Puna,
You bring up several of the same thoughts that I have had over the past couple of years. I thought that the Asian and Russian currency problems last year might trigger a sell off, but the market came roaring back.
Based on what you state about yourself, your age, your “long-term” outlook and your expressed concerns about the market, it sound likes you should look at re-balancing your portfolio to a risk level that you are comfortable with. Because of the large run-up in stocks over the past few years, you are probably overweight in stocks.
From all research I have read so far, there will be some varying degrees of serious problems as a result of this missing digit, some sooner, some later (like oil reserves).
But if we can, lets narrow the focus to how this will directly affect the stock market and my portfolio. OK yours too.
>What are the best and worst case scenarios Y2K could have on the Stock Market?
Personally, I feel that an economic slow down or a recession next year is inevitable. This is my best case scenario. Even if Y2K is only a bump in the road, the contingency planning and “stock-piling” that is going on now will cause a sufficient slowdown in the economy next year to cause a recession.
However, since this market does seem to care what the fundamentals are, I don't think that an economic slow down or even a recession will slow this market for long. The baby boomers are in their prime money making years and are furiously saving for an early retirement. Where else will they invest their money?
Foreign investment is also influencing this market. Where else are foreigner (especially the Japanese) going to put their money? The U.S. stock market is the strongest in the world and will probably remain so after Y2K.
There's just no place else to put your money.
On the other hand, if Y2K causes serious problems, but short of a total meltdown, then prudent financial planning is essential. If problems are severe enough to cause unemployment to rise to 10-15%, then the stock market is bound to be seriously affected. The question here is, how long will it be before the economy can recover?
If you believe that the stock markets react to economic events 6 months in advance and you believe that Y2K problems will start in January, then you should expect the market to start a down turn in the next month. This seems reasonable to me.
One way that you could play this expected down turn is to buy “put” options. Or, you could risk losing some of your stock for some quick cash by writing covered “calls” against some of your shares. Obviously options are risky investments and these are risky times.
When I read the following lines from your post:
I have only recently become concerned that my stock investments may be in a precarious position as the first wave of Y2K reality in the Market place looms closer. (or is it already here?)
How to navigate a stock portfolio that is primarily intended for the long term growth of each company in a Y2K climate.
I may be self-sufficient in many ways but I would like to still have that retirement stash growing and available later!
I sense that your portfolio is no longer balanced for your tolerance to risk, especially the risk associated with Y2K.
You might want to consider moving some money from your riskier stocks to a more secure investment, possibly bonds or government treasuries. You might even want to keep some in a money market fund so that you can take advantage of lower stock prices next year.
B.K. |
