April 2010

 Dear Investor,

What was on your mind in 2009? For entertainment if not edification, Google Zeitgeist offers us some thought-provoking statistics on what Americans were collectively searching for at any given point, including an annual summary of top Google searches:

http://www.google.com/intl/en_us/press/zeitgeist2009/overview.html

At a quick scan, you’ll see many still-familiar high-ranking names: Michael Jackson, Bernie Madoff, Heath Ledger. Remember balloon boy? He was up there too.

Notably absent from Google’s who’s who list is American economist and Nobel laureate Paul Samuelson, who passed away in December 2009 at the age of 94.

The absence is notable to us, anyway, for Dr. Samuelson and those who followed in his footsteps can be credited with a number of giant leaps in our understanding of economics and finance. Among his most important contributions to investing was an improved explanation of market pricing, and how it applies to our real lives and our real wealth. Throughout much of his life, Dr. Samuelson advised presidents and governments and universities — and everyday people like you and me — with plain-English words of wisdom:

“You shouldn’t spend much time on your investments. That will just tempt you to pull up the plants and see how the roots are doing, and that’s very bad for the roots. It’s also very bad for your sleep.”

And to think balloon boy garnered more Google hits than Dr. Samuelson. It just goes to show why the market’s sometimes dramatic but mostly insignificant jolts seem to capture far more popular attention than does its durable, historic pattern of underlying “root” growth.

Consider the market’s rapidly evolving activities during the past year:

• This time last year, we were experiencing a 12-year market low, which was then followed by a whiplash rebound of more than 60 percent.
• We entered 2010 amidst threats of looming inflation, a falling dollar and rising interest rates. Then the S&P 500 Index posted a gain of nearly 5 percent in the first quarter.
• Other economic indicators have been signaling further steps to recovery:

What next? Even as the economy shows signs of recovery, many continue to predict rough days ahead. Some believe if the Fed makes a move to increase interest rates, there may be additional setbacks. Others remain wary in light of the upcoming tax increases.

The truth is, we just don’t know. Promising signs of recovery may expand or stagnate. But we do know (thanks, in part, to Dr. Samuelson) that constantly changing your investment strategy based on short-term events and forecasts is more likely to cause your long-term wealth to wither than to grow.

Bottom line, trying to outguess the market can be costly. For example, in the second half of 2009, investors sapped $10.4 billion out of stock mutual funds and pumped $232.4 billion into bond funds, presumably trying to avoid losses. In doing so, they missed out on market gains exceeding 50 percent during that period. And that’s before we even consider the money lost to trading costs.

In contrast, we advise our clients to invest with patience. Stick to your plan. Apply disciplined rebalancing when needed. We believe that, over time, this is the winning strategy that will reward you through both up and down markets. In the long run, it’s likely to be good for your wealth — and even better for your sleep.

Very truly yours,

Investment Advisors

Squire Wealth Advisors