December 2002 Newsletter

The Cobbler's Children

Remember the children's story about the cobbler's children who had no shoes? Well, I'm one of those professionals who has often put her own financial and estate planning on the "back burner" while spending her days helping everyone else with theirs. I am happy to say that Silver Oak has now formalized its own financial planning, and it feels good.

At a staff meeting several years ago, just before I was leaving on vacation, Betsy asked The Big Question: "What do we do if you don't come back?" There was insurance coverage and the basics, but we hadn't discussed the details. So we sat around the table brainstorming, and came up with a catastrophe plan. This year, we've expanded and improved it. So here are Silver Oak's Catastrophe Plans:

Natural Disasters: We have off-site backup for critical computer data, such as historical investment information, Schwab account numbers, and portfolio designs. In addition, we are starting to use a company in California for our portfolio management database services, so that will be an extra off- site backup.

Client paperwork older than two years is stored in another location. Current client binder information, primarily duplicates of what we get from or send to you or get from Schwab, can be replaced. Should our phone lines or office e-mail stop working, we can post messages on our web site or use my web-based e-mail at "DJSchlauch@ hotmail.com."

Death or Disability: If I should die prematurely, I have an agreement with Steve, Paul and Betsy that they would continue to offer ongoing services to Silver Oak clients. Steve can handle the financial planning issues, Paul the portfolio management, and Betsy knows all of you personally. I have also given them names of other investment advisory firms in town that I respect, if clients prefer to change advisors. If Steve dies too soon, we would be able to accommodate his ongoing Silver Oak clients as well.

Miscellaneous: We are looking at setting up investment accounts at Bidwell & Co. in addition to Charles Schwab so we have an alternative provider of custodial services. Also on the list for 2003 is a computer link from home to office. After doing this planning, and the rest of the things on my "to do" list (new will, personal insurance review, etc.), I really felt much better. I urge any other cobblers out there to devote attention to your own planning!

Investment Boot Camp

The next workshops have been scheduled as follows:

Wednesday, Jan. 8, 2003 3:30 - 5:30 pm
Saturday, April 5, 2003 9:30 -11:30 am

Please contact Mary Barr to reserve your space(s).

Market Movements

A lot of investors are hesitant to put money into the stock markets these days, with all the volatility and losses from the past three years showing up on their statements and reports. The common sentiment seems to be, "why don't we wait until the market stops going down before we get back in?"

Unfortunately, no one can tell us with certainty when the market bottom is reached, and once it has, stocks often start back up in quick and dramatic fashion. Waiting on the sidelines for the right moment to return to the stock market can result in big penalties in lost return.

The following chart illustrates this point:
2003 Returns
S&P 500 Ten Year Compound Returns
June 1992 to June 2002

The first bar (11.43%) shows the total compound annual return for the S&P 500 for the 10 years from June 1992 to June 2002. The other three bars show the 10 year compound return if you missed the 10, 20 or 30 best days during that 10 year period. For example, in the second bar, the investor sat on the sidelines for just 10 days out of roughly 2,500 trading days...and that investor's 10 year compound return dropped to about 40% (6.72%) of the fully-invested bar.

Predicting when these "best days" will occur is difficult to do, and they often come just after some of the worst days. Even the best money managers are rarely successful on a consistent basis in anticipating market movements.

Research like this is why we counsel our clients to stick with their long term plans in spite of the recent losses in stocks. Rebalancing portfolios forces investors to "buy low and sell high." Although it doesn't protect us from further lows, it does ensure that we will have some money in play when the markets turn around again.

Happy Holidays!

Happy Holidays from all of us here at Silver Oak! We appreciate your trust and confidence in our skills and will continue to do our best to justify it.

Office will be closed December 23rd through January 1st.

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