POLARIZED DEBATE. For investors, Y2K is an equally tough nut to crack. As the Senate Committee notes in its Year 2000 report, the debate over the problem has become polarized between those who see the Y2K problem as a hoax aimed at selling technology, on the one hand -- or the end of the world as we know it, on the other. The report should help stimulate a middle ground of thought. "The good news is that talk of the death of civilizationhas been greatly exaggerated," finds the report. "The bad news is that Committee research has concluded that the Y2K problem is very real and that Y2K risk management efforts must be increased to avert serious disruptions."

Even Edward Yardeni, the chief economist at Deutsche Bank and one of the foremost Y2K alarmists, is tempering his most dire predictions. In a Feb. 22 report, he conceded that he has become less concerned about federal agencies, the banking and finance industries, air-traffic control, and the national electric power system. He thinks there's only a 5% chance that the worst of the social and political upheaval that has been predicting will come about. He still forecasts a 40% chance that there will be major global recession for a year or two and that the stock market will decline 30% to 40%. But his three most positive scenarios have the stock market down temporarily, or unaffected.

In truth, investors can do little at this point to prepare for the millennium bug. The time for investing in technology companies that might benefit from the glitch is long past. And not enough information is available to start picking out companies that stand to get walloped. Most companies say they'll be in compliance with Y2K standards -- but aren't there quite yet. The Senate's Y2K report notes that "fund managers and brokers have only recently started to consider the implication of corporate Y2K vulnerability on investment decisions." The most sensible advice for now is to do nothing. If the clock ticks past midnight on Dec. 31 and nothing much happens, you'll kick yourself for getting out of the stock market.

"Any market impact we have that is negative will be a blip," declares Joseph Keating, chief investment officer of the Kent Funds. He believes that Y2K will cause only minor problems followed by "a sigh of relief. The markets will view us getting through it in a positive sense." If there is a scare in the markets, he thinks it will come prior to yearend. Y2K worries could become a "self-fulfilling prophesy" prompting investors to get out of the market before the fact. Even then, he says, "it will go down and come back. Investors should not try to avoid any volatility from Y2K, just ride it out."

WORSE OVERSEAS? Of course, some companies will be hurt by the computer bug. Foreign outfits are probably nowhere near as prepared for Y2K as U.S. companies. Emerging markets have been pummeled by currency and related economic problems, and their economies could be battered again by Y2K-related problems (see BW Online, 3/2/99, "The Y2K Bomb Could Sink Software Pirates"). Yardeni's recession odds mainly reflect his worries about Y2K readiness overseas. He thinks "just in time" manufacturing, which requires that all components (including those from foreign suppliers) arrive at a plant to be assembled just when needed, could be disrupted. "It is very likely that breaks in the global supply chain will occur," he wrote in his Feb. 22 report.

Meantime, Corporate America is spending more to fix the computer bug than it originally planned. Large U.S. companies reported to the SEC in the third quarter of 1998 that they now plan to spend about 26% more on solving the computer bug than they originally expected. That stands to dampen already stagnant earnings growth. Charles Allmon, editor of The Growth Stock Outlook and one of the great bears of the 1990s, believes that companies will have to rush to finish Y2K compliance efforts in the second half of the year. If some announce that they won't be ready by Dec. 31, that would spook the markets. "Multinationals are going to have the biggest problems," he predicts. But he concedes: "This is a great 'if.' Nobody really knows."

So, while the best advice is to do nothing, investors should be as prepared as possible for real problems. Essentially, that means making sure the paperwork for all your various accounts is in order to serve as a backup in case computer systems fail. If your bank, brokerage, or 401(k) accounts are with large, reputable firms, you should have little cause for worry. The Senate report notes that banks should have plenty of cash on hand, and ATMs should keep working. "The securities industry has responded well to its internal Y2K issues and has undertaken expansive testing," notes the report.

"A REAL PAIN." Small companies that started late on the problem may run into trouble. But all companies should have files backed up, so even if there is some confusion, your savings won't be lost, says Tom Schlossberg, president of Diversified Investment Advisers, an investment advisory firm focused on retirement planning. "You could see some silly answers on voice-response systems or the Internet or delays in statements," says Schlossberg. While his firm is ready for Y2K, he says, "it has been a real pain in the neck" -- more complex than expected when the firm started reviewing its systems two years ago.

If such reassurances don't calm your fears, it's easy enough to do some primary research. Call the companies you do business with for more information. Better yet, check with the SEC. In February, it launched a searchable database on its Web site that includes federal filings on Y2K readiness from brokerages, investment advisers, and mutual funds. A few companies won't be ready for the new millennium by Dec. 31. But it's increasingly likely that you'll know exactly who they are well before then.

Stoneis an associate editor at Business Week Online

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