Should you be bulletproofing your portfolio for wartime?

That's the recommendation of some "investment advisors," and some investors are listening. But it's not a good idea, caution CERTIFIED FINANCIAL PLANNER™ professionals, who believe that fear should never drive investment decisions.

In the aftermath of September 11, military strikes in Afghanistan, the Israeli-Palestinian conflict and the threat of war with Iraq, suggestions for defensive "war" portfolios have begun to appear. While these portfolios vary, they generally follow similar investment advice: load up on defense-industry stocks, gold, and U.S. government securities. Some recommend oil stocks on the premise that a Middle East war will dramatically push up the price of oil. Others like the stocks of companies producing products that consumers will buy regardless of the circumstances: food, tobacco, medicine and so on.

One defensive war portfolio found on the Internet calls for 70 percent U.S. Treasury securities and certificates of deposit, 10 percent precious coins, 10 percent defense-industry stocks, and 5 percent each of Swiss francs and New Zealand dollars. If disaster really does strike, some would argue that this would be a sound portfolio. But one of the problems, point out others, is that this particular "war" portfolio has been recommended for the past six years - the first four of which saw record stock market growth.

It's the same principle as having a very defensive portfolio whose asset allocation mix is always braced for a market downturn, say planners. Yes, markets periodically falter, as they have the last two years, and a conservative portfolio might serve you well at that point. The problem is that we rarely can forecast a market downturn and in the meantime we miss out on the growth, which, over the long haul, has more than overcome the downturns.

Does the idea of a defensive portfolio sound familiar? Go back to the fall of 1999, when alarmists warned of the impending Y2K disaster and some panicked investors converted all their investments to cash, often with significant tax consequences and missed market returns.

Unlike the Y2K scare, terrorism is real. But war has hit Americans before, and in most cases the economy and the stock market have weathered them well. The S&P 500 was up 20 percent within one year after Pearl Harbor, for example, and the Dow climbed 20 percent two months after the start of Desert Storm.

Although most investors will maintain their current portfolios, some panic and switch from long-held asset allocations to these war portfolios. Other investors have hunkered down with a lot of cash, though other factors such as the economy, Enron and the continued whipsawing of the stock market have contributed to their nervousness.

The smarter move, say planners, is to stick with a portfolio that's well diversified and that reflects your long-range financial goals, risk tolerance and personal circumstances. You should be investing only for the long-term, such as for retirement and college, and not let potential catastrophes -whose dimensions are unknown and which could affect portfolios in unforeseen ways -dictate your portfolio's makeup.

A disaster-driven portfolio is usually an extremely conservative one, and as a consequence, investors following them are more likely to fail to reach their financial goals because of inferior long-term returns than because of shorter market declines due to a disaster, argue most planners. Besides, they say, if a national catastrophe were to strike that truly crippled our nation- devastating terrorist attacks or a nuclear attack, for example- even a "war" portfolio would unlikely be of much value in the aftermath.

For those investors who still feel defensive about their portfolio, some planners recommend tips that can help but not hobble the overall portfolio too much. One suggestion is to designate perhaps ten percent of the portfolio to a defensive position, such as U.S. Treasuries, precious metals, cash and real estate. Another is to buy certificates of deposit from financial institutions located in different geographic areas.

But ultimately the best defense, say most planners, is a well-diversified portfolio that over time will perform satisfactorily regardless of the circumstances. A portfolio that holds foreign stocks and foreign bonds, for example, which many planners recommend under normal circumstances, could help blunt the effects of damage to the United States.