Elanso

The other day I shared the somewhat gloomy view of our earned income in 2008, which will likely to decline by a small percentage due to a variety of factors. To continue this series of 2008 financial planning, let me discuss how I view our investment portfolio will evolve in 2008. I will continue to do this on an assumption-by-assumption basis that resembles the top-down annual planning model I shared earlier.

3. We will be able to achieve 7-8% annual return on our portfolio, although with more volatility throughout the year.

It is very apparent in the second half of 2007 that market volatility is significantly increased compared to the last couple of years of eventless growth. Domestically, although the U.S. economy is potentially facing a recession, it does not mean stock investment will be untimely. Externally, U.S. dollar will continue its devaluation against other major currencies, and the economy of BRIC will continue their boom without the growing consumption by the developed countries. All in all, I do believe a modest single-digit gain is possible by a portfolio that has a deep-value/contrarian flavor, sizable exposure to foreign markets, and active cash position management through USD/Yuan carry-trade.

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