Dear Fellow Investor: Although I have stopped writing monthly newsletters, I currently plan to continue making quarterly suggestions as to what I see as the current best opportunities. Since tomorrow (Apr 1) is the start of a new quarter, here are my suggestions below: The year, so far, is not progressing much differently than I expected. In my Oct 28, 2004 e-mail, I stated I thought there would be a temporary jump if Bush was re-elected, but that "we do not expect stocks to do well in the upcoming 12 mos". So that prediction looks to be still essentially correct so far. And in my Jan 2005 strategy e-mail, I said: "Although stocks have been doing well since March 2003, we feel it potentially dangerous to assume that the approximate 45% increase in the S&P 500 since then will continue. The same can be especially said for the even more outsized gains in small-cap blend and value, mid-cap value, energy, and REIT funds." Practically all categories of funds have been negative so far in '05, except for energy, although growth funds of all sizes are continuing to do worse than I had expected. And we also said in Jan. that we expect bonds to return no better than 0-2% for the entire year. So we're not surprised then that '05 returns are generally slightly negative. There is little to change with regard to our allocations or favored fund categories at this time. In light of our somewhat negative outlook, keeping at least 20% in money market funds or cash-like investments continues to look smart. Here are some specific observations about several stock and bond categories: Looks like we may have been too early on our call regarding growth funds although Large Growth is starting to show signs of at least catching up with Small Growth after a long period of underperformance. Our overweighing of foreign funds still seems to make sense although many have not done as well as they would be doing if the dollar hadn't strengthened. Although, Japanese stocks haven't shown much when viewed over the the last year, the trend continues to appear quite favorable when viewed over the last 2 years. REIT funds look pretty dangerous now, as we have been suggesting for a while. They have been outperformed over the last 6 mos. by most other categories (even Large Growth) after having been near the top of the pack since the start of 2000! As for bond funds, one of the big questions I currently see is whether high yield funds are still to be favored over many other categories, as has been a good call over the last few years. While the category has been hit a little lately, we still think they are likely just undergoing a short-term correction. Inflation protected bonds are tricky. You might think that since inflation concerns are becoming greater that these bonds would be the place to be. However, they are still like other Treasury bonds that will likely fall in price if moderate to long interest rates go up. Here then is our Moderate Risk Model Portfolio reflecting the above and other considerations: Allocations (no change from Jan.) ========================== Stocks 55% Bonds 25% Cash 20% (& alternate investments) Stock Fund Categories ================== Category Our Favorite Allocation Large Growth Vanguard Growth Index 15% Large Blend Vanguard 500 Index 5 Equity Income T. Rowe Price Equity Income 20 Foreign Vanguard International 25 Growth Small Growth Vanguard Explorer 5 Large Value Vanguard Windsor 15 Mid Cap Blend Hussman Strategic Growth 15 Bond Funds ++++++++++ Category Our Favorite Allocation International American Century 15% International Bond High Yield Vanguard High Yield 20 Inflation- Vanguard Inflation 10 Protected Protected Securities Long Term Vanguard Long 25 Corporate Term Corporate Short Term PIMCO Total Return 30 Best wishes! Tom Madell http://funds-newsletter.com