If the volatility of the stock market is making you seasick, consider rebalancing your portfolio. That means altering the mix of your investments between stocks, bonds and cash or cash equivalents.
For example, an investor who chose a 60-40 mix of equities vs. bonds can normally expect an annual return anywhere from 34.4 percent to minus 12.4 percent, according to calculations from the financial consulting firm Ibbotson Associates Inc. in Chicago. That's based on the worst one-year performance of the Standard & Poors' 500 index kept since 1950 -- minus 26.5 percent in 1974.
A 70-30 mix could return 37.2 percent to minus 13.6 percent, Ibbotson said, illustrating the greater potential volatility of an enriched mix of stocks.
A young person's portfolio should be weighted toward equities, but someone approaching the golden years should lighten up on them.
Any good financial professional can come up with an asset-allocation plan to fit your investment objectives. Many firms even offer them free over the Internet, including Charles Schwab & Co. (www.schwab.com), which can spit one out in seconds based on a brief investor-profile questionnaire.
Companies lie about stock buybacks
It happens all the time: Companies say their stock is undervalued so they're going to buy up some of their own shares on the open market.
The stock takes a nice little leap on the announcement.
Well, it turns out the companies are usually lying, say a couple of professors who studied such announcements from 400 of the largest companies from the mid-1980s to mid-1990s.
In two of three cases the companies repurchased less than half the shares mentioned, and in 40 percent none at all, say researchers James D. Westphal of the University of Texas and Edward J. Zajac of Northwestern University.
Moreover, they say, the failure to follow through on buyback announcements appears to be deliberate and predictable, done to produce a measurable uptick in a company's share price, induce new purchases from unwitting investors and fool existing shareholders.
Fed to beef up on currency
The Federal Reserve is planning ahead in case people get spooked over the Year 2000 bug as the millennium turns.
By the end of next year, $200 billion in currency will be stored in government vaults, up from the $150 billion normally held in reserve, the Fed said. That's in addition to the $460 billion in notes circulating in the United States and abroad.
"It's purely a precautionary measure," said Clyde Farnsworth, director of the Fed's operations and payments systems. "We want to be able to meet increased demand from commercial banks should private consumers request more currency."
The thinking is, Americans might worry about whether credit cards and automated teller machines will still work after the new century dawns. Many older computers read years by the last two digits and would interpret 2000 as 1900.
Cash isn't trash anymore
Individual investors continue flocking to money market mutual funds, seeking a safe-haven from the volatile stock market.
"All of a sudden the 5 percent yields of money funds don't look so bad for investors who just saw the value of their stock portfolio fall 10 percent," said Kevin Kennedy, vice president of Citibank Global Asset Management.
Last week, money market funds gained about $7.7 billion, according to IBC Financial Data Inc., while investors put an estimated $3 billion in equity funds, according to Trimtabs.com. Over the five weeks that ended Friday, the benchmark Standard & Poor's 500 Index fell 8.9 percent and investors put about $34.5 billion in money funds and an estimated $5.3 billion in U.S. stock funds, industry research groups reported.
Based on the growth of money funds, investors are more worried about recent declines in the stock prices than they were in by similar-sized declines last October. When stock prices fell last October, inflows to money market funds were less than half as much as recent weeks.