So, should you withdraw all your money and keep it under a mattress until the calendar rolls over? The vast majority of business and government sectors say "No," and they continue to reassure the public that they will be ready for the new millennium. Let's take a look at what some of them are doing to address consumer concerns about their financial well-being.

The Federal Reserve (the Fed) began testing its applications in June 1998, to ensure that banks will be in compliance in 2000. Specifically, the Fed is testing The Fed Wire, the network used for final settlement of large transactions between major financial institutions. It is also checking out the Automated Clearing House, a nationwide electronic fund-transfer system developed jointly by the private sector and the Fed in the 1970s. In addition, the Fed is making sure that its accounting, cash management, and check processing systems are all Y2K-compliant. Testing is expected to continue through 1999 to meet the Fed's goal of wiping out the millennium bug in all major banks and financial institutions.

Twelve Wall Street exchanges and 29 Wall Street firms report that they began testing in July 1998 to determine their computers' ability to handle year 2000 data. The exchanges and firms began executing mock trades of stock, bonds, and options as a test of their computersí capability to conduct business as usual. Data from these tests and dry runs will be available in mid-1999.

The Society for Worldwide Interbank Financial Telecommunications (SWIFT) - a global banking group of banks, stock brokerages, investment management firms, stock exchanges, and clearinghouses - began mandatory software testing for its members earlier this year. Members have until July to complete testing, at which time work can be done to address any problems identified.

A solid course of action. These organizations' courses of action represent only the tip of the iceberg. Both government and financial communities have taken steps to meet the challenges raised by the millennium bug, and these measures offer optimism to investors that their financial transactions will not be disrupted.

The best course of action for investing during this transition is to focus on the long term and maintain conviction in your financial plan. There will be market fluctuations, economic ups and downs, and the uncertainty that comes in an age of sophisticated technology; however, by maintaining a diversified portfolio created to address your long-term goals, you will be well poised to meet whatever financial challenges the new millennium brings.

[Editor's note: In addition to the "millennium bug," stockbrokers have had to sweat out a similar problem of programming shortsightedness involving the Dow Jones Industrial Average's recent achievement of the 10,000 mark. It seems many systems were designed to handle only a maximum of four digits (i.e., 9999) so that 10,101, for example, could be truncated as either 1010 or 0101. Such errors could then trigger the preset safeguards that brokerages often have to automatically sell holdings or suspend trading. At press time, it was too early to tell whether this "DJ10K" problem was causing serious repercussions.]

Global Events, U.S. Investors
When Asian economies fell like dominoes in the fall of 1997, experts immediately worried about a slowdown in the U.S. economy. A year later, Russia's markets and currency collapsed, causing many U.S. stocks and corporate bonds to drop as a result.

As these events have clearly shown, American investors can no longer insulate themselves from trouble abroad by holding only U.S. investments. The fact is, our economy, interest rates, and currency and investment markets are becoming increasingly linked with others around the world. Global events can affect investors here at home in the following ways:

Fewer trade barriers. Invest in a big blue-chip company like General Motors or General Electric, and you may think you have an American investment whose fortune is tied solely to the U.S. economy. However, these companies - and the majority of other similar U.S. corporations - have expanded aggressively into overseas markets. So when investors in Thailand, Malaysia, and Korea tighten their belts in tough times, the sales, profits, and share prices can be affected back home.

Fewer trade barriers also mean overseas companies can sell more here, which translates into stiffer competition for U.S.-based corporations. As Asia's economies have stumbled, for example, stock analysts have worried that Asian companies will flood the U.S. market with cheaper products, further hurting U.S. companies' profits.

The price deflation caused by Asia's meltdown is not all bad news for investors, however. Lower prices for products imported to the United States have helped keep inflation down, and that, in turn, has helped keep interest rates down. Low inflation and interest rates are generally positive for the equity markets.

Freer investment markets. Companies are not alone in taking advantage of freer global markets. Investors, from individuals to governments, also are finding it easier to seek trading opportunities wherever they are in the world. This movement of money can also affect U.S. investment markets.

Even U.S. Treasury securities are affected by investors' global moves. For instance, when Russia defaulted on its national debt in August 1998, investors in emerging-market or lower-rated bonds began to sell in a panic. Many of them took their money and invested it in American treasuries, considered the safest bonds in the world. Because demand for treasuries was so high, the price skyrocketed. This caused yields to plummet to historic lows (bond prices and yields generally move in the opposite direction). If you owned a portfolio of treasuries, you gained, but if you wanted to buy, the situation was not as favorable.

Political instability. Economic difficulties in Russia sent shock waves through financial markets everywhere, despite its minor representation in the big picture of the world economy. Why? A major reason is that although Russia is not an economic superpower, it is still an enormous political power that can influence events around the globe. A collapse of Russia's economy makes a shift in the country's political and economic systems more likely, and that creates a watchful apprehension in financial markets everywhere.

Faster communication. The impact of all the above factors on international financial markets has been heightened by information transfer worldwide. With satellite phone links and the Internet, investors around the world keep constant, real-time tables on events and market moves. When negative or positive events occur, the impact on investors is immediate and can quickly create market movement.

Global events may either help or hinder U.S. investors in the short term. By keeping a long-term focus and holding a diversified portfolio that is suitable for your financial and risk-tolerance objectives, you will have the best chance for positive results.