Philosophy

                                                        Time Based Diversification
Security diversification lessens the impact of any one security on your overall portfolio results. The more
securities you add to your portfolio the less impact any one security has, good or bad, on your return. Time
based diversification works on the same principal. The longer you hold a diversified portfolio of stocks the less
impact any one year has on your results. Stocks are very volatile over the short term. The worst single year in
stock market history occurred in 1931 when the S&P 500 lost 43.34% while the best year was in 1933 when the
market returned 53.99%. Those one year returns diverge significantly from the long term average return of
approximately 10%.          

Time based diversification actually helps you control two risks. The first is the most obvious, the risk of losing
money. The stock market has never lost money over holding periods of fifteen years or longer. The second risk
investor’s face is that they may not earn the return they are planning on. To illustrate how time based
diversification helps minimize these risks you will find the average annual returns for various holding periods for
investments made in the S&P 500 at the beginning of 1931 and 1933 below.

                                                                 Holding Period

                                        1 yr.          5 yr.           10 yr.            15 yr.            20 yr.           25 yr.            30 yr.    

Worst Yearly Return    1931  -43.34%      3.12%        1.80%           6.62%           7.43%         9.87%        10.35%

Best Yearly Return      1933   53.99%     14.29%       9.35%         11.11%         13.15%        14.92%        14.06%

Spread                                   97.33%     11.17%        7.55%          4.49%            5.72%         5.05%          3.71%

As you can see time does heal all wounds. After five years the steep loss incurred in 1931 has turned into a 3%
annual gain while after 25 years the return is close to the long term average of 10%. The high return from 1933
drops steadily as below average years dilute the returns. The spread between the high and low returns drops as
the holding period increases which increases the chances of earning the long term average return.

Nineteen thirty one was the worst individual year in stock market history to date, yet after five years the stock
market fully recover all its losses and after 25 years had generated a 10.28% average annual return. The
second worst year in market history occurred in 2008. The S&P 500 lost approximately 37%. Will you have the
patience to let time based diversification work for you?

Investors with longer holding periods can afford to invest a greater percentage in stocks than investors with
shorter holding periods. We will work with you to determine how much of your savings should be invested in
stocks given your holding period.
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