Investors finding fewer and fewer havens - By Adam Shell, USA TODAY March 4th, 2003

Investors finding fewer and fewer havens
By Adam Shell, USA TODAY March 4th, 2003

NEW YORK - At a time when skittish stock investors are flocking to defensive investments to preserve their nest eggs, alternatives deemed low risk by Wall Street are fast-becoming extinct.

There's no safe place, it seems, to invest. And it's not just stocks Geting bearish reviews. Bonds and other so-called havens that spiked in popularity along with geopolitical fears are also being viewed cautiously. That is causing great confusion among investors who got burned when stocks crashed but still must save for retirement and college tuition.

Caution flags are popping up everywhere. On Tuesday, Standard & Poor's warned that highflying gold funds, viewed as a haven in turbulent times, could dive if global tensions ease. For months, mutual fund giant Vanguard Group has been stressing that Treasury bond funds, long considered a safe place to stash cash, could easily decrease in value with yields - which move opposite price - now near four-decade lows.

To add to the worries, investment sage Warren Buffett says in his latest annual letter to shareholders that he's steering clear of stocks because he believes there's limited upside potential. Many investors apparently agree, as the Dow Jones industrials fell 133 points Tuesday to 7705, nearly a five-month low. Even the hot real estate market is likely to cool later this year, predicts Federal Reserve Chairman Alan Greenspan.

Investors fleeing stocks are buying investments just because they're going up, without analyzing the risks, says Phil Edwards, managing director of global funds research at S&P. "Investors are chasing performance again," he says. That's the same strategy that hurt investors during the tech stock mania. Warning signs:

• Gold losing its luster? The average gold fund soared 61% last year, prompting a flood of cash into these funds. In January alone, $250 million poured in, Lipper says, more than all of 2001 combined and 40% of the $629 million that flowed into gold funds last year. But "Once greater economic and geopolitical clarity is obtained, gold could be as volatile on the downside as it's been on the upside," Edwards says.
  
  
• Bonds overpriced? Looming war and sinking stock prices have resulted in heavy buying of 10-year Treasury bonds. But while U.S. government bonds are among the safest investments in the world, the current yield of 3.65% is nearing the record low of 3.58% hit on Oct. 9. The concern is if the flight-to-quality buying reverses if global uncertainty falls.

Catherine Gordon, head of Vanguard Investment Counseling and Research, says investors shouldn't focus on the short term and seek out the next best thing: "If you eliminate one risk, such as Geting out of stocks, there is another risk being taken on."

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