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					Greetings,

In light of the fluctuating markets, I thought it to be an appropriate time to talk about the
importance of investor behavior. As you have read in past newsletters, strong and
powerful companies are going through rough times. How do we overcome such events?
Your rational and responsible investment behavior and my guidance through these times
will help you to succeed.

There have been events in recent history where the markets have lost significant value
within relatively short periods of time. Oftentimes individual investors, to their detriment,
overreact in response to these events. These events include the junk bond debacle in the
late 80s, the tech bubble in 2000, September 11th in 2001, and the current real estate
bubble, to name a few. There will always be another “Apocalypse Du Jour;” however,
these events are short lived and usually provide underlying strength to the markets over
time.


Investor Behavior
Dalbar, Inc. is the “nation's leading financial services market research firm and
performs a variety of ratings and evaluations of practices and communications that are
committed to raising the standards of excellence in the financial services and healthcare
industries”1.

Dalbar’s quantitative analysis of investor behavior (QAIB) has been measuring the
effects of investor decisions to buy, sell, and switch into and out of mutual funds since
1984. QAIB’s goal is to educate investors and their advisors about the effects of investor
behavior on the real financial outcomes of an investment program. Since the start of
their research in 1984, the key findings remain true: Investor return is far more
dependent on investor behavior than on fund performance. Mutual fund investors
who hold their investments, in good times and bad, typically earn higher returns
over time that those who time the market.

According to Dalbar, the reality is that over one, three, five, ten, and twenty year periods,
the average investor’s annualized returns are about 1-2% over the inflation rate for that
respective period. Why does this happen? First, some investors attempt to time their
investments and redemptions and are frequently unsuccessful. Second, investor holding
periods, on average, are shorter than periods measured by mutual fund companies,
implying that people are “trading” their mutual funds for the “hot” fund of the day. For a
day trader or market timer to be successful, the investor has to be correct twice, once
exiting the market and once reentering. Reentering the market after a dramatic downturn
is more difficult than exiting because the investor has been scared out of the market and
is now more scared to get back in the market for fear of another fall. Because of this fear,
investors usually miss the upside gain after the fall. It is easier to make the right decision
when markets are rising and the fear of loss is on the back burner. The smart decision is
to invest when the market is down (www.Dalbar.com).
Systematic Investing Can Reap Rewards

Dalbar states that investors can pursue long-term returns that are comparable to the
returns achieved by investment companies. One way to achieve these returns is to follow
a buy-hold strategy and a dollar cost averaging. A buy-hold strategy consists of buying an
appropriate investment and holding it for a long period of time. By employing these
strategies of systematic investing, investors fare better than the average mutual fund
investor. Dollar cost averaging is investing systematically every period with at least the
same amount of money regardless of the price of funds. This is similar to the investment
practice used in a 401K. The benefit of dollar cost averaging can potentially be
dramatically improved by increasing contributions over time.

Overall, I believe that remaining in the market, investing with the market is down,
exercising dollar cost averaging, and utilizing a buy-hold strategy are the keys to building
wealth. Take a look at the following story for illustration.

The Story of Quincy & Caroline

Quincy and his wife Caroline inherited $20,000 in 1985. Quincy heard that mutual funds
were the best way to put away money. Therefore, he and Caroline decided to put their
windfall into mutual funds by splitting their money, each placing $10,000 into their own
accounts. They both selected the same stock mutual fund and placed their money into the
accounts on the first business day in January 1986.

One year later, Quincy was very happy with his decision. The investment was now worth
$12,000 and so was Caroline's.

After two years, at the end of 1987, Quincy was very worried about the news regarding
the market crash that had happened in October. When he checked on his investment, it
had fallen from $12,000 a year to $9,600. He decided to limit any further loss, withdrew
half of his investment, and moved $4,800 into his checking account. He wanted Caroline
to do the same thing with her $9,600, but she talked the situation over with her friend and
decided against any change. Her friend, who was a financial advisor, assured her that the
market would bounce back.

By August of 1988, Caroline's account was back up to $12,000, but Quincy still had
$4,800 in his checking account, which did not increase when the market did. Quincy
regained his courage by the end of 1988 and put the money back into his mutual fund. By
that time Caroline's account was worth $15,000 and Quincy's was only worth $12,300.
In the intervening years, Caroline simply let her nest egg grow, but Quincy moved money
in and out of the market. He would read the stock market reports and talk with friends to
find out what they were doing. When he became worried about losing his money he
would withdraw some, and when his confidence was restored he would invest it again.

By the end of 2005, nineteen years later, Quincy had built his initial $10,000 investment
up to $21,422 by moving in and out of the market. Caroline had not touched her
investment, so it suffered during times of market declines and recovered when the market
did. However, by the end of 2005, Caroline's account was worth $94,555
(www.QAIB.com).

The Moral of the Story

There are several morals to this story:

1) Trying to time the market simply does not work.
2) Getting scared out of sound investments in falling markets may decrease
   your overall return.
3) Listening to media hype that plays on your fears may cause you to make
   imprudent decisions.
4) Market declines are not a time to get out, but a time to get in.
5) Market declines are inevitable every three to five years but are temporary
   in nature.

In addition to these lessons, my investment philosophy includes the following:

1) Invest among different classes of assets, i.e. stock funds of small,
   medium, and large companies, along with some bonds and real estate
   investments.
2) Blend growth investments with value investments in the different
   asset classes listed above.
3) Globalize the portfolio by investing in international options.
4) Rebalance the portfolio to help reduce risk. This may involve
   reconstructing the portfolio or using additional dollar cost averaging
   contributions to back fill areas that have declined in value. This
   rebalancing approach assures that you will buy low and sell high.
5) Maximize after-tax returns. This philosophy is consistent with the
   Dalbar study referenced above.

With these principles in mind, my goal is to find a portfolio with risk characteristics that
my clients will cherish when the market is going up and that will allow them to stay in
their investments when the market is going down.

I believe that my investment philosophy and principles and my goal of finding the right
portfolios for my clients are sound practices and consistent with the Dalbar study.
Behavior along with time tested strategies will provide the consistency we need in
building our wealth and future income.

As always, I invite you to call or email me to talk about your concerns through this time
of fluctuation. It is important we stay on the same page, whether it is to stay put or to
make some changes, so that we can have a successful and productive relationship for
years to come.
Thank you for taking time out of your busy day to read this timely newsletter. Please
pass it along to your friends, family, co-workers, and neighbors.

Ted Snow, CFP®, MBA
Snow Financial Group
www.snowfinancialgroup.com
469-522-4056
1
    Dalbar. “Snapshot.” Dalbar, Inc. 2010, <http://www.dalbar.com/AboutDALBAR/
     Snapshot/tabid/157/Default.aspx>. 14 April 2010.

				
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