We keep asking ourselves if diversification still works. Diversification, such as different equities, real estate, bonds and commodities-did little to protect against the downside in 2008. Even so, we don't think it makes sense to give up on diversification based on one-year returns in an exceptionally unusual environment.

What do we expect? We expect continued volatility. We don't think fundamentals are going to begin a sharp and sustained improvement any time soon due to the long-term effects from the bursting debt bubble and resulting deleveraging. We have already seen a couple rallies of around 20% followed by sizable declines in the past couple of months.

We understand that the powerlessness of watching the value of your wealth decline. It creates a strong desire to "do something".

At this point, we are recommending an increased allocation to bonds. The flight to treasuries over the last year has had a major negative impact on corporate bonds. We believe the asset class to be oversold and a tremendous opportunity. We believe this asset class will outperform stocks over the next six to nine months.

We also want to make the point that we are not betting against stocks over the long run. Based on the current scandals and poor performance surrounding alternative asset class, leveraged asset classes and illiquid hedge funds, we believe transparent, "old-fashioned" growth stocks to perform very well in the years to come. We are confident that from current levels stocks offer good longer-term return potential.

Like you, we find this environment literally gut wrenching. If you are not sure if you can stand more declines, we continue to urge you to discuss any concerns with us. We run investment strategies with varying risk levels, and it is important in an environment as volatile and trying as this one that you are in a strategy you can live with both in the short and long term.

As always, we greatly value the trust and confidence you place in us to manage your investments.

Please advise us promptly if there are ever any changes in your financial situation or investment objectives. Feel free to give us a call if you want to discuss anything further.