by James Copenhaver

The Past Year in Perspective
The Year 2007 might just go down as the year of volatility. It started off with a bang and the fireworks seemed to go on and on. On February 28th, the US investor woke to a correction in the SSE Composite Index of the Shanghai Stock Exchange which tumbled 9%, the largest drop in 10 years, and ended with the the word Subprime being named as “2007’s Word of the Year” by the American Dialect Society.

In between the China “correction” (by the way the Shanghai ended 2007 up 97%), the Dow and S&P 500 had two all time highs, one in July and another in October. In August, the Federal Reserve began a cycle of easing interest rates to aid the ailing credit markets.

We continue to expect volatility going forward with the R word (Recession) becoming a more likely occurrence and the Presidential elections adding to the political uncertainty.

Current Perspective
We don’t see volatility going away anytime soon and we expect the Fed to continue its rate reductions with increased weakness in the US economy. We expect the mortgage crisis and the credit crunch to be less of a concern as we move further along in the economic cycle.

It is absolutely critical that investors pay attention to all types of risk – political, economic, currency, interest rate, and credit, just to name a few.  It is even more important for investors to understand how to minimize overall risk levels through diversified investing. 

As always, if you feel that your ability to withstand the volatility of your portfolio has changed, consider scheduling a meeting with your advisor to assess the risk in your investment portfolio.