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.

What's more, markets are prone to suffer sharp intra-year drops even amid very good calendar year returns. Since 1980, the average intra-year drop has been a whopping 14.3%, yet the annual returns over this same period were positive in twenty-four out of thirty-one calendar years.

Graph

Source: Standard & Poor's, FactSet, JP Morgan Asset Management. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops over periods of 6 months or less. Data are as of 6/30/11. Indices are unmanaged and have no fees. An investment may not be made directly in an index. Past performance is not necessarily indicative of future performance. All investments may lose value over time.

Clearly, the forces of economic activity that drive the financial results supporting the markets — things such as population growth, productivity, innovation, etc. — are far less volatile, so it stands to reason that there are much more volatile forces at play. One such force is human emotion.

"We are merely reminding ourselves that human decisions affecting the future, whether personal or political or economic, cannot depend on strict mathematical expectation, since the basis for making such calculations does not exist; and that it is our innate urge to activity which makes the wheels go round, our rational selves choosing between the alternatives as best we are able, calculating where we can, but often falling back for our motive on whim or sentiment or chance."

—John Maynard Keynes (1964)

Because markets are merely collections of people who act according to their fears and desires of the moment, they are susceptible to the same emotional cycles and crowd influences that are observed in human nature.

This, combined with an (ever increasing) instantaneous and continuous connection between the investor's emotion and the financial markets, is likely one of the reasons for our having recently experienced one of the most volatile weeks in the history of financial markets. No matter what the reason, these forces are making it increasingly challenging to maintain the proper context and perspective that leads to good decision making.

At Aspiriant, we are committed to helping families see their way through these stressful times and stay focused on achieving their goals. During the last downturn, we learned from clients that they value more frequent communication that helps to put current events into better perspective (even in situations where we don't yet have all the answers). In response to this feedback, we have been actively reaching out to clients and we have supplemented those discussions with three special communications in the last month. We hope these efforts have been responsive to your needs.

While uncomfortable, this environment has also produced opportunities for clients to, among other things, take advantage of lower interest rates, employ more aggressive wealth transfer techniques, strategically rebalance portfolios efficiently, and harvest tax losses that can be used to offset future gains in less tax-efficient asset classes. Maintaining a focus on these opportunities is equally important to enhancing client investment strategies and we will continue to identify new ways to "make lemonade out of lemons" on your behalf.

In the meantime, in this issue of Insight, we will provide you with additional perspectives on the global economy, review our new capital market expectations, and outline some charitable giving opportunities that may be applicable to you.

With our genuine gratitude for the opportunity to serve you, we thank you for your partnership.

Sincerely,

Rob Francais, CPA
Chief Executive Officer, Principal

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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.