The DOW hits 10,000 again... and what that number means

September and October will cause some investors to shake with fear. Many of the nasty market selloffs we've seen over the years have occurred in the back-to-school months, and 2008 was not an exception. So far this year, however, we've been pleasantly surprised to the upside. The market has regained the 10,000 mark, and corporate profit reports have been favorably received by investors. We're also looking at one year since the weekend that shook the foundations of Wall Street and of the global financial system when Lehman Brothers collapsed, Merrill Lynch vanished as an independent entity and AIG was taken over by the U.S. government. In light of that, it seems important to briefly summarize where we've been this year, where we are today and the prospects for the period ahead and also to highlight some lessons from last year's financial collapse. Where we've been Six months ago, in early March, it truly did feel like the world might be coming to an end talk of a return to a Great Depression-like economy dominated the media. Understandably, fear was rampant and stocks responded to these nightmarish scenarios by hitting the lowest levels in years, with financials especially hard hit. Although no one knew it at the time, that period turned out to be the bottom. Since then, the economy has moved back from the precipice and we believe that we are very likely to see positive GDP growth for Q3 and Q4 of this year. As a result, we've had a strong recovery in markets. From their bottom in the beginning of March, stock markets are up over 50 percent, retracing a good portion of the losses since last fall. Lessons from the past year Here are some lessons from the last twelve months:

1. We were reminded of just how volatile stocks can be.
2. We were also reminded of the importance of true diversification.
3. Many investors discovered that they're less comfortable with risk and volatility in their portfolio than they had believed.
4. Investors were also reminded of the need to focus on what they can control understanding their cash needs and thinking through how much risk they can tolerate to fund those needs.
5. In some cases, investors began rethinking retirement plans as a result.
6. Finally, we were reminded that in today's world, we need to expect the unexpected.

Where we are today Two years ago, the market was characterized by rampant optimism. The U.S. market had hit a new high in October of 2007 and any concerns were set aside as minor annoyances. By contrast, six months ago the market was overwhelmed by absolute pessimism there was no sign of hope anywhere. Today, the market is somewhere between those two extremes and many investors can be characterized as extremely nervous. As a general rule, a certain level of healthy anxiety is positive what gets investors in trouble is an excess of either optimism or pessimism. While today's mood may be a bit too pessimistic, being cautious in the current market makes sense . provided that prudent caution doesn't cross the line into panicked inertia or hasty decisions. The good news is that there are still excellent opportunities for investors who are prepared for short term volatility. The outlook going forward In August, Business Week ran a cover story called "The case for optimism." The premise was simple: beyond the issues facing the global economy, there are many underlying positives that give cause for optimism if we look out two or three years or beyond. Powerful forces under the surface will drive economic growth . and that economic growth will drive stock prices. Examples include the positive impact of technology, the recovering U.S. housing market, the revitalization of economies and the incredible energy from the developing world's educated youth and emerging middle class Volatility Let me close by talking about market volatility. In 1907, U.S. financier J. Pierpoint Morgan single-handedly averted a banking panic among U.S. investors. Later in life, someone asked him his best guess as to the direction of markets. His answer: "They will go up and they will go down." One hundred years later, that's still the best answer to someone looking for a short-term market forecast. No one can predict market movements in the immediate period ahead all we can do is understand clearly how much short term volatility we can live with, adjust our portfolios accordingly and stay focused on the horizon as we deal with the rough waters. No one likes volatility . but for most of us it's the necessary price to arrive at our ultimate destination. Column provided to PRIME by: St. Germain Investment Management; 1500 Main Street, Springfield, MA; Phone is 413-733-5111 or 1-800443-7624; web site:www.stgermaininvestments.com