INVESTMENT NEWSLETTER
January 2009

Bear of a Year

There was almost no place to hide from the crash of 2008. Nearly every investor's portfolio declined dramatically as markets around the globe suffered historic losses and segments of the bond markets simply stopped functioning for a time. Although the DJ Industrial Average held up best, losing 32% for the year, it had its worst showing since 1931. The S&P 500 Index lost 37%, and Nasdaq 41%, while the MSCI EAFE Index lost 45%.

Looking at last year's performance is painful: nearly every category of fund suffered its largest decline ever. The average U.S. diversified stock fund tumbled 40% for the year, suffering an average decline of 25% in the fourth quarter alone. The financial sector led the way down. Healthcare funds held up best, averaging losses of only 25% for the year. Value oriented funds mitigated losses slightly better than growth funds, and large-cap funds lost a bit less than small-cap on average.

International stock funds were hit harder than domestic funds last year, down 46% on average, partly because of the dollar's rebound. Emerging markets like Latin America, which had previously powered investor returns, tumbled hard in 2008.

On the bright side, December brought the first monthly gains since May 2008, with almost all equity funds posting strong positive returns. Since the November lows, stock markets have gained 20% or more. On the upside small-cap and growth funds brought in the strongest gains.

Looking Ahead - Time to Move On
We begin the New Year with much to be thankful for and more to look forward to. This may sound strange coming on the heels of the brutal year just ended. But we are hopeful that excess and greed have been wrung out and prudence and pragmatism will return. Frugality has once again become a virtue. U.S. savings rates are growing and we are optimistic about positive cultural shifts.

Although business activity remains extremely weak, history has shown that market action tends to precede the news. Just as the market began the decline in mid 2007 well before the reasons became apparent, it has begun to advance well before any improvement in the economy or the news.

As important as it is to be realistic, it is also critical to recognize that the future is not a reflection of the past. We must learn from our experiences, and be aware of the tendency to let our most recent
experiences color our judgment Investors typically expect what has happened in the recent past to continue. When the market trend is up, most expect further gains indefinitely. After severe declines, few see the possibility of recovery. It is a rare bird that can foresee the trend reversing.

Over the past year, we've continually reminded readers that market corrections and bear markets are part of normal market activity. Now it's time to point out that market rallies and bull markets are normal as well. In fact, the market goes up far more often that it goes down.

After 2008, there are opportunities for investors in the wake of such steep declines. Investors have retreated and, to a large extent are hiding in short-term instruments that yield next to nothing. Never before have such large amounts been held in cash. With the Fed funds rate near 0%, and the Federal Reserve using all of the tools at their disposal, borrowing rates will stay low. It will be increasingly difficult for investors with over $3 trillion in money market funds and savings accounts to justify investing for a negative real return.

We believe the Upgrading strategy has us well positioned to profit in the years ahead. Flexibility to change is key. After last year, we're keenly aware that markets change and it's important to change our portfolios as market conditions change. That's what Upgrader does...changes to adapt to market conditions..

Thank You for your trust and continued support!

Sincerely,

P. Michael Valley II
Estate Planning Professionals

2009
REQUIRED
MINIMUM DISTRIBUTION (RMD) ELECTION:

Beginning January 1, 2009, a temporary waiver of the Required Minimum Distribution is in effect for a one year period. This new legislation allows individuals who are subject to RMD rules to suspend distributions in 2009 without penalty. The rule waives the required minimum distribution for 2009.

Please contact our office, as some companies require a waiver form to make this election.

–––––––––––––

Everyone at Eastwind Capital would like to wish you and your family a Happy New Year!