March 2009

The Education of Investors

Last year taught us many lessons, some of them quite painful. We learned that panic and fear can spread almost instantaneously in our world of 24/7 news, cell phones, instant messaging and internet connectivity. We learned that the lack of common sense can lead to bad loans, unwise home purchases, ineffective regulation, non-existent investments, and business failures. We discovered that too many people were living without a financial safety net so that when they lost their job they also ended up losing their home and sometimes their marriage. And many people learned that they had too much of their portfolio in stocks, resulting in delayed retirements. A recent Employee Benefit Research Institute report shows that going into last year, nearly 40% of people age 56 to 65 had more than 70% of their 401(k) accounts invested in equities, and almost 25% had more than 90% of their balance in stocks.

Other lessons were familiar. Portfolio performance is directly linked to portfolio allocation: our clients' returns last year ranged from a loss of 2% to a loss of 28.4%, depending on how much they had in equities. Clients feel portfolio losses much more deeply than they enjoy portfolio gains. When living off a portfolio, reducing spending and account withdrawals will lessen the impact of bad markets.

We also noticed that those people who have attended one of our "Investment Boot Camp" workshops in the past were less stressed by last year' volatility than others. Additional reassurance was gained at special client forums we offered in October. This reinforced one of the fundamental foundations of Silver Oak's investment philosophy: the education of the investor is critical to their long term success.

At our workshop, we cover topics that we all should have learned back in high school or college, such as:

Most investment presentations tell you how to invest your money. This one tells you what investing really is, why you need to care about risk, and how to minimize it. This is pure education, there will be no sales pitch. If you or someone you know is experiencing stress about all of this current upheaval in the markets, please come, and bring your friend. The next dates are:

Saturday April 4, 9:30 AM to 11:30 AM
Wednesday May 13, 4 PM to 6 PM
Saturday May 30, 9:30 AM to 11:30 AM

All sessions are held at our office and seating is limited so please register online or contact Jessi to reserve a spot.

Also, if you are a business owner with an employee-directed 401(k) plan, we offer a similar "prudent investor" workshop for employees. Please call for more information. Or if you have a particular issue you think we should build a workshop around, please let us know that too.

The Safety of Cash

Several clients have asked about the safety of assets in their Charles Schwab accounts, particularly the money market/cash portion. There are two different types of protection in place.

All of your assets at Schwab are covered by the Securities Investor Protection Corporation (SIPC) and a private insurance policy, and together they will provide protection of securities and cash up to $150 million, including up to $1 million in cash, in the event of a broker dealer failure. That insurance does not, however, cover fluctuations in the market value of your investments.

To protect your money market funds against a decline in value, Schwab participates in the U.S. Treasury Temporary Guarantee Program. This program is slated to end in April 2009. Currently it protects only the amount of money that was in your money market account as of December 19, 2008.

Any assets that you have in accounts at an Federal Deposit Insurance Corporation (FDIC) insured institution, such as a bank, are covered by that program. This was recently expanded to cover up to $250,000 per account owner, although the program is scheduled to decrease back to the former $100,000 balance on January 1, 2010.

If you own CDs held at Schwab, but purchased from FDIC banks, the FDIC coverage would also apply to those investments.

Call us if you have other questions.

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