We've been through a challenging year together. The following questions have been asked of us throughout this period and we would like to share our responses and rationale.

Should I continue to stick with my investment mix?
In general, for those participants who are invested in an appropriate, well diversified mix of funds and are withdrawing at reasonable rates, we still strongly suggest riding this out.

With the overwhelming negativity in the media, it's natural to overestimate the permanence of today's market conditions. Just as when the markets were growing strongly, we urged participants not to expect it to last forever, the same holds true now. The current market conditions will not last forever. At some point, the stock market will stage a steady recovery.

Many investors question whether it is better to move everything to Stable Value.

Although moving everything to Stable Value would prevent future market losses, it would not allow your account to rebound and would not guarantee the money to last depending on your withdrawal rate. In fact, a new study by T. Rowe Price shows that switching completely to fixed income investments after the market crash would give you only a 31% chance of your nest egg lasting through retirement. [1]

Although those waiting on the sidelines can get back into the market in the future, this is easier said than done because unfortunately nobody knows exactly when the recovery will take place and when the right time to buy back in will be. Uncertainty is always present, so people who take this approach typically wait until the market has risen for an extended period before getting back in. As a result, they miss out on much or all of the rebound. Missing just a few key days of gains makes a substantial difference in the long-run.

Does diversification still matter?
The severe downturn in the financial markets has led many investors to question the benefits of portfolio diversification. Although diversification may not have sheltered your account from all losses, it remains the best way to balance risk and return over long investment horizons.

First, although diversification did not prevent losses, it did reduce them. The Stable Value Fund is part of the diversified mix that we recommend to all retirees. If you have Stable Value in your portfolio, the overall losses in your account are a fraction of what would have occurred in an all stock portfolio.

By using a diversified group of mutual funds, the model portfolios eliminate what is known as "business risk." This is the risk of losing your money due to the failure of a particular company or industry. We've all heard the unfortunate stories of retirees who lost everything because all of their money was invested in one stock which subsequently went bankrupt.

The seven stock mutual funds in the portfolios represent over 1600 stocks of different companies. Additionally, these companies cover all of the sectors of our economy including energy, health care, technology, telecommunications, financial, etc. These companies range from giant to small corporations and are located both in the U.S. and abroad. Therefore, the failure of one company or industry will not cause you to lose everything.

Maintaining your diversified mix will help you to recover your losses. Typically, when the economy starts its recovery, certain sectors will lead the way. Sticking with your mix will ensure that you have exposure to whatever rebounds first and strongest.

Is my money in good hands?
Scarborough has selected the Plan funds from the top money managers in the industry. Our goal is to offer a top performing, low cost fund for each of the major investment categories, selected from the most well regarded fund companies such as Vanguard, Dodge & Cox, T. Rowe Price, etc.

We make sure that the fund managers have the experience, talent, and proven track history to make decisions now that will benefit the fund's investors in years to come. These money managers and their extensive research teams are in the market daily evaluating what companies remain strong and whose stock is now available at attractive low prices while also determining which companies stock should be sold.

Our ongoing role is to monitor these funds. Sometimes even good funds see significant declines. Therefore, we evaluate the merit of our funds by comparing their performance to that of a benchmark index and other funds in the same category. We also review the reports and data from the fund companies and independent sources such as Morningstar.

Due to the high quality of fund management and the diversification that the funds offer, we are confident that the Plan funds will follow the market back up when the recovery occurs.

Is the Stable Value Fund safe?
Yes. Since the beginning of the fund in 1979, no one has ever lost money. The Stable Value Fund has always been managed with the primary goal of safety of principal and a stable rate of interest.

How is safety achieved?
Only AAA investments are selected for direct investment by the fund. A rating of AAA means that independent agencies have determined these investments to have the highest credit worthiness with the least risk of default. Safety is also achieved by diversification with investments in over 3500 fixed income securities in various sectors. The issuers of the investments guarantee the payment of principal and interest. Any investment owned directly by the fund would be replaced if it were to fall below AAA.

Investments held in the index portion of the fund have an overall rating of AA+ and would be replaced if they fall below investment grade. Fund assets are held in a separate account only for the benefit of Plan participants. This means that the funds are not part of the general assets of Scarborough, US Bank, or Standish Mellon. Therefore, these assets would not be affected if something should happen to the financial security of these institutions.

Another layer of protection is achieved by wrapper contracts issued by five substantial banking and insurance firms. These contracts provide additional guarantees that allow the fund to offer participants a guarantee of principal and interest for all withdrawals.

What is the current status of the fund?
The Stable Value Fund currently has an overall credit rating of AA+ with 84% being AAA (highest credit rating). All of the investments have made interest payments on time and they are expected to continue doing so. None of the underlying investments have had credit rating downgrades despite the current financial crisis. To date, the wrapper agreements have never been needed in our Plan. They are extra protection.

Who manages the fund?
Standish Mellon Stable Value Group, part of the BNY Mellon Asset Management Corporation, manages approximately $16.2 billion in stable value assets. Standish Mellon, headquartered in Boston, is one of the nation's largest managers specializing in fixed income securities.

How do they select the investments?
They have a risk management process that takes into account liquidity (the ability to sell the investment), credit (the rating assigned by rating agencies) and interest rates. They also take into consideration the term (number of years) and sector (government, corporate, etc.) for each investment. All of this is supported by analysis provided by specialized credit analysts and traders.

[1] Assumes a 30 year retirement period, a 4% withdrawal rate, and 3% annual inflation.