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Important Notices

Our Response to Recent Market Activity Stay the Course

September 25, 2008

We review your portfolios on a continual basis regardless of what is happening in the markets. During periods of market uncertainty as we are experiencing now, we increase our review and analysis.

The current market volatility has been brought on by the credit crisis in the U.S.A. Simply put, there was a credit boom for several years as U.S. lending institutions approved high-risk mortgage loans that had low interest rates for the first couple of years but much higher rates in the following years. In many cases, these loans were made to individuals who should not have qualified for loans. Real estate was over-built and over-bought driving housing prices up. Mortgage lenders then "bundled" the high-risk mortgages into exotic investments. These mortgage-based investments were then sold to other brokers, banks, pension funds, corporations and wealthy investors.

As lenders realized they had extended too much credit, the credit boom ended and the credit crunch began. Overall lending has been greatly reduced. Borrowers faced with higher rates on their mortgages could not re-finance elsewhere. As a result, borrowers are being forced to sell assets to pay back lenders, or default on payments, causing real estate prices to tumble. The mortgage-based investments have in turn lost their value and financial companies, such as the U.S. investment banks, find themselves with devalued assets, face soaring interest rates to borrow, or are not able to borrow at all, forcing them to look for a buyer or seek bankruptcy protection.

The lending practices at Canadian banks are far more conservative and stringently regulated. Also, Canadian banks and insurance companies have limited exposure to the U.S. companies affected. Our banks and insurance companies continue to have solid earnings and balance sheets and are potential buyers of some of the assets of troubled U.S. firms.

In reaction, global stock markets have risen and declined dramatically over the last 12 months. This is a short term market reaction with broad-based indiscriminate selling forcing the overall market down. However, there are still many companies that will continue to prosper. Your fund managers have an opportunity now to evaluate strong companies that have global brands, significant market shares or world-leading technology and buy them at today's low prices.

Although the headlines are extremely negative your best course of action is to continue to hold. The market will rebound as it has throughout its history, the economy will grow again, profits will rise and so will stock prices. Click here to view a history of the Dow Jones Industrial Average (DJIA) index from 1934 to 2007. As you review the events, note the increased level of the DJIA listed beside each year.

Please contact your financial planner if you have any questions or would like to schedule a meeting to review your portfolio in more detail.


David Brodigan, CFP

Case Study:
Planning the College Fund
Gillian and Ron Wright have 3 children aged 1, 4 and 6 and wanted to make sure they had enough to send all three children to University when the time came...