August 21st Weekend Update

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In a nut shell -- no changes unless you have some tolerance for risk.

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I am presently 54% in the G-Fund (the equivalent of a money market) and 46% in the F-Fund (the equivalent of a bond fund).  Since these allocations on June 6:

• F-Fund increase 3.218%
• G-Fund increase 0.511%

In the same time the equity funds have been slammed:

• C-Fund (equivalent to S&P500):  -12.090%
• I-Fund (equivalent to international index): -15.732%
• S-Fund (equivalent to ex-S&P500):  -16.787%

The allocations above in the account have a net realized and unrealized gain of +1.756% over 54 days, with the drawdown never exceeding -0.173%.  Drawdown is what makes us nervous and will take us off course with our strategies, so I'm comfortable with the present allocations.

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Outlook:

We may see some pressure on bonds (F-Fund) if the market begins to rally from here.  We are forming the second "bounce" of a double dip this summer, and the right side of a "W" typically keeps on moving upward if conditions are correct.  We literally are at the bottom of the second dip, so there is nothing to do in terms of allocations unless you are aggressive in your tolerance for risk.  My preferred approach here is to wait until we get an "all clear" on the equity markets (C-Fund, I-Fund, S-Fund), and as of today they are all quite bearish and telling us to sit on the sidelines.

No one would fault you if you took the F-Fund down to low values in your allocation, effectively locking in your gains to date.

No one would fault you if you also moved some funds into the equities, although this is a risky proposition at this time and could easily backfire.  For those of you interested in representative allocations, here are some suggestions:

• F-Fund (bonds):  14%
• I-Fund (international): 6%
• C-Fund (S&P500): 6%
• S-Fund (ex-S&P500): 7%
• G-Fund (money mkt): 66%

Because my time horizon is longer, I plan to make the allocation changes above, effective today.  If you have a shorter time horizon than myself, I would consider sitting pat for now.

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Remember, you are responsible for your own investment decisions, and I am not.  Please do your own diligence, and please take ownership for your actions.

Regards,

pgd