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Sailing Through the Storm

"I'm not afraid of storms,
for I'm learning how to sail my ship."

- Louisa May Alcott

Executive Summary

Recent volatility in equity markets is being caused by global equity markets adjusting expectations for lower economic growth and an increased risk of recession, primarily due to disappointing growth in the US and the ongoing European debt crisis.
The macro economy remains resilient. While we don't expect a return to recession, economic growth will likely continue to ebb and flow as economies work off the overhangs from the housing bubble.
Increased volatility is normal during an economic recovery as equity markets attempt to anticipate future growth and respond to often conflicting information. Equity investors should expect substantial volatility for the foreseeable future, but not at the level exhibited in recent weeks.
While as investors we cannot control volatility, we can control our reaction to it. When the urge to do something strikes, long-range planning puts the current investment environment into the appropriate long-term perspective.

Just when you thought it was getting safe to go back in the water, another storm has engulfed the global financial markets. As with all financial crises, this one is marked with grim milestones: US sovereign debt downgraded for the first time in history; our elected officials flirt with a catastrophic default; and Europe's largest economies appear increasingly shaky, causing concern that the Euro-zone might split apart.

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From the CEO

No matter how many times investors persevere through volatility in the financial markets, it never gets easier and always seems different (this time). Indeed, over the past 110 years, the S&P 500 has been in a state of correction, recession or bear market 46.2% of the time! That equates to almost 51 years of investor discomfort over the last 110 years. Investors have been rewarded for accepting this discomfort with attractive equity investment returns—nearly 9.8%, on average, for the S&P 500 each year since 1927.

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The Next 20 Years—Our Updated Capital Market Expectations

The recent turmoil in European debt markets and the debt ceiling circus in Washington reminded us all that the global capital markets are dynamic, reflecting the constant evolution of economies and the companies and people that operate in them.

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Wealth Transfer 101: Charitable Giving with Appreciated Assets

Beyond the personal gratification of charitable giving, there are tax-related motivations that make it even more attractive. Charitable gifts create a valuable income tax deduction and reduce a client's estate for estate tax purposes; moreover, by giving appreciated assets (usually stock or mutual funds) instead of cash, clients can avoid the capital gains tax that otherwise would have been paid if the property was sold. Happily, after two years of strong gains in equity markets, clients' investment portfolios have large unrealized capital gains, creating a good opportunity to use appreciated securities for charitable gifts.

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Emerging Markets... Emerging.

Over the past decade, a group of emerging and developing economies have shifted the world's economic center of gravity—global growth in gross domestic product (GDP) in the last ten years owes more to the developing world than to the advanced economies. The implications of shifting wealth for the global economic and social landscape are only starting to be understood, but it is clear that issues which primarily affect developed markets (for example, the indebted US consumer) are not the entire (or even the primary) story.

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Wealth Transfer 301: The Family Charitable Remainder Trust

After successive years of strong gains in equity markets, many clients' investment portfolios have large unrealized capital gains. For the charitably inclined, an outright gift of these appreciated securities to charity produces great income tax results (see article on the benefits of using appreciated assets to fund philanthropic goals), but what if you want to pass your wealth primarily to your children instead of charity?

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Circular 230 Disclosure:
To assure compliance with Treasury Department rules governing tax practice, the Treasury Department now requires that all tax advisors attach the following statement to any and all written communication, except to the extent exhaustive steps are taken to satisfy the new guidelines of the regulation. We hereby inform you that any advice contained herein (including in any attachment) (1) was not written or intended to be used, and cannot be used, by you or any taxpayer for the purpose of avoiding any penalties that may be imposed on you or any taxpayer and (2) may not be used or referred

Past performance is not indicative of future results. All investments may lose value. Indexes are unmanaged and may not be directly invested in.