Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Friday, July 30, 2010

Some Are Changing Their Ways. Are You?

The recent economic crisis has been dubbed “The Great Recession”, since it has been the worst recession since “The Great Depression”. We have often thought that a crisis such as this would likely lead individuals to significantly modify their lifestyles, in some cases adopting the simpler lifestyles of the past. We’ve recently wrote about this in our blog posted May 13th, titled “Is Simplicity the Answer?”

There is now evidence that “The Great Recession” has indeed caused significant changes in consumers’ spending habits. A study titled “The 2010 American Pantry Study by Deloitte KnowledgeCo LLC and Harrison Group, discusses the changes seen in how Americans are now shopping. “The Great Recession", economists believe, started in late 2007, but according to the study, actually began in the summer of 2006.

Consumers have, according to the study, become “resourceful” and “precise”. They are using every tool and idea they can to cope with the economic crisis. This includes, according to the study: “coupons, loyalty cards, meal planning, shopping lists, delayed gratification, lowered standards (although not as often as one might think), brand switching, channel switching, store switching, cooking more, eating out less, buying fewer prepared meals, clarifying want versus need, reassessing convenience, larger packages, smaller packages, and more.”

The study showed that the vast majority of Americans, have made changes such as these in their spending habits, plan to continue their new methods when the economy improves and are gaining satisfaction from the sense of being more resourceful.

It seems to us that it is likely these changes in spending habits may, in part, be a factor in the slow recovery we are experiencing in the economy. Some economists are actually worried about deflation. Could the change in spending habits move us in this direction?

Clearly, “The Great Recession” is the most severe many of us have ever experienced. For many, to see their home drop substantially in value and for those who have lost their jobs and their homes, it has been a nightmare. Optimists that we are, we look for the “silver lining”. It appears that many are returning to simpler lifestyles and adopting better money habits. This is good for them and good for our country. If you haven’t made any changes in how you manage your money, we recommend you give it serious consideration. You might even find that being more penny-wise can be fun!

Tuesday, July 27, 2010

The Estate Planning Step Often Ignored

It’s not unusual that clients have not done any estate planning prior to contracting for our services. Those who have wills, powers of attorney and trust documents often have not updated them in years. But even those who have up-to-date documents often have overlooked an important estate planning step that can make things much easier for your survivors – pre planning your funeral.

We contacted Heather Coates, co-owner of Coats Funeral Home in Clarkston, Ortonville and Waterford, Michigan, for her thoughts and recommendations on pre planning funerals. Heather passed on an interesting fact to us: The British government, three months after Princess Diana’s death, asked all of the Royal Family and key government officials to prepare their respective funeral wishes. The reason being, no one had any idea of Diana’s wishes. The government had previously asked this of only elderly members of the Royal family.

Clearly, no one wants to think about the end of their life, so it’s not surprising that few have pre planned their funerals. Planning in advance can ensure that your wishes for your funeral are addressed with a clear mind, without the pressure of an illness, or the emotions following your death.

Pre planning allows you to ensure that your goodbye to family and friends is done in your own personal style and not that of someone else. It can minimize disputes between well-meaning relatives. Some other aspects of pre planning that Heather pointed out were:

Pre planning-
1) Allows one to plan financially for the respective costs of their wishes.
2) Allows for monies to be set aside for funeral expenses, protecting the asset
for individuals that may be entering a nursing home or applying for
state assistance (Medicaid) now or in the future.
3) Offers several methods of with pricing guarantees.

Heather noted that pre arrangements are transferable. Should you retire and move to another area of the country your plans can be transferred. Price guarantees do not have to be honored, when pre arrangements are transferred, but often times are.

Heather provided us with some other things to look out for when pre planning:

1) We would not make plumbing decisions with an electrician; we should not make
final disposition plans with our attorney. A will is not the place for
funeral arrangements. A will cannot address nor can it directly control
whether someone is buried or cremated.
2) Make certain your funeral planner is a licensed funeral director or a
trained funeral pre planning professional. Make certain they are
representing a licensed and reputable firm.
3) All pre paid funeral funds by law must be placed in a proper funding
vehicle. These laws are in place to protect the consumer. The consumer has
choices in the type of funding vehicle. One needs to understand these
different options.
4) Laws regarding pre paid funerals differ from state to state. The degree to
which the consumer is protected, also differs.

If you are like many people, you either have no estate planning documents or last updated the documents you do have many years ago. We highly recommend you see an attorney and get your estate plans in order. But don’t stop there. Take the next step and visit a licensed funeral director to make plans for your funeral. Your family will appreciate it when your time comes and you can rest assured that your final rites will be done as you would like them.

Sunday, July 25, 2010

Should You Avoid ETFs?

The “flash Crash” of May 6th raised a new concern for investors. ETFs (short for exchange-traded funds) proved to be less safe than investors previously thought. The “flash crash”, as it has been called, occurred in a very short time period that day. As the market overall dropped quickly that afternoon, the price of a number of ETF funds dropped to just a few pennies and then, in many cases, came close to rising to previous levels, in just a few minutes. What happened and why did ETFs seem more problematic than other investments?

No one specific cause for the “flash crash” has been determined. The markets were jittery that day due to the mounting problems in Europe and concern that stocks were beginning to be over-priced. The DOW dropped 1000 points that day and then quickly gained back more than 600 points. It seems clear that computerized trading was somehow involved and likely caused some hedge funds to retreat to the sidelines. This caused a lack of liquidity for some ETFs.

To make matters worse, some investors had issued stop-loss orders for their ETF shares to protect themselves in case the price of their ETFs dropped. Unfortunately, stop loss orders become market orders once the stop-loss price is reached. With liquidity dried up, the price of the ETFs dropped rapidly with many selling at market prices, substantially below their stop-loss price. To make matters worse, when the price rapidly reversed, investors were stuck with the huge losses.

ETFs are similar to mutual funds but trade like a stock. There are now nearly as many types of ETFs as there are mutual funds. ETFs are attractive to investors since they typically have low management fees and can be traded at any time during the day. Unlike mutual funds, most, if not all of the capital gains are postponed until the shares are ultimately sold, making ETFs more tax-efficient than mutual funds.

That leaves us with the question: should the average investor avoid ETFs? An article by Eleanor Laise titled “Danger: Falling ETFs” (Wall Street Journal, Saturday, May 29th), suggested some new rules for ETF investors. We believe that you can avoid the impact of another “flash crash” by paying attention to Eleanor’s rules. Her article suggests that you avoid trading on an extremely volatile day, such as May 6th was, and avoid using stop-loss orders (Instead use a limit order so that the trade will execute only in a specified price range). On a low volatility day, these rules will serve most investors well as long as they are selling broadly traded ETFs. For thinly-traded ETFs, investors need to understand the “bid-ask spread of the ETF and check the underlying value of the fund holdings before trading. If you are unsure about selling an ETF you own, you should seek professional help.

Saturday, July 24, 2010

Say Yes to Your Local Parks

With times as tough as they have been and the economy still struggling, it is understandable if you are tempted to vote no on any tax proposal that comes your way. Of course, if we all did that for every tax proposal, we would soon find ourselves missing some valuable resources. We need to ignore the urge to just say no and carefully think about each tax issue.

In the upcoming primary election on August 3rd, Oakland County voters will be asked to renew .2145 mills for 10 years, for the Oakland County Parks and Recreation. For a homeowner with a $200,000 home, the annual tax bill would be a bit less than $25. That’s not a lot, yet many would say that there are many small taxes such as this that add up to make their overall tax bill a significant burden.

We understand their concern but think this tax, in particular, is worth the cost. Please consider first, that this is not a new tax request but a renewal of a tax that has been on the books since the park system was created in 1966, some 44 years ago.

Oakland County has, in our opinion, one of the best parks and recreation systems in the country. If you haven’t taken the opportunity to visit the wonderful parks, golf courses, campgrounds, nature centers and water parks, we highly recommend you give them a try. There are currently 13 Oakland County Parks with 68 miles of trails. Future plans call for the expansion of the walking, hiking, mountain biking, equestrian and ski trails as well as the acquisition of additional parklands.

The economic downturn of the last two years has caused many to think about what is really important to them. Many people are considering a return to the simpler life of years prior. A recent blog we posted discussed the benefits of the simpler life (“Is Simplicity the Answer?”, May 2010). Consider taking your family to a local park for a picnic instead of spending $20 to $ 30, or more, to take your family to the movie theatre. Or, how about a healthy 5 mile hike in the beautiful outdoors instead of taking the family to the Tigers’ ballgame in Detroit.

Make your support of the Oakland County Parks and Recreation renewal millage your first step towards a return to the simpler life. You’ll find it very rewarding and a real boost to your ever-tightening budget.

Wednesday, July 21, 2010

A Step in the Right Direction

We wrote in our recent blog article “New Financial Regulations Off the Mark”, that we question the value of the new financial regulations law. Yet, all was not bad. In particular, it included a provision to regulate financial advisors and a provision to examine the benefits of requiring that stock brokers be held to a fiduciary standard in their dealings with clients.

We discussed what it means to be a fiduciary in our May 18th blog titled “Is Your Advisor a Fiduciary?”. We said:

“A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. If your financial advisor is acting as a fiduciary, he is acting in your best interest. If he or she is acting in a fiduciary capacity as your advisor, he (she) will clearly disclose all means of compensation and any potential conflicts of interest.”

The Financial Planning Coalition, has energetically promoted the above two provisions. The Financial Planning Coalition is comprised of Certified Financial Planner Board of Standards (CFP Board), the Financial Planning Association® (FPA®), and the National Association of Personal Financial Advisors (NAPFA), which are independent organizations that promote high ethical standards and modes of conduct among their respective stakeholders while also providing outreach to consumers in a variety of methods.

Due to a great extent to the efforts of the Coalition, the new law has addressed the above two issues. As stated in an e-mail to us from the Coalition, the new financial regulation law (Dodd-Frank):

“gives the Securities and Exchange Commission (SEC) authority to require brokers, when providing personalized investment advice about securities to retail customers, to act in the best interest of the customer. The SEC will be able to exercise its rulemaking authority after it completes a six-month study to evaluate the effectiveness of existing legal or regulatory standards of care for broker-dealers and investment advisers for providing personalized investment advice. The study will also look at any legal or regulatory gaps, shortcomings, or overlaps in the standards of care for broker-dealers and investment advisers.”

Currently, anyone can use the title of “financial planner” or “financial advisor”. As Certified Financial Planner™ licensees and members of the Financial Planning Association® (FPA®), we are held to the fiduciary standard. We strongly support the regulation of all “financial advisors” and the requirement that they all be held to a fiduciary standard.

Sunday, July 18, 2010

New Financial Regulations Off the Mark

While on the surface it appeared that new financial regulations were needed to avoid a recurrence of what is now being called the “Great Recession”, the bill (Dodd-Frank financial reform) just passed by Congress may create more problems than it fixes and doesn’t address one of the most obvious causes of the “Great Recession”, the lack of regulation of Fannie Mae and Freddie Mac.

Although the new law addresses many areas where consumers could use additional protection, what worries us is the shear magnitude and uncertainty of the legislation. Similar to the new healthcare plan, the new finance law is massive - over 2000 pages!

According to a Wall Street Journal editorial titled “The Uncertainty Principle” (Wednesday, July 14, 2010), the new law will require over 240 new federal rules to be defined. The article noted: “In a recent note to clients, the law firm of Davis Polk & Wardwell needed more than 150 pages merely to summarize the bureaucratic ecosystem created by Dodd-Frank.”

The article went on to say: “The SEC alone, whose regulatory failures did so much to contribute to the panic, will write 95 new rules.” The fact that over 200 rules must be written attests to the fact that the real impact of the law won’t be known for some time. This adds more uncertainty to an already uncertain economy. Many businesses that were already afraid to make investment decisions will be even more hesitant now.

Certainly, more government employees will be needed to fashion, implement and enforce the new rules. Many of the rules will be impacted by lobbyists who will hound the rule makers to minimize the impact on big business and maximize the benefits to big business. The interests of small businesses that can’t afford lobbyists will likely be ignored.

As financial advisors, we are regulated by the State of Michigan’s Office of Finance and Insurance Regulation. Since we do not sell investment products, we have fewer regulations to contend with than those who do. Yet at times, even for us, we feel the burden of complying with the regulations. We feel the state does a good job of regulating the financial industry in Michigan. Yet it is clear they could use more people to be more effective. Now they will have an even bigger burden to carry. Will they be able to do a better job?

In summary, we worry that the new law will slow economic growth and stifle lending. It will likely increase the size and cost of government, which will lead to even higher taxes. And with the added maze of regulations, more complicated than what was already on the books, can we really have any confidence that the regulations can effectively be enforced? Do we really think the new law will prevent another financial crisis?

Friday, July 16, 2010

A Milestone for Certified Financial Planner™ Professionals

Tomorrow marks the 25th anniversary of the creation of the Certified Financial Planner Board of Standards. The CFP® Board establishes the standards for one to become a CERTIFIED FINANCIAL PLANNER™ licensee. It administers the examination process and monitors compliance with the standards established.

There were just 42 CERTIFIED FINANCIAL PLANNER™ professionals nationwide in 1973, and there weren’t many more in 1985 when CFP® Board was founded in Denver, CO. The CFP® certification is mark of excellence in financial planning. It demonstrates to the public that a person has met the CFP Board’s strict standards.

The CFP® mark is a meaningful credential that, while evolving over 25 years, is a mark of a professional, similar to how lawyers and doctors receive a license to practice. There are now more than 61,000 CFP® professionals in the United States, but according to the Bureau of Labor Statistics, there are more than 149,000 “personal financial advisors.”

A timely new public opinion survey from Certified Financial Planner Board of Standards, Inc. (CFP® Board), shows that Americans in search of the answers are turning to financial planners for help. As Certified Financial Planner™ professionals who live and work here in Michigan, we were not surprised to learn that nearly two out of three Americans (65 percent) have financial concerns that are now much or somewhat greater than at the start of the financial crisis two years ago.

The recent economic challenges, and the diversity and complexity of financial products and services available to Americans today, are driving many to seek professional assistance for their financial planning needs. Many people are choosing to invest their trust in financial planners who hold Certified Financial Planner™ certification. One reason is that CFP® certification is granted only to financial planners who have met rigorous education, examination, experience and ethics requirements. The CFP Board polices the ranks of the profession by enforcing those requirements and publicly sanctioning those who break the rules.

Individuals seeking CERTIFIED FINANCIAL PLANNER™ certification are required to complete coursework that covers the seven major financial planning areas – general principles of financial planning, insurance planning and risk management, employee benefits planning, investment planning, income tax planning, retirement planning and estate planning – or hold qualifications CFP Board considers as a fair equivalent to the required coursework.

Another reason people are seeking CFP® professionals, is the CFP Board’s 25-year track record of advocating for the consumer and what’s in the consumer’s best interest. Recently, the CFP Board has promoted efforts to have a fiduciary standard for all who provide investment advice included as part of the important financial regulatory reform our country desperately needs to get Wall Street back on track. A fiduciary standard puts the consumer’s interests first, ahead of all others.

CFP® professionals help their clients live better lives through the process of financial planning. With the future direction of the U.S. economy still in question, and with the stock market and job market in turmoil, more and more Americans will turn to professional financial planners for experienced assistance with their finances. That’s a good thing for investors, and it’s a good thing for people who want to see our financial markets reinvigorated and back on their feet.

“CFP® is a federally registered trademark of the Certified Financial Planner Board of Standards, Inc.”

Wednesday, July 14, 2010

Don’t Believe Everything You Read

Most everyone knows that you can’t believe everything you read on the Internet, yet time and time again, we receive e-mails from friends and family that have not been checked out for accuracy. The most recent and very alarming message, if true, stated that starting in 2011, employees’ W-2s will include the total cost of employer-sponsored health insurance as includable income.

The e-mail states:

“Starting in 2011 - next year - the W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are provided. It doesn't matter if you're retired. Your gross income WILL go up by the amount of insurance your employer paid for. So you'll be required to pay taxes on a larger sum of money that you actually received. Take the tax form you just finished for 2009 and see what $15,000.00 or $20,000.00 additional gross income does to your tax debt. That's what you'll pay next year. For many it puts you into a much higher bracket.”

The above statement is false. While it is true that W-2s will have to include the cost of employer-provided health care, that cost will not be income that you have to report on your tax return. There is a provision in the new health care bill that addresses what are called “Cadillac” health care plans provided by employers. That section of the bill requires that the cost of employer-provided group health insurance be included on employee W-2s. We repeat, however, that the amount is not includable as income.

The amount that the cost of employer-provided health insurance exceeds certain thresholds will be taxed an additional 40% starting in 2018. The threshold for families is reported to be $27,500. The added tax is to be paid by the providing insurance company but will surely be passed on to employers and potentially to employees. The average cost today for a family plan is reported to be $13,400. It is estimated the cost for more than 80% of families will still be below the threshold in 2016. Eventually, as health costs rise, the threshold will likely be exceeded for a significant number of families.

It has also been reported, that at least part of the reason for including the amount on employee’s tax forms is, that in 2014, it will be the IRS’ job to verify that individuals and families have health insurance.

If you receive a questionable e-mail, we urge you to research the facts yourself (In this case, the healthcare bill text is easily accessed via the internet. Using the search function, we were able to easily find the text in question). You can also go to or to check out the validity of a claim. Please note that we do not guarantee the accuracy of the snopes or urballegends’ websites.

Sunday, July 11, 2010

Don’t Miss the Party

The last couple of years have been frightening for most investors. Just a year ago last March, the Dow Jones Industrial Average (DOW) was down below 6,500. Last Friday it closed at 10,198. Often, of late, the DOW rises 100 points and then retreats 100 points. It goes above 10,000, then back under 10,000. It has traded in a very narrow range.

Worries about the unemployment rate, rising national debt and a host of other issues have many worried about a double-dip recession. It appears that all the uncertainty and lack of confidence has driven many to either pull out of the market entirely or trim back their equity holdings significantly. It is certainly understandable. But is it really the thing to do?

History has shown that there are relatively few days when the markets make major upswings. Being out of the market on those select days can be disastrous to your portfolio. We write time and time again about trying to time the market. It’s very difficult to do. You must know when to get in and when to get out. Being right once is tough. Being right twice is very tough to do.

Chances are you were in the market when the “Great Recession” market crash happened. You probably are saying to yourself: “If I get back in the market now and there’s a double-dip, I’ll be hurt even more”. You need to ask yourself this question: “Are you so afraid that you’ll never get back in the market?” Most people would probably answer no to that question. They just want to wait until they feel more “comfortable” about the economy, the market, etc. So when will that time occur? Probably after a huge market rally that leaves those on the sidelines lamenting about why they didn’t re-invest earlier.

Unless you have no confidence that our economy will ever recover, we bet you will eventually re-invest what you have pulled out. Poor money market, savings account and certificate of deposit (CD) returns coupled with future higher inflation will drive you to seek higher returns. Unless you get in the market and stay in it through thick and thin, you’ll miss the party.

You’re probably thinking: “Well if the market does have a huge rally, it will probably be followed by another huge crash. So where will that leave me?” We believe in having a target portfolio that is broadly diversified with target allocations for each asset class. Periodically (at least annually) we recommend that our clients rebalance their portfolios, selling asset classes over-allocated and buying asset classes under-allocated. If you rebalance reasonably soon after the “party”, you will trim your equities back and boost up your cash and short-term bond allocations. This should help position you for the next “crash”, after which another rebalance would call for buying more equities.

Another obvious question is: “When might this party take place?” We don’t know but it seems likely it may be a big affair. An article in the July 12 –July 18, 2010 issue of Bloomberg Businessweek titled “When Cash Takes a Vacation” by Roben Farzad, reported that “American Households are sitting on nearly $8 trillion in cash – money that’s earning virtually no return because people are so wary of additional losses.” The article also reports that non-financial U.S. corporations had $1.4 trillion of cash on hand in the 1st quarter of this year. That was a 27% increase over 2007. At some point, the low returns this cash is receiving will motivate corporations and individuals to deploy it elsewhere.

Our guess is the party will likely be a surprise. You won’t get a written invitation. But you are invited.

Thursday, July 8, 2010

Beware of Advertising Hype

The last couple of years have been hard on everyone. We’ve seen our portfolios decimated by the market crash. In many cases, our homes have dropped in value by 30% or more. Unemployment remains at 9.5%. The prospect is for many new taxes and increases in existing taxes. Few people have received a raise and seniors aren’t getting any inflation adjustments in their social security checks.

Everyone, it seems, is under pressure to increase their income. Unfortunately, that’s tough to do. A few days ago, the stock market retreated back into the 9600 range, with the Dow Jones Industrial Average (DOW) down 7% for the year. Since then it’s jumped back up over 10,000. Does anyone have confidence it will stay above 10,000? It’s frustrating to say the least.

The good news is that inflation is currently low and mortgage interest rates are very low - near 4.6% last week. The bad news is that interest rates are historically low. CD rates, according to, ranged from 1.00% APY to 1.55% APY nationally, last week. Money market rates, according to the same website, averaged just 0.839% nationally, with the highest reported rate at 1.39%.

This bad news, low rate-environment has caused investors to reach for higher yields than they normally might. What you need to remember, however, is that higher returns mean higher risk. We’ve written many times about this issue. Nevertheless, we still hear of individuals touting the high rate of return they were promised on this or that investment.

People are chasing the hottest investments. Of late, that’s been gold. Sure gold may continue its run for a while. But we’d be cautious about buying it now at its lofty price. Many investments offer come-on rates that last for a short-time and are then reduced. Banks often offer higher-rate CDs to attract new customers. Newspapers often have ads offering high-rate CDs, which in some cases have been come-ons by Ponzi schemers.

Ask yourself this question: If an investment is so great, why would the sellers have to spend millions of dollars touting it on TV? Why not put their money in the investment they’re promoting?

What you must remember is that the high rate investment of today, if legitimate, may be at its peak. If you get taken in by the hype about its recent performance, you will likely be buying at precisely the wrong time.

Regardless of what the investment is, if it pays a much higher rate of return than other similar investment vehicles, you must assume that it is inherently more risky and you need to be sure you understand what those risks are. Don’t just ask the seller of the investment. He or she is biased by the prospect of their commission/fee for making the sale. Do your own research or find an independent knowledgeable third party.

Monday, July 5, 2010

The Debate on How to Fix Our Economy

With the Dow Jones Industrial Average (DOW) now back under 10,000 and the last unemployment report showing little progress on the creation of jobs, one can’t help wonder what it will take to accelerate the recovery. There’s more and more talk of a double dip. With interest rates basically at zero, it doesn’t seem that the Federal Reserve has many options available, should a double dip occur.

The thought has occurred to us that with all the uncertainty about the crisis in Europe, unprecedented deficits, high unemployment, Gulf of Mexico oil spill, new healthcare plan, pending financial regulation and specter of higher taxes, the key element that is holding back the economy may well be lack of confidence in our government, at all levels.

From an economic point of view, the argument seems to focus on whether one believes in a Keynesian approach to the problem or the Alesina approach. Who is Alesina you ask? An article in the July 5 –July 11 issue of Bloomberg Businessweek titled “Keynes vs. Alesina. Alesina Who?” tells us that Alberto Alesina is a professor of economics at Harvard University. According to the article, Professor Alesina “disputes the need for government spending to prop up growth and advocates spending cuts, instead.” In short, he disagrees with famed economist John Maynard Keynes, who would have us stimulate the economy via government spending.

According to the article, “Alesina argues that austerity can stimulate economic growth by calming bond markets, which lowers interest rates and promotes investment. In addition, he says, deficit-cutting reassures taxpayers that more wrenching fiscal adjustments won’t be needed later. That revives their animal spirits and their spending.”

Whether Alesina is right is difficult to say. Obviously, according to the article, the Keynesian economists don’t think he is. Yet, the Keynesian approach so far, with our government’s large stimulus package, seems to have had mixed results. To restore confidence in our economy, Alesina’s approach seems to have merit. More spending, higher deficits and looming new taxes have everyone on edge. The European governments seem to agree that cutting spending is critical. And, we fear that cutting deficits via tax increases will do little to spur the economy. Hopefully, Congress will choose the right path to recovery.

Friday, July 2, 2010

More of the Same Ahead?

With the end of the second quarter, it’s natural to think about what may occur in the market during the third and fourth quarters. The second quarter market results were more than disappointing, with the Dow Jones Industrial Average (DOW) down some 10%. Most all domestic and foreign equity asset classes were down for the year with the exception, perhaps, of real estate funds which gained 5.15%, according to Morningstar®.

Fixed-income funds and municipal bond funds, in general, all had positive returns, with long government bonds leading the way at 15.9 percent for the year. Intermediate-term bond funds generally returned about 5 percent year-to-date while inflation-protected bonds returned around 4 percent.

The driving forces behind these generally poor results are many. First and foremost is the slowly recovering economy with unemployment still high at just under 10 percent. The market “flash crash” coupled with the turmoil in Europe caused by the crisis in Greece, have caused significantly worries for investors.

On top of all that, we have the worries over high government spending, the unknown impacts and cost of the healthcare legislation, and the added complexity of the pending financial regulation legislation. Clearly, the ongoing oil spill crisis in the Gulf of Mexico isn’t helping a major region of the country feel good about its economic future. A projected active hurricane season adds to the worry as the first storm came ashore on Wednesday.

When confidence is low, the markets suffer. There have been some signs of economic recovery, yet the myriad of negative factors noted above has overshadowed the bits of improvement. With unemployment still high, the housing market and consumer spending will likely continue to suffer.

Although we are not economists, we see little evidence that a major turnaround will happen before year-end. We expect continued high market volatility like we have been seeing, with the market up one day and down the next. When things finally do take off, one thing is for certain - you won’t want to be out of the market. For that matter, trying to time any particular asset class has recently proven to be extremely difficult. Who would have though that real estate funds would be winner for the first six months of 2010, or for long-term government bonds to return 15.9 percent, year-to-date.

The best thing you can do is maintain your target asset class allocations and rebalance periodically. By doing that, you will be positioned to take advantage of whatever asset classes go on the upswing next.