2009 q1 presentation1

The Year in ReviewWhat happened and where are we going?

Presenters:

Patrick Collins, CFP®, EA- Principal

Joshua Itzoe, CFP®, AIF®- Principal

Major Market Indices

Asset Class Index 1yr 3yr 5yr

Foreign Developed Mkt Bonds Citigroup WGBI ex-US 10.1 9.5 6.0

US Bonds Lehman US Aggregate Bond 5.2 5.5 4.6

Cash 3 month T-bill 2.1 4.1 3.4

TIPS Lehman Treasury TIPS -2.4 3.1 4.1

Emerging Mkt Bonds Citigroup ESBI -10.9 1.5 5.4

High Yield Bonds iBoxx High Yield -23.9 -5.1 -0.8

Commodities DJ-AIG Commodity -35.6 -8.6 0.2

US Stocks Russell 3000 -37.3 -8.6 -2.0

REITs DJ Wilshire REIT -39.2 -12.0 0.7

Foreign Developed Mkt Stocks

MSCI EAFE -43.4 -7.4 1.7

Emerging Mkt Stocks MSCI EM -54.5 -7.1 5.1Performance Data as of 12/31/2008

Major Financial & Political EventsFinancial Meltdown Accelerates Recession

Bernie Madoff Ponzi Scheme

Oil Price & Stock Market Volatility

Monumental Presidential Election

Free Market Capitalism is Tested

Continued Housing Freefall

Destruction of Investment Banking Model

Continued War on Terror

What We Learned from 2008

1. Don’t try to pick investment strategies that are dependent on an individual for success

2. The media gets it wrong most of the time

3. Diversification still works

4. The market is not always rational

5. Minimize unpredictable outcomes

Economic & Investment Themes for 2009

1. Economic Stimulus- how big and will it work?

2. Fighting Deflation- the Fed’s printing press

3. Unemployment- trailing indicator

4. Equity and debt valuations look attractive

5. Real Estate woes continue

6. Regulation is coming

Economic Stimulus

Fighting Deflation

Unemployment

Equity Valuations

Historical P/E Ratio of S&P 500 (1881-2008)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

1881

1887

1893

1899

1905

1911

1917

1923

1929

1935

1941

1947

1953

1959

1965

1971

1977

1983

1989

1995

2001

2007

Year

Nor

mal

ized

P/E

Rat

io

Data from Robert Shiller: Irrational Exuberance

Equity Valuations

Data from Robert Shiller: Irrational Exuberance

Future returns at Various P/E ratiosS&P 500 from 1881-2008

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Future 1 y r Future 5 y r Future 10 y r Future 30 y r

Future Time Periods

Aver

age

Annu

al R

etur

n If P/E under 10

If P/E betw een 10 and 15

If P/E betw een 15 and 20

If P/E betw een 20 and 25

If P/E betw een 25 and 30

If P/E ov er 30

Debt Valuations

Yield Spread Between 10 Yr US Treasury and BAA Debt

0.001.002.003.004.005.006.007.00

Jan-

73

Jan-

75

Jan-

77

Jan-

79

Jan-

81

Jan-

83

Jan-

85

Jan-

87

Jan-

89

Jan-

91

Jan-

93

Jan-

95

Jan-

97

Jan-

99

Jan-

01

Jan-

03

Jan-

05

Jan-

07

Year

Yiel

d Sp

read

(%)

Debt Valuations

Future Returns at Varioius Yield Spread Intervals (1973-2008)

10 Year Treasury vs. BAA rated bonds

0.00%

5.00%

10.00%

15.00%

1 Yr 5 Yr 10 Yr

Future Time Period

Annu

alize

d Re

turn

s

Greater than 3%

Between 2% and 3%

Between 1% and 2%

Real Home Price Index TrendCase Shiller Data (1890-2008)

0

50

100

150

200

250

1890

1904

1918

1932

1946

1960

1974

1988

2002

Year

Rea

l Hom

e Pr

ice

Inde

x

Real HomePrice Index

Trendline

Housing Woes Persist

Regulation is Coming

"In today's regulatory environment, it's virtually impossible to violate rules...it's impossible for a violation to go undetected, and certainly not for a considerable period of time."

—Bernard Madoff, Oct. 27, 2007.

Questions

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