Time Helps Reduce Market Risk

As hard as it is to stomach, market corrections are a normal part of the market cycle. Since 1926, the stock market has experienced a down year one out of every fours years, according to Ibbotson Associates. Every five years, on average, the market has experienced a 20% or greater correction.

The S&P 500 Index and Dow Jones Industrial average recently crossed into Bear territory. Losses in the month of June to the present, pushed a "recovering" market into a Bear territory. Blame the record rise in oil prices in June and the never ending credit crisis for the fatal blow to the Bull market.

What Now?

Be patient. Give it some time. The longer your holding period the lower the chances of negative returns. Over the short term the market can be very volatile and experience losses. However, over the long term, the chances of loss decreases.

The S&P 500 Index Holding Periods for 1926- 2007 period*.:

• 1 Year: 59 up periods to 23 down periods
• 5 Years: 65 up periods to 7 Down periods

Thus, the remedy for market volatility may be to invest for the long term rather than not invests at all or trade frequently in an effort to time or avoid market down turns. Particularly if the down turn is about over.

Keeping a long term focus, then can help you manage short-term volatility and benefit from the market's historically upward growth.

How Long Does a Bear Market Last?

The average length of a bear market has been just over one year's time. It took 386 days to reach its trough. Given the market high was in October 2007 the Bear market can be expected to end October- December 2008.

Post 1940 the average bear market has declined 30.4%. The potential downside at this point might be less than 10%. The potential upside very well could be 20-30% in the first twelve months after a bottom. If we haven't hit bottom yet, after a 20% decline which has occurred, the stock market has risen 4.7% in the next three months, and 16.5% over the next twelve months on average.

Historically investors who remained patient at this point as the market capitulated have been rewarded for their patience.

Aspetuck's Projected Return For The Market

Our internal model expect's the market to rise by 17% over the next twelve months. Our model is based on current valuations, forward earnings growth forecast of 7%, and the current S&P 500 dividend yield.

Market Head Winds Likely To Dissipate Over Time

What could delay the market's recovery, and push further out our return forecast? Oil, housing, and possibly more credit issues.

In our opinion, Oil is setting itself for a significant decline by year-end. The world economy is slowing down and oil demand seems to be temporarily peaking. The saber rattling between Iran and Israel has recently pushed oil prices to record levels again due to Middle East supply concerns. Prior that oil had corrected $9 in two days based on declining demand and higher gas inventories. Given the situation in the Middle East is just saber rattling then the oil market has a chance to correct by year-end.

The housing sector seems to be forming a bottom based on technical measures exist now and at bottoms. The bottom could be reached later this year accompanied by further decline in home prices.

The credit crisis is likely to be with us into 2009 but given that a crisis can be avoided with Fannie Mae and Freddie Mac, the worst of it should be behind us.

At This Point I Strongly Advise Investors To Stay The Course

Maintain your strategic allocation. Over the long term you're likely to do better by maintaining a suitable strategic asset allocation than market timing into cash near or at a market bottom.

Be a contrarian with some parts of your portfolio. Now and over the next few months is an attractive time to gradually take small positions in what has not done well but has a chance of doing well in 2009. Investing requires a minimum horizon of 12-18 months at least. When the market rallies it could be explosive considering how much cash is sitting on the sidelines. A catalyst for a rally is oil falling below $130 per barrel and or a satisfactory solution to Fannie Mae and Freddie Mac capital needs.

Please call me at 203-226-5733 if you have any questions. Thank you for the confidence you have placed in us.

Enjoy your summer!

Yours truly,

Patrick T. Byrne, Market Strategist

* Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index considered representative of the broad stock market. Investors cannot invests directly in the index. It has no fees or expenses. The opinions expressed are those of Patrick T. Byrne as of July 10, 2008, and are subject to change. There is no guarantee that the forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment. Investment involves risk. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. Information and opinions are derived from proprietary and non-proprietary sources. Index performance is hypothetical and is shown for illustrative purposes only. You cannot invest directly in an index. S&P 500 is a registered trademark of The McGraw-Hill Companies, Inc. Nasdaq is a registered trademark of The NASDAQ Stock Market, Inc.Risk Managed Portfolio Program. IT SHOULD NOT BE ASSUMED THAT RECOMMENDATIONS MADE IN THE FUTURE WILL BE PROFITABLE OR WILL EQUAL THE PERFORMANCE OF THE SECURITIES IN THIS LIST. Past performance is no guarantee of future performance. There is no guarantee that participation in the Aspetuck Financial Management's RMP - Risk Managed Portfolio Program will protect you against loss of the money you invest.The mutual funds available in the RMP account incur fees and expenses (including investment management and administrative fees) that are in addition to the fees you pay to participate in the RMP account. Those fees and expenses are reflected in performance numbers. Please call us at (203) 226-5733 for a prospectus on any mutual fund being offered by the Program. Prospectus contains more complete information about the fund including all fees and expenses and should be read carefully before you invest. In addition, ask us for our latest ADV, Schedule F, and Schedule H statements. Read them carefully before investing. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. Advisory services offered through Aspetuck Financial Management, LLC, a registered investment advisor.Securities offered through TD Ameritrade Inc, a registered broker- dealer. Member NASD/SIPC. Securities offered through Charles Schwab & Co., a registered broker- dealer. Member NASD/SIPC. Aspectuck Financial Management, LLC is an independent firm not affiliated with TD Ameritrade or Charles Schwab & Co.

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