change makes it all the more difficult," Doll said.
"Therefore, I think risk levels are somewhat higher. Volatility is likely to remain higher during this period where the government is so interventionist. That's not a good thing for required rates of return and for markets, so I'd like to see some exit plans for all this good stuff."
Signs that the market is emerging from the bear market will get investors back in the game, but only slowly, said Goldman Sachs analyst Abby Joseph Cohen.
"We have forgotten what it's like to exit from a real bear market. That typically happens in stages. We have now had the first phase, which is a sigh-of-relief rally," Cohen said. "Since March the market is up more than 40 percent because it was priced based upon an Armageddon view of the economy.
"Right now investors are probably stuck in a bit of a trading range as we await the next round of fundamental information, and also as we begin to look further out into the future. At the bottom of a bear market, investors are willing to pay only for what they see in that quarter. As we emerge investors take a somewhat longer time horizon. As investors start to look into 2010 we may be able to take another upward step on the staircase of share prices as investors feel somewhat better about the economy and corporate prices—not a V-shaped recovery, but a recovery nonetheless."
Some experts have worried about whether the sweeping changes to the financial system will cause investors to pull back, but Paul McCulley, managing director for bond manager Pimco, praised the administration's plan.
"I think what the administration is proposing is a very interesting opening to a grand national debate," he said. "This is not going to happen quickly. This is a profound change to a regulatory structure. I applaud the thoroughness and the depth to what they've put out."
Bogle, though, said the plan is lacking in at least one area.
"What the whole integrated plan seems to me to lack is ignoring the one great authority out there that should be running all of our corporations, financial and otherwise, and that is the owner of those corporations. Where are the stockholders in all of this?" he said.
"These institutional investors that now control our society ... haven't done a very good job in representing their last-line owners. This act does nothing but build a regulatory structure that relies on everything but the participation of the owners, and those owners have to give a damn about what goes on in corporate America."
Investors will have to weigh the varying factors and make decisions accordingly, Doll said.
"We're still in a recession and ... we can't get ahead of ourselves," he said. "Our view, therefore, is having a little more quality in the portfolio than you might have had 90 days ago (at the most recent low), having a little more powder dry for a consolidation pullback. There's still a ton of money on the sidelines that missed the moves waiting to get in."