For cautious investor, era of the sure thing is gone

March 03, 1991|By Dick Marlowe | Dick Marlowe,Orlando Sentinel

Cash is king again, and there are bargains galore. Nearly everything is inexpensive. But for the conservative investor who just wants a haven for cash and a reasonable rate of return, the options are getting slimmer. Banks are in trouble, and interest rates are down.

The days may be gone when a depositor or investor could put money away for a rainy day and rest assured it was still there when the weather took a turn for the worse.

Commercial banks and savings and loan associations have been the beneficiaries of the conservative fiscal practices of Americans since the early 1930s, when federal deposit insurance was put in place to restore the confidence of a frightened na

tion.

The failure of the Bank of New England is another grim reminder of the system's shortcomings. Federal deposit insurance will bail out the depositors -- even though the safety net the insurance provides has become one of the problems.

Depositors and lenders got sloppy and careless during 50 years in which virtually all banks and thrifts were backed by the full faith and credit of the U.S. government, regardless of the skills or integrity of the bankers.

Now that the government has proved it cannot curb spending and the reserves in the Federal Deposit Insurance Corp. are running dangerously close to empty, depositors are experiencing fear associated with threats to their nest eggs, lifestyles, jobs and futures. As those old, reliable high-yielding certificates of deposit come due, investors are torn between rolling them over or seeking other investments. But where?

U.S. Treasury securities have always been a haven for cautious investors during such times. Now, however, interest rates are lower, and the government is in record debt and may have to pay for a war. The Bank of New England failure heaps another $2.3 billion on to the backs of taxpayers, and 199 or more bank additional failures are predicted this year.

This will be the decade in which Americans will have to study the relationship between the risks and rewards of investing and learn to cope with it. We are heading toward a time in which there will be zero guarantees. Unfortunately, that will put the burden of self-education on a general public that would rather eat worms than learn to read a balance sheet or a prospectus.

Depositors will be forced to pick a bank based on its financial strengths and management capabilities rather than convenience and interest rates.

For investing, flexibility and diversification will become even more important than in the past, and personal investing will become a hands-on proposition. It is not likely that once-burned investors will buy "junk" bonds in the belief that they are guaranteed by the government.

In the future, individuals will need to understand the ground rules including risks, fees, commissions, tax advantages and hidden dangers. As a result of the competitive global trade, they will need to expand their scope to foreign lands.

Because of the complexities involved, investors more than ever will need to rely on professionals. The challenge, as always, will be learning to tell the pros from the cons.

Investment specializing is already becoming more important. There is no similarity between the investment needs of a young married couple, for example, and an older couple preparing for retirement.

Specialization will thrive in the '90s. The winners will be those who successfully connect with investors, provide them with understandable data and remove the intentional obfuscation that prevalent in so many investment vehicles.

Based on the experiences of the 1980s, investors will wake up, read up and wise up, not because they want to but because they have to. Financial education will be necessary if investors are to avoid making bad decisions in an environment virtually without regulation and in which it is entirely possible that the legislators will be on the side of the bad guys.

In this decade, even doctors and celebrities might learn to read a prospectus before mailing their checks to jump on the tax-sheltered sure thing du jour.

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