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October 24, 2012

Dear Clients and Friends:

The debates are over, the mud slung, the facts manipulated, and the visions articulated. The candidates have made their case to the American people; all that remains is the voting. As messy as our 236 year old political process is, it remains the envy of the rest of the free world.

The vision of the President, and the policies promoted to bring that vision to reality, will impact the lives and the financial planning of all Americans. The uncertainty surrounding the election and the effectiveness of the next Congress only serves to delay, not initiate economic activity. It has been said that it is more important for individuals and employers to know the rules, than to actually agree with them. Bringing more certainty to taxes, rules and regulations should improve prospects for growth. However, our expectations for significant economic growth in this country need to be tempered with the reality of a $16 trillion national debt and a citizenry woefully behind in saving for retirement. Addressing those concerns could decrease spending in both the public and private sectors, which is not a recipe for increasing domestic profits or employment. The "new normal" in the U.S. will require resetting expectations.

Investment Commentary

While financial asset returns were positive in the third quarter and year-to-date, we have not seen enough evidence to reverse our defensively shaded investment allocations.

In our April, 2012 newsletter we introduced the valuation metric of cyclically adjusted price to earnings ratio (CAPE). This measure normalizes corporate earnings by averaging ten years worth of data. The price earnings (P/E) of the S&P 500 based on current earnings is 16.1 (source: http://www.multpl.com/), with the normalized earnings CAPE at 22.4 (source: http://www.multpl.com/shiller-pe/). We infer from this data that stocks are trading at higher levels than normalized earnings would support. This dampens future stock market return expectations. The actions of the Federal Reserve to keep interest rates subdued have tended to artificially ease the way for higher asset values in housing, stocks, and bonds. Few commentators believe that this intervention can continue to be effective.

We believe that our recommended portfolio allocations are well positioned and able to capitalize on market opportunities.


Donations in Lieu of Holiday Gifts

It is a tradition of ours to deliver gift baskets to clients during the holiday season. In 2010, we introduced the option of allowing clients to donate the value of their gift to charity.

Because of administrative constraints, we limit the charities eligible to participate in this program. This year’s list of charities includes:

The Andrew McDonough B+ Foundation

This foundation honors the life of 14-year-old Andrew, whose courageous battle with leukemia ended in 2007. The foundation provides financial and emotional support to families of children with cancer, and provides childhood cancer research grants. Childhood cancer is responsible for killing more children and teenagers every year than any other disease, yet only 3% of the National Cancer Institute’s annual budget funds childhood cancer research.

The Ministry of Caring

This community-based nonprofit organization provides a network of social, health and support services for the poor, including the homeless and working poor, in greater Wilmington. Services comprise case management, emergency shelters, transitional and long-term residences, a residence for people with AIDS, dining rooms for the hungry, a job placement center, child care centers, an outreach center, medical and dental programs, and a distribution center.

Friendship House

A non-profit Christian corporation committed to making a difference in the lives of the homeless people of New Castle County, Delaware through the traditional spiritual ministries of hospitality, education, empowerment and community. Friendship House resources are often sought by persons driven preliminary by their physical needs for food, clothing, housing, employment, bus fare, etc. Its ministry also provides caring and consistent supportive services once physical needs are met.

If you would like to participate in this program, please contact Kate at our office before Friday, November 16th.

Staff Promotions

In recognition of their major contributions to the firm’s success, including the high level of satisfaction expressed by the clients they serve, we are pleased to announce the promotions of Karen R. Malchione, CPA and Ryan Cross, CFP®,  to Vice President.  Congratulations Karen and Ryan.

Year-End Tax Planning

Our advisors will soon be engaged in year-end tax planning. We expect this to be especially challenging in light of the presidential election, the fiscal cliff, and the uncertainty of Congressional action. As part of this review, we will be processing Required Minimum Distributions (RMDs) from IRAs of clients who have attained at least age 70 ½. Our review will include federal and state income tax withholding recommendations from these distributions.

In order to maximize the effectiveness of tax planning, any client employed for any period in 2012 needs to provide us with their most recent paystub. We cannot overemphasize the importance of responding to our requests for information as quickly as possible as year-end approaches. Providing you with the best possible service and the best possible recommendations requires a high level of timely cooperation.

We continue to work daily to earn your trust and confidence.

Best Regards,

Vincent A. Schiavi, CFP®, CPA/ PFS                      Ravi P. Dattani, CFP®, CPA
President                                                               Vice-President


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