• This is a partial transcript from "Your World with Neil Cavuto," June 19, 2006, that was edited for clarity.

    NEIL CAVUTO, HOST: Still, more than a few investors screeching at these volatile markets today, the Dow down about 72 points, back under 11,000.

    With us now to make sense of it all, the legendary founder, the chairman, the CEO of Charles Schwab Corporation, Charles Schwab.

    Chuck, good to have you.

    CHARLES SCHWAB, FOUNDER, CHAIRMAN & CEO, CHARLES SCHWAB: Well, thank you, Neil. It's always a pleasure to be on your show. I just love it. I watch it almost every day.

    CAVUTO: Well, I'm honored.

    But what is going on here? You have got a lot of people skittish, anxious. We make a step forward. We step back. What's happening?

    SCHWAB: Well, you got a lot of work going on by the Federal Reserve. They're raising rates at an unbelievable pace.

    CAVUTO: Justified?

    SCHWAB: And, yes, I think it is.

    CAVUTO: Really?

    SCHWAB: I think there's — inflation has moved into the scene. And I think they're just about ready to sort of complete their work. I'm hopeful it will done between now and August, frankly. And...

    CAVUTO: That could be two more hikes?

    SCHWAB: Yes, at least one more and maybe another one.

    But they have made their case. They have made — they have a very credible case. And I think the Fed — everyone believes what they are talking about. They want to suppress inflation. And I think they have done it.

    You know, all these things that the Fed does do — end up being 12, 18 months later, when you finally find out what has really happened there — and, so, they are always anticipating, in a big way, the future. But I think they have done great work at it so far.

    CAVUTO: But you know the history of the Fed is, regardless of who is running it, they overdo it.

    SCHWAB: They always overdo it. But that's — in some ways, you want them to do that, because we want to suppress inflation. Nobody wants to have an inflationary economy.

    So, it's almost OK to go in that direction. But, you know, that's the reason why we always recommend to people, build those diversified portfolios, make sure you have a proper spread of mixes of risk in your account, so you don't get overextended one way or another. And that's what, really, smart investing is all about.

    CAVUTO: I know, talking to you over the years, Chuck, you never get too rattled, whether I talked to you after the '87 crash or the '89 crash or the slow-go in the '90s, before we had the boom.

    But a lot of people say, this is an extended slow-go, that it could be like the '66-'82 phenomena, where it took us that long to convincingly go over Dow 1,000. You think so?

    SCHWAB: You know, we have an incredible economy right now. We have 140...

    CAVUTO: Why do no — no one thinks that's the case. Why?

    SCHWAB: We have 144 million Americans at work. Unemployment rate is 4.6, 4.6.

    CAVUTO: The media focuses on the negative.

    SCHWAB: Well, I don't know. That's why I watch FOX so much. I watch the people who really deal with the real numbers. And you seem to do a great job, you and all your other people who work here at FOX.

    But it is too bad that we aren't more optimistic as a country. But, in some ways, that's the nature of the beast. We get — various newspapers have a very negative perspective on the world. And, of course, Iraq has had such a suppressing aspect for so many people...

    CAVUTO: Well, if you didn't have Iraq in the equation, Chuck, how much higher do you think we would be right now?

    SCHWAB: Well, I think we would be considerably higher. But, nonetheless, there's always the negative, pessimistic kinds of views always at work. And that counterbalances markets. And that is sort of OK. We need to expect that.

    But, nonetheless, there are places to invest and make money over the long term. And that's the kind of thing that's — we're in that kind of business, trying to help people, guide them through the rough waters, navigate.

    But if you look back over any time frame, 10 years, 15 years, 20 years, whatever it might be, you have always had positive outcomes. And that's what really good smart investors — investing is all about.

    CAVUTO: What do you tell your investors? I heard this story on you some years back that you like to know what people who call your folks up are saying.

    SCHWAB: Right.

    CAVUTO: What are they saying? What are they anxiously saying?

    SCHWAB: Well, of course, in the last — since early May, it has been pretty — pretty concerning about things.

    They see stock prices go down, whether it's building stocks going down, or interest rates going up. What do I do? The stock market is falling 100 points down and so forth. How can I preserve my portfolio from this kind of a shock, from this kind of volatility?

    And, so, there are very easy ways to do that. And some of the smartest investors in the world know how to get the balance. And that is what we try bring every day to client base, how to...

    CAVUTO: Is there such a thing as a balance? If you had to put a percentage into stocks vs. bonds and cash, would you be more conservative today, less in stocks, than you would have been a year or two ago?

    SCHWAB: Well, I think it's a function of your age, frankly.

    I think, if you are 30 or 40 years of age, you have got a very — have a very high proportion of your portfolio diversified, but yet in stocks. And if you are 50 or 60, closer to my age, then you want to have a balance between 50 stocks, a variety of diversified, and then 50 percent in fixed-income, interest-rate-related kinds of investing.