We use a four percent inflation assumption in all our financial planning, even when the actual rate was only one or two percent.  We anticipate inflation will accelerate, but we don’t know when it will kick in.  I expect it will be at least a year before this happens, although interest rates are starting to tick up now.

Our fixed income investments will be most affected by inflation.  Inflation is not good for bonds but, at the same time, corporate bonds are very attractive right now.  We are just now beginning to build our exposure to TIPS in the fixed income asset class to prepare for eventual inflation.  The PIMCO funds have allocations to TIPS.

We are watching every day for signs of inflation.  We are tweaking our exposure to high volatility funds by building up our positions in the PIMCO Funds mentioned above and other lower volatility funds. When we rebalance, some money is going into cash instead of equities for clients who are losing sleep.  All of this tweaking of the portfolios has been helping. Our portfolios are positive since the market reached its low on November 20, 2008, in spite of the horrible market performance in January 2009.

I don’t like to make short term forecasts.  We are better at looking out two to three years.  Actually, some of our clients have called the short term direction of this market better than we have.  It’s tough taking the leadership role when our more nervous clients have been right over the past six months. We’ve become better listeners and worked with them to make their portfolios more conservative. In a few cases we have adjusted their portfolios to our ultra conservative risk model, but only after advising them that their portfolio will not participate as much when the market does turn around.  We also know they will not be happy when that happens.

The lessons of the book are more appropriate today than when I wrote them.  I get consistently good feedback from readers, many of whom are giving copies to their children.  One client said their daughter wanted to meet me, because she shared my philosophy about life.

For a number of people the book has had a deeper impact.  One of my editors left the book on her coffee table.  Her husband came home, read it without putting it down, and said it was really good.  They live in Toronto, and their goal was to someday move to the suburbs.  Instead of waiting until they were in their 50s, which was their original plan, they decided they would do it now while they are in their 20s.

They actually made the move a few months ago and are very happy about that decision.