American Investment Services, Inc.

Disciplined, Diversified, & Cost Effective

Feb. 2008 – Investing and the Broad Economy

The threat of recession is all over the news, forcing many investors (those without a plan) to panic. Our readers should take heart; our recommended portfolios have been researched rigorously, and while no investment plan is perfect, we are highly confident that those who do not waiver from our approach will be rewarded for their patience.

As we explained in our May 2007 issue (“Investing and the Business Cycle”), business-cycle indicators are not useful as a means of timing security investments. Business cycles are inevitable, but their beginning dates cannot be identified far in advance and their magnitude is unpredictable.

Furthermore, even if in retrospect we could identify an apparent link between business cycles and securities markets, estimates of economic turning points are not sufficiently reliable to warrant attempts to time the market.

The table on the following page presents the performance of hypothetical portfolios during the past two U.S. recessions. Our model portfolios held up respectably in absolute terms; the worst result was a 2.7 percent loss in our most aggressive portfolio.

In relative terms these “back-tested” results indicate that our model portfolios would also have held up reasonably well. Our most aggressive hypothetical portfolio would have underperformed a “conventional” 60 percent stock/40 percent bond portfolio during both recessions, as we would expect since it is designed to assume greater risk in order to capture higher returns. However, during expansions investors can expect that the aggressive portfolio, which includes no bonds or cash, will generally outpace the 60/40 structure. For comprehensive risk and return parameters for our model portfolios see our January 2008 issue.

These figures are updated every calendar quarter. Our job is to identify, through empirical analysis, all asset classes worthy of inclusion in investors’ portfolios, and, once those asset classes have been identified, to assess all investment vehicles available to the investing public, and identify those that capture the risk and return profile of those asset classes most efficiently. Our conclusions are based on data, and thus far the data suggests that our recommendations should be made independently of changes in the business cycle.

Also in This Issue:

Changes in the Dow Jones Industrial Average
Health Savings Accounts: Are They Rights for You?
A Reader Inquires
Citigroup Re-Groups
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield
Asset Class Investment Vehicles