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February 19, 2009

Seldom do I find myself feeling as good as others do when the economy and investments are growing and rolling along in a positive way. The opposite has been true as well. I seldom feel as gloomy as others do when markets turn lower or the economy runs into trouble. This limited emotional response to outside stimuli has served me and, by extension, my clients well over the years.

This economic crisis is severely testing my patience. I have been in the financial advisory business for twenty six years now and I have never seen anything like the challenges that face us today. There is no getting around the feeling or the belief that things are bad.

The temptation is to throw in the towel, sell all investments and move to CDs. Why isn’t that a good idea? There are several reasons and it is important to remind ourselves of them during times like this when our emotions want to drive the bus.

The temptation is to throw in the towel, sell all investments and move to CDs. Why isn’t that a good idea? There are several reasons and it is important to remind ourselves of them during times like this when our emotions want to drive the bus.

Over time, CD returns just won’t get the job done. After taxes and inflation your purchasing power, and those of your heirs, will be significantly reduced.

The size of the world’s middle class will drive economic expansion upward. But it is going to be like climbing a mountain for the first time and not knowing which way to go. You may start on a trail and hit a dead end, requiring you to descend, before finding a better way to move up. The only way to participate in that global economic expansion is to own the companies that will sell goods and services to that growing middle class

There is pain associated with many things in life we ultimately find worthwhile. There is pain in childbirth, yet immeasurable rewards from nurturing a child. There is pain in exercising and working out, yet we are rewarded with healthier bodies and more energy. The pain associated with declining investment values is often rewarded by staying the course.

A significant portion of stock market gains are experienced in the early stages of a bull market. Moving to the sidelines in an attempt to perfectly time re-entry has resulted in missed opportunities and lowered returns.

On any one day, any one quarter, or even any one year, the market will price securities based on a perception of their value. In time, that perception of value becomes more closely aligned with actual, fundamental value. What else could explain a market that adjusts values by 3% or even 4% on any one day? Certainly the underlying fundamental value of those securities did not change overnight by such a significant amount.

The market, in its imperfect role as a leading indicator, will move up ahead of any actual economic recovery. All the market needs is to anticipate economic stability to begin a significant advance.

The economy will recover. Government action will either hasten or delay that recovery, but recovery will occur.

In conclusion, our concerns mirror yours with regard to the state of the economy and how long it will take to right the ship. We believe it is in the long-term interest of our clients to stay the course, and to follow any recommendations we make to change one or more components of your portfolios.

If you are having difficulty staying the course, call or arrange a meeting with us. Our job is difficult in times like this, but the potential rewards are great. If we can keep you on a course that we believe will enhance your financial future, we will have succeeded.

Best regards,

Vincent A. Schiavi, CFP®, CPA/PFS



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