And the roll continues.

Diane

Published Sunday, December 5, 1999, in the San Jose Mercury News

Financial advisers' bottom line: stay cool

BY CECILIA KANG
Mercury News Staff Writer

http://www.mercurycenter.com/premium/business/docs/INVEST05.htm

[Fair Use: For Educational/Research Purposes Only]

MUTUAL FUND manager Robert Kahn's investment mantra for next year is simple: ``All OK in Y2K.''

Like most financial advisers, Kahn says investors should do nothing special to prepare their portfolios for possible year 2000 glitches.

To be sure, Y2K might cause a few financial hiccups in the first couple of weeks of the new year. Experts say investors should take a few precautions, such as keeping a couple of months of bank and brokerage account statements on hand and holding a bit more pocket cash than usual.

But most professionals scoff at the drastic advice being preached by doomsayers who tell folks to sell all their stocks, empty their bank accounts and put it all in gold.

``Just stick to your knitting,'' said Reuben Brewer, manager of mutual fund research at Value Line Publishing Inc. in New York.

If technology experts are right, there will be minimal turbulence in financial markets and at companies Jan. 3, the first business day of the new millennium. And financial advisers said 2000 should be viewed like any other year.

The fear is that older computers programmed using two digits to represent years may go on the fritz in the first few minutes after midnight on Jan. 1, either interpreting the year as 1900 or shutting down completely. The programming bug has inspired apocalyptic scenarios, such as the stock exchange shutting down, airplanes falling out of the sky at the stroke of midnight, prison doors unlocking and automatic teller machines freezing.

But most financial experts expect Y2K to be remembered as the catastrophe that wasn't. Software engineers have been working to fix the problem for several years, with companies and government agencies spending billions of dollars to make sure that most computerized technology will run without a hitch.

``Individual investors shouldn't be changing their investments because of Y2K. That's just silly,'' said Eric Tyson, financial counselor and author of ``Investing for Dummies.''

Short-term effects

Tyson said there may be a short-term drop in the stock market as jittery investors dump shares, but he advises holding on during that period, which will be just a bump in the road for longer-term investors.

Besides, selling would incur costly capital gains taxes and transaction fees.

``Chances are that any fall in the market will correct itself long before you need that money,'' said Chris Doyle, a spokesman for American Century, a Kansas City-based investment firm that manages $100 billion in assets in more than 70 mutual funds. ``And taxes (on withdrawn accounts) are likely to be more than any possible losses incurred by Y2K.''

Tyson said moving everything into cash now could result in a huge missed opportunity. Many people, sitting on the sidelines this year because of Y2K fears, have already missed the 23 percent rise in the Dow Jones industrial average and 60 percent on Nasdaq since January.

Kahn, who heads a $200 million equity fund for his firm, said he will treat a fall in the stock market as a buying opportunity.

Still, some experts suggest that investors diversify their portfolios and put some money into bonds and money-market accounts. Those investments might yield lower returns, but they are less risky than stocks.

``U.S. Treasury securities are perceived to be the safest, most liquid investments in the worlds, and historically have been one of the few places to hide during times of global turmoil,'' said Christopher Parr, a Columbia, Md., financial planner, in a recent article.

Indeed, if you want to sleep better, advisers suggest moving some of your retirement funds into bonds or cash. Since retirement accounts are tax-deferred, you can avoid the tax penalty and reduce volatility in your portfolio at the same time.

You also might want to be careful about foreign stock holdings because there could be some Y2K surprises overseas, said Tim Kochis, founder of Kochis Fitz, a San Francisco money management firm.

Kochis believes industrialized nations outside the United States are the most vulnerable because they were early adopters of computer technology but are lagging behind in making fixes. Less-developed nations use less technology, and therefore have fewer systems that might break down.

Foreign inflow expected

On the flip side, U.S. markets might benefit as foreign investors decide to buy U.S. currency and U.S. government bonds.

``In times of crisis, there is a tendency to flow money into the U.S. because the U.S. has the largest and safest market in the world,'' said Michael O'Higgins, a Miami Beach bond-fund manager.

Federal Reserve Chairman Alan Greenspan is even telling Americans not to withdraw extra cash from the bank on New Year's Eve.

Greenspan recently told the Senate Banking Committee that the smartest strategy is for people to leave their cash in their bank accounts.

But just in case, the Fed plans to keep an extra $200 billion in cash reserves, about one-third more than usual.

``We know we have enough currency to meet any conceivable demand,'' he said.

Contact Cecilia Kang at ckang@sjmercury.com or at (408) 920-5066.

-- Diane J. Squire (sacredspaces@yahoo.com), December 05, 1999

Answers

Don't break up the party. At least not until after the big guys have left...

-- Mara (MaraWayne@aol.com), December 05, 1999.

I wonder what Robert and Reuben and Eric and Chris are going to be doing next year, other than lying low.

-- Michael (mgentry@prodigy.net), December 05, 1999.

The banker says; "don't take YOUR money out of OUR bank!" The financial advisor says; "don't take YOUR money out of OUR control!" And then they have the nerve to call us paranoid. Your banker and your financial advisor are scared to death you might do something prudent. Think for your self and ask "don't they have a conflict of interest? Could they possibly have my best interest at heart?" After all, if you take control of YOUR money, they don't have a job. I can see those guys setting around wringing their hands with sweat on their brows hoping you listen to them.

-- UR2Blame (upower@jnb.net), December 05, 1999.

"Investing for Dummies" . . . the guy got the title right, anyway.

-- (dummies@theveryleast.com), December 05, 1999.

All the main SJ Merc stories and sidebars:

Special Report: Y2K Survival Guide: San Jose Mercury News: Sunday, December 5, 1999

http:// www.sjmercury.com/special/mill/y2kprep/

See also... an interesting graphic, from the front page of the Business section:

http://www.sjmercury.com/special/mill/y2kprep/ 120599impact.htm

And other TBY2K forum threads posted (so far):

Y2K Home Preparation: Officials Worry That Residents Are Not Ready (San Jose Mercury News)

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id= 001vpd

Valley's New Year's Mix: Work And Play; High-Tech: Workers On Y2K Duty To Be Offered A Fun Atmosphere -- Minus Booze (San Jose Mercury News )

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id= 001vra

Y2K Financial Advisers' Bottom Line: Stay Cool (San Jose Mercury News)

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id= 001vrt

For VCRs And The Like, 1972 Is The Quick, Easy Y2K Solution [Also... Rick Cowles & Embedded Systems] (San Jose Mercury News)

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id= 001vsH

Y2K Fixes Cost Billions, With Real Test To Come (San Jose Mercury News)

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id= 001vzz

-- Diane J. Squire (sacredspaces@yahoo.com), December 05, 1999.