2. -2- Mutual fund investors who hold their investments are more successful than those who try to time the market (buy low – sell high). Dalbar found that over a 20 year period -- (1987 – 2006)-- through a raging bull market (1990s) and a devastating bear market (2000-2002) --- investors achieved an average annualized return of under 4 percent, compared to a return of nearly 12 percent from a buy-and-hold strategy using the Standard & Poor’s 500 Index . The 2007 Dalbar report found that while the past 20 years have been a boon to the mutual-fund industry, the average investor has earned only a fraction of the market's results. That's because mutual-fund performance is based on an investment held throughout a specific time period -- one, three, five, 10 years, etc. -- but investors frequently don't hold the funds for the entire period. Instead, they pour in cash as markets rise and start a selling frenzy after a decline. In addition, new funds, funds that surge in popularity and funds that close may cause investors to switch or withdraw their money, which can lower returns, depending on when they occur. So, if you, the average investor, can’t do it on your own, perhaps you should rely on the experts who run actively managed mutual funds. However, another piece of research tells us that may not be a great idea. According to Standard and Poor's Indices Vs. Active funds scorecard (SPIVA), 71.4 percent of mutual fund managers failed to beat the market. Almost three-quarters of the managers who make tons on money to run their actively managed funds could not outperform the cheap index fund that simply follows the S&P 500. Skeptics should visit Standard & Poor’s Web site. If you do, you can download its report. In it, the analysts found that over the trailing five-year period, 71.4 percent of large-cap funds had failed to beat their benchmark. The fail rate was 79.7 percent for mid-cap funds, 77.5 percent for small-cap funds, 78.2 percent for international funds, 86.7 percent for emerging market funds, 89.8 percent for long government bond funds, 85.7 percent for mortgage securities funds and 84.4 percent for high-yield funds. While the percentages change from quarterly report to quarterly report, the pattern is constant---managed funds fail to beat simple index funds. The Scorecard adds that over the past five years, 29.3% of domestic equity and 28.6% of sector funds have merged or liquidated. The fact that more than one in four funds disappeared indicates the importance of accounting for survivorship in fund research results. What You Should Know: The Dick Davis Dividend : Dick Davis is one of the most widely known and highly respected investment commentators. He founded the Dick Davis Digest, one of the nation’s largest investment newsletters back in 1982 and now he has written the Dick Davis Dividend where he provides some straight talk on making money from 40 years on Wall Street. Larry King says that Dick is “The best commentator I have ever heard.” In his book, Davis asks a question that you have also seen in our newsletter ---- Why do most individual investors “shun direct investments in index funds.” “Only about 8 percent of all the money that goes into stock mutual funds is invested in passive index funds. The savviest veteran’s who have studied the market for a lifetime concede, in effect, the odds are against beating the market.” Davis quotes Bill Schultheis, author of the very popular "The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life”. “ Only 20 percent of all managed mutual funds beat the stock market averages in each of the last three, ten and fifteen year periods.” Davis states that “Fees are the killer. Most active managers simply can’t do well enough to offset the fees they charge. So with their own money, or a big chunk of it, many buy diversified, long-term portfolios of low-cost, no-load index funds like the ones featured in this book.” Davis says that “the vast majority of the 95 million unsophisticated investors in this country continue to try and best the market. Everywhere they turn, they are encouraged to do so. According to repeated studies, the results are not pretty.” This easy-read book will give you in-depth insight and straight-forward, practical information and advice --- and he does not sell any investment products. The Investor’s Dilemna: Should I invest on my own of have someone do it for me? Either way, it can be a very difficult process. Two studies shed some light on what can happen with either approach. The numbers don’t look good for the do-it-yourself investor. Since 1984, Dalbar, a Boston based financial services research firm, has been measuring the effects of investor decisions to buy, sell and switch into and out of mutual funds. The results have shown, to varying degrees, that the average investor earned significantly less than the market indices that mutual fund performance reports would suggest. Its key finding is that investment return is far more dependent on investor behavior than on fund performance.

3. -3- So, the question is --- if the professionals can’t do it, who can? A growing number of investors are asking --- is there is a way to beat the pros and save money in the process. Well, there is and it is called Index Funds. They're called that because their job is to match the performance of a particular index such as Standard & Poor's Index of 500 stocks. Some people call this "passive" investing because you don't really have to do anything. "Active" investing is where you "actively" buy and sell individual stocks hoping to out-perform the market. There is an ongoing debate within the investment community between fans of "passive" and "active" styles of investing, and it's true that each has its good points and its bad points. It just seems logical that actively managed funds can do better than the passively managed index funds. After all, the main reason you agreed to pay a fund manager was so your money would grow faster, right? That leads us to a second factor impeding the performance of actively managed funds -- expenses. You have to pay for management fees for research, transaction costs and taxes. Index funds are cheaper than actively managed funds because you don’t have to pay a fund manager. They don’t buy and sell stocks as frequently as managed funds so transaction costs and tax consequences are much lower. The average cost of an index fund is about half that of an actively managed fund. According to Morningstar, the cost of the average index fund is just 0.80%, while the cost of the average actively managed mutual fund is 1.56%. For example, active fund managers will argue that they offer value-added guidance during periods of market volatility while passive investors are forced to take the hits when their index drops. On the other hand, passive investors point out that index funds have actually outperformed many actively managed funds over time, so why pay more for a high-priced active fund manager to beat the market when most of them don't? Because of these numbers, some are suggesting that you travel down the yellow brick road of investing. Follow this road and you will be a happy investor. Ignore it and you may have to suffer the consequences. On the Dalbar web site, they illustrate what can happen to the average investor who moved money into and out of the market and the investor who simply let her money grow. They call it The Story of Quincy & Caroline, Quincy and his wife Caroline inherited $20,000 in 1985. Quincy heard that mutual funds were the best way to put money away and he and Caroline decided that they would put their windfall into mutual funds. They decided that they would split the money and each put $10,000 in their own account. They both selected the same stock mutual fund and put their money in on the first business day in January, 1986. In the twenty years since that time, Quincy has stayed on top of the market, checking on how his investment was doing every month. Caroline, in the meanwhile, was more concerned about raising their kids and would listen to Quincy talk about how much he was making and occasionally, how much he had lost. A year later Quincy was very happy with his decision, the investment was now worth $12,000 and so was Caroline's. After two years, at the end of 1987, Quincy was very worried about all the news of the market crash that happened in October. When he checked on his investment it had fallen from $12,000 a year earlier to $9,600. He decided to limit any further loss and withdrew half of his investment and put $4,800 in his checking account. He wanted Caroline to do the same thing with her $9,600, but she decided against doing anything. By the August of the next year, Caroline's account was back up to $12,000 level but Quincy still had $4,800 in his checking account, that did not increase when the market did. Quincy regained his courage by the end of 1988 and put the money back into his mutual fund. By this time Caroline's account was worth $15,000 and Quincy's was only worth $12,300. In the intervening years Caroline simply let her nest egg grow but Quincy moved money in and out of the market. He would read the stock market reports and talk with friends to find out what they were doing. When he became worried about losing his money he would withdraw some and when his confidence was restored he would invest it again. By the end of 2005, Quincy had built his initial $10,000 investment up to a whopping $21,422 . Caroline had not touched her investment so it suffered during times of market declines and recovered when the market did. By the end of 2005, Caroline's account was worth $94,555 . How is your investment behavior? Are you more in touch with Quincy or Caroline? It really is important to know the difference and the implications of your investing decisions. As the research suggests, it can make a huge difference in the size of your nest egg at retirement.

4. -4- Getting To The Nitty Gritty: What returns have you been receiving from your mutual funds? Are you --- should you be satisfied? One way to determine how well you are performing is to match up the returns you are receiving against a benchmark. A n appropriate benchmark is probably one of the most important aspects of long-term investing. Yet, most individual investors have never thought much about benchmarks. Evaluating mutual fund performance would appear to be a fairly straightforward exercise in numbers. A return of 10% is better than 5%, but not as good as a return of 15%. Similarly, a loss of 5%, while not good, is better than losing 10%. But while it's helpful to regularly monitor the absolute numbers, the truth is that they only begin to tell the story of whether a mutual fund is indeed performing well. A thorough analysis should also examine how a mutual fund has performed relative to its benchmark index. You should compare apples with apples --- A benchmark index gives investors a point of reference for making an "apples to apples" comparison of a fund's characteristics or performance. One of the best-known benchmarks is the Standard & Poor's 500 Index. Because the S&P 500 Index is composed almost entirely of large-cap domestic stocks, it is a common performance measure for equity-oriented growth funds, including asset allocation and balanced funds. However, while the S&P 500 might be an appropriate benchmark for many mutual funds, it wouldn't be a good comparison for a fund that specializes in companies with a small-market capitalization. For a so-called small-cap fund, the Russell 2000 Index might serve as a better yardstick. Another example --- comparing a foreign stock fund with the S&P 500 does not indicate how the fund has done relative to foreign stock markets. The MSCI EAFE Index might be a better benchmark for a diversified international equity fund. The Lehman Brothers Aggregate Bond Index, which measures the overall bond market, may be a suitable benchmark for U.S. investment-grade fixed-income funds. But with so many different fund objectives and benchmarks, how can you know which index provides the best comparison? The fund's prospectus and semiannual reports are a start. Some experts say that indexes are an extremely valuable tool for investors to use for gauging the overall health of large public markets. Each index tells us a story about the assets it comprises. It does smooth out what would otherwise be endless financial noise, day after day. What an index often fails to do, however, is show the performance results of any kind of a real portfolio. While many investors are already aware of this to some degree, it's the understanding and application of the tenet that counts - not just the knowledge. One final point. Index funds (passive investing) have attracted a great deal of investment money because they deliver what the market delivers and because the fees you pay to invest in them are lower than investing in actively managed mutual funds. Over the last 10 years, according to Motley Fool, the S&P 500 index has beaten the performance of over 90% of all mutual funds. “The irony we love to point out is that the vast majority of actively managed stock funds underperform the overall stock market — and the index funds that match it. Perhaps the biggest reason is costs, since passively managed funds don't need to employ lots of analysts just to mimic an index. Most investors are generally better off having at least some assets in index investments.” So the questions you should ask yourself are --- what kinds of returns have my mutual funds provided in the past 3 – 5 – 10 years --- how does that compare to what I could have accomplished by investing in an index fund like the S&P 500 or the Wilshire 5000? - or the stock market’s average annual return of around 10 percent. If your funds have provided returns that exceed those of the S&P 500, the Wilshire Total Stock Market Index or “the stock markets average annual return or percent”, congratulations. If not, why? If not, what can - should you do? “ The U.S. stock market has, over decades, averaged about 10 percent per year in returns. But that’s an average. In some years, it loses money --- such as 9 percent in 2000, 12 percent in 2001 and 22 percent in 2002. This was followed by a 28 percent gain in 2003 and an 11 percent gain in 2004.” The Motley Fool

5. -5- American financial theorist, known for pioneering research in the field of Modern Portfolio Theory and he is also highly regarded for his self-help finance books for individual investors who wish to manage their own equity portfolios. He says “ One of the quickest ways to the poorhouse is to make finding the next Microsoft your primary investing goal,” Only recently have academics and practitioners begun the serious study of how the individual investor's state of mind affects his or her decision making --- a look at the fascinating area of "behavioral finance”. How do you avoid the most common behavioral mistakes? How do you deal with your own dysfunctional investment behavior? You will find that most investors tend to become grossly overconfident. They systematically pay too much for certain classes of stocks. They trade too much, at great cost and regularly make irrational buy and sell decisions.” The problem is that too many investors pile their money into whichever stock they think is the next Microsoft or Google. Tons of investors placed tons of money into the high flying tech stocks in the late 1990’s only to see their high flyers take a huge hit in the downturn from 2000 through 2002. John Waggoner, Investing columnist for USA Today tells us “The scars of the 2000-2002 tech-stock meltdown still linger in many investors' minds.” You could --- can have a lot of investing options as to where you invest your money but in the end, you basically have three choices when you invest. Choice #1: Some things are guaranteed -----Conservative Guaranteed: “Assurance that something will be done as specified” (Webster Dictionary). The return you get on a certificate of deposit or a Treasury security is one example. Investors who require certainty can get it, but at a very costly price. When the bank guarantees what it will pay on a CD, it assumes all the risk. In return for that, the bank promises to pay a very low interest rate. Choice #2: Some Things Are Probable Though Not Guaranteed -- Moderately Conservative Probable: “Likely to be or become true or real” (Webster Dictionary). One example is the notion that stock funds will outperform bond funds in the future. There will always be periods in which the opposite occurs. But if history is any guide, its more likely than not --- that over long periods that stock funds will outperform bond funds. Research indicates that over long periods of time, stocks have returned about 6 - 7% above the rate of inflation – bonds about 2 – 3%. How Can I: Make A Ton Of Money? You could win the lottery. You could but your odds of winning are terrible. You have better chances of getting into a car accident, a plane accident or struck by lightning. OK, how about inheriting wealth? The problem here is that 69% of everyone qualifying as rich today basically inherited their wealth. OK, you could marry into wealth. The problem here is that only about 4.2 of the newly rich do it. OK, you could strike it rich by investing --- buying tons of stock in the next Yahoo or Microsoft. William Bernstein doesn’t think you can do it. Bernstein is an American American financial theorist, known for pioneering research in the field of Modern Portfolio Theory and he is also highly regarded for his self-help finance books for individual investors who wish to manage their own equity portfolios. He says “ One of the quickest ways to the poorhouse is to make finding the next Microsoft your primary investing goal,” Only recently have academics and practitioners begun the serious study of how the individual investor's state of mind affects his or her decision making --- a look at the fascinating area of "behavioral finance”. How do you avoid the most common behavioral mistakes? How do you deal with your own dysfunctional investment behavior? You will find that most investors tend to become grossly overconfident. They systematically pay too much for certain classes of stocks. They trade too much, at great cost and regularly make irrational buy and sell decisions.” The problem is that too many investors pile their money into whichever stock they think is the next Microsoft or Google. Tons of investors placed tons of money into the high flying tech stocks in the late 1990’s only to see their high flyers take a huge hit in the downturn from 2000 through 2002. John Waggoner, Investing columnist for USA Today tells us “The scars of the 2000-2002 tech-stock meltdown still linger in many investors' minds.” You could --- can have a lot of investing options as to where you invest your money but in the end, you basically have three choices when you invest.

6. -6- Choice #3: Some Things Are Possible, Although Not Probable ---- Aggressive Possible: “ Being something that may or may not occur.” (Webster Dictionary). One example is that the stock you read about or that is recommended to you by -somebody you know will turn out to be the next Microsoft. In fact, there is probably some relatively small new company on the market right now that, 10 or 20 years -from now, will be an industrial giant. But out of 5,000 or so possible candidates, will you be lucky enough to spot that one future gem? How should you make your investment decisions? Some experts say that Choice #2 is the best one - Some Things Are Probable Though Not Guaranteed. Make your investment decisions based on what is probable, not what is possible. From 1995 through 1999, the Standard and Poors 500 Index compounded at a rate of 28.5% a year. Plenty of investors concluded that successful investing was pretty easy --- returns of 25% were possible. However, the bear market of 2000 - 2003 showed us that 75% losses were equally possible. We have data from three quarters of a century (75 years) of history to show us what is probable. According to Ibbotson Associates, a leading authority on asset allocation, large-company stocks returned 10.4%, compounded annually from 1926 through 2005. Small-company stocks provided a return of 12.4 percent. This look at reality --- and not the flash-in-the-pan excitement of a bull market --- should be the basis of your planning. When you invest in that manner, you will have probability working for you, not against you. Jeremy Siegel, Professor of Finance at Wharton School at the University of Pennsylvania, and author of " Stocks for the Long Run " (1998), shows us what is probable. He presents a thorough analysis of stock market data showing that stocks returned about 7% above inflation for the past two hundred years, and that for twenty year time frames, stocks outperformed bonds over 90% of the time --- Some Things Are Probable. Take a look at this chart. Here you see what is probable --- Total Returns from 1926 – 2005 when you invest in the market. It is interesting to look at what is possible --- “Best Year” and find that in 1935, stocks returned 60.0%, bonds returned 42.1% and T-Bills returned 14.0%. But, you will also find that it is also possible to experience large losses in the worst year --- stocks lost 41.1 in 1931 --bonds lost 8.7% in 1999 and T-Bills had a return of 0.0% in 1940. Total Returns From 1926 – 2005 Stocks Bonds T-Bills Average 12.70% 5.80% 3.80 Best Year 60.0 (1935) 42.1% (1983) 14.0(1981) Worst 41.1% (1931) -8.7 (1999) 0.0 (1940) How about you? What choices do you make and why do you make those choices? Do you concentrate all of your investment energies – money on ---- Choice #1: Some things are guaranteed -----Conservative --- Guaranteed: Assurance that something will be done as specified --- (Webster Dictionary). Or do you concentrate on Choice #2 : Some Things Are Probable Though Not Guaranteed --Moderately Conservative --- Probable: Likely to be or become true or real --- (Webster Dictionary). Or do you concentrate on Choice #3 : Some Things Are Possible, Although Not Probable ---- Aggressive -- Possible: Being something that may or may not occur ---(Webster Dictionary). How well has that strategy performed in building your retirement nest egg? Where do you save – invest your dollars? Why? “ Over the past 80 years, stocks have gained an annualized 10.4%, while long-term government bonds have returned 5.5%, only a couple of percentage points ahead of the inflation rate.” Kiplinger’s Personal Finance 04/2008

7. -7- For additional information or if you have any questions, contact, Robert R. Julian, Retirement Planning Consultants, 313 Blackstone Avenue, Ithaca, New York 14850, (607) 255-4405, email: rrj1cornell.edu. Visit our website at retirementplanningconsultants.com Retirement Planning Consultants provides a number of resources designed to help individuals make informed decisions on planning – saving – investing for retirement. We offer unbiased and easy-to-understand information from an impartial outside source. We’ve been doing that for over 30 years. Our “Planning – Saving – Investing For Retirement” workshops have helped thousands of individuals. This newsletter intends to present factual up-to-date, researched information on the topics presented. We cannot make any representation regarding the accuracy of the content or its applicability to your situation. Before any action is taken based upon this information, it is essential that you obtain competent, individual advice from an attorney, accountant, tax adviser or other professional adviser. Information throughout this newsletter, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. No party assumes liability for any loss or damage resulting from errors or omissions based on or use of this material.