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2008 Year End Commentary

While every year has its challenges, 2008 can be ranked as one of the most memorable years in decades. With volatility at extremes, the S&P500 lost approximately 40% of its value. The National Bureau of Economic Research finally declared that the U.S. economy was in recession, one that started in December 2007. The credit crisis, fueled by falling real estate prices and complex financial instruments that very few, if anyone, fully understood, claimed several revered financial institutions, leaving the industry in turmoil and the American taxpayer playing banker. The final blow to investor confidence in 2008 came when Bernie Madoff, an icon in the business, admitted to running the largest Ponzi scheme in history evaporating billions of dollars.

It is no wonder that investor confidence is at historic lows and many are looking closely at their financial relationships. We believe that investors should always be diligent and follow the simplest rules of investing: Buy what you know, diversify your holdings and demand proof when something seems too good to be true. In order to ensure a system of checks and balances, we believe that the management of your assets should be separate from the custody of those assets. With Schwab serving as your custodian, you benefit from the separation of duties in addition to being covered by SIPC and additional third party insurance to cover any malfeasance.

As we look out to 2009, we believe that credit markets will continue to thaw and that the massive injection of Federal funds into the economy will stimulate lending and thus the return of economic growth. We expect disappointing economic data in the first-half with improving news as the year plays out, driven by the support of the new administration’s stimulus package. One clear piece of good news is that given the level of concern with the economy and the need to provide both fiscal and monetary stimulus, capital gains rates are likely to remain at their current levels, thus providing some relief to investors. Tax increases are now likely to be pushed out into 2010 or longer. The strength of the economic recovery will dictate those policy changes. We anticipate markets will begin to recover in the second half of the year and will do so in advance of confirming data.

In the meantime, we continue to focus on preserving wealth by broadly diversifying portfolios across a variety of asset classes and segments, striving to reduce short-term volatility while dampening losses relative to the broader markets. Asset management is a dynamic process, and we are continually assessing our strategy in the context of current market conditions and your investment objectives. We realize that at times like these, it is normal to reassess your objectives and tolerance for risk. The combination of an investment plan, stated objectives and the guidance of your manager is meant to help you weather the storms that periodically hit financial markets. In that context, we remain vigilant and committed to your long-term financial success.

We appreciate the opportunity to serve as your investment adviser and we will continue to exercise diligence in the handling of your financial matters. Please feel free to contact us with any questions that you have regarding the enclosed information. We welcome your thoughts, comments and ideas and encourage you to share them with us.


Thomas M. Lewry, CFP - President
Pamela Diamantis - Principal
Melvin J. Severance, III, CFP, AAMS - Principal