Re-examine Your Portfolio

Greg Smith Senior Vice President & Director of Private Client Services

Volatility was the word that defined the stock market in 2007. Stocks reached a record high in July, saw a significant downturn in August, rallied to a new record high in October and experienced more bad news in November. Many investors were left exhausted from the experience.

However, despite the volatility, major indices finished in positive territory with the S&P up 5.4%, the Dow up 8.8% and the NASDAQ up 10.6%. Energy, industrials and basic materials sectors did well and last year we also witnessed the resurgence of the technology sector. Many trends and shifts emerged in 2007 that may affect how you plan your portfolio in 2008.

With that in mind, now is a great time to sit down with your financial advisor to review your portfolio. Here are a few items to consider during that meeting:

1. How well do you sleep?: This is a common question you likely ask your patients. But, it also applies to you. If the seemingly daily swings of the market keep you up at night, you might want to review your portfolio with your financial advisor and consider making changes to investments with less risk. Likewise, if you want the portfolio to grow more and believe you can tolerate more risk, then you would want to consider more aggressive investments.
   
   
2. Shifting to large-caps: A trend has been pervasive in the market to invest in small company stocks. The rate of growth is often faster and the risk is generally higher than with investments in larger companies, making small company stocks more volatile. This coupled with the increased level of overall volatility in the stock market is a phenomenon that is likely to continue in to 2008. In that environment, many investors will continue to turn to large company stocks that generally exhibit slower growth, but also demonstrate lower risk and volatility characteristics.
   
   
3. Short-term need: When visiting your advisor, also discuss any upcoming financial need you might have that would cause you to invest less in the market over the next few years. Do you have a teenager about to enter college? Are you considering a new home? Do you want to take that long-planned-for dream vacation? Whatever the short-term need is, if you believe that you will need cash over the next three to five years for a major expenditure, then you might want to talk with your advisor about another savings vehicle rather than investing that money in the stock market.
   
   
4. The exception is retirement: If you are planning to retire within five years, you really should consider keeping a portion of your money in equities. Thanks to significant increases in life expectancy, retirements are now lasting as long as 30 years. Keeping money in the market may give you the potential to outpace inflation. Before you retire or if you are planning to retire in the near future, meet with your financial advisor to review your plans and map out an appropriate strategy to achieve your goals.
   
   
5. Think long term: The stock market has a history of long-term gains. Nevertheless, it may lose value in the short term. In general, those who stay the course in a diversified portfolio may earn more than those who try to time the market.

Whatever strategy you and your advisor decide to pursue, make certain that your portfolio reflects your personal goals and risk tolerance. This will go a long way in ensuring an “insomnia free” retirement.

Greg Smith is Senior Vice President & Director of Private Client Services for Haberer Registered Investment Advisor, Inc. He can be reached at 513-381-8200