Courage is not the lack of fear. It is acting in spite of it. ~ Mark Twain

[Pages:5]Courage is not the lack of fear. It is acting in spite of it. ~ Mark Twain

Many of the investors who achieve horrible investment results can be some of the most intelligent people. You may wonder, "Why do they lose so much?" If you ask them, they will likely blame the market, politics, or a faulty "system." Very rarely will they point to themselves.

From my experience, the answer to that question boils down to how investors manage their emotions. Does this scenario sound familiar?

Markets have never been like this! All the old rules of investing have changed and this is a new era of investing. You've forgotten your plan and are listening to every snippet of news and media reporting on the 24-hour pundit channel. You become more and more confused. You either freeze in place or you get "trigger-happy."

No doubt this has been a rough quarter and we are likely to continue to see continued volatility in the near future. But, while volatility can be scary and disconcerting, it can also provide opportunities.

Remember that the regular rebalancing process in your portfolio can help you take advantage of the volatile movements in the market by moving money out of asset classes that have been performing well and repositioning into asset classes that have been undervalued. If you have to read that point again, you're not alone. Yes, we strategically sell assets that have done well (prices have risen, we're tending to sell higher here) and we are buying assets that have not done as well (prices typically have fallen, we're likely buying lower here).

Your success is not about what is happening in the markets. Instead, it is about the plan you put in and how you choose to react to those markets.

1888 Kalakaua Ave., Suite C312 | Honolulu, HI 96815 | 808.791.2925 418 N. Fair Oaks Ave., Suite 101 | Pasadena, CA91103 | 800.266.0859

Securities and investment advisory services offered through Transamerica Financial Advisors, Inc., a registered broker/dealer

and investment advisor, Member FINRA & SIPC. TFA is not affiliated with 3 Financial Group.

At a Glance

? European debt crisis: Continued to be a hot topic, but EU agreed to bailout ? China reduces interest rates: China's economy may be under pressure and slowing ? Unemployment: job growth cooling ? Facebook: Flops ? Gas Prices: On the decline ? Top two performers by asset class: Domestic Real Estate (REITs) and TIPS ? Bottom two performers by asset class: Emerging Markets and Commodities

Summertime Blues After a roaring first quarter of the year, equity markets reversed course in the second quarter. European debt woes dominated the media and many market watchers' attention. Investors worried that the crisis in Greece would spread to other vulnerable countries in the European Union, particularly Spain and Italy. Credit rating agencies downgraded banks across Spain. These fears also dramatically spiked both Italian and Spanish sovereign debt yields. As a result, we saw International and Emerging Market equities selling off as investors attempted to divest themselves in the panic. The last day of the quarter saw the European Union agreeing to lend bailout funds directly to troubled European banks. The decision obviously came as a surprise to

1888 Kalakaua Ave., Suite C312 | Honolulu, HI 96815 | 808.791.2925 418 N. Fair Oaks Ave., Suite 101 | Pasadena, CA91103 | 800.266.0859

Securities and investment advisory services offered through Transamerica Financial Advisors, Inc., a registered broker/dealer

and investment advisor, Member FINRA & SIPC. TFA is not affiliated with 3 Financial Group.

market participants as the global equity and commodity markets staged a powerful rally on the news to close out the last trading day of the quarter. In an effort to spur economic growth, China reduced interest rates. This in turn seemed to validate many market watchers focused on China who have been noting that China's economy is under pressure and appears to be slowing. The U.S. jobs report released shows a cooling of growthi, dampening many hopes that a jobs recovery was underway. Some market commentators hoped the highly anticipated Facebook IPO would be a catalyst to reignite investor interest in equities. Unfortunately, this was not the case. The Facebook IPO turned into a fiasco on opening day when the Nasdaq experienced technology issues that left thousands of investors with mispriced share allocations as the stock priced faltered. Facebook closed out the second quarter about 18% down from its opening day price.ii Despite paltry yields, U.S. Treasuries continued to retain their "safe haven" status as investors plowed capital into these holdings. A silver lining to all these clouds: Energy prices dropped significantly in the second quarter and consumers are seeing a pullback in gas prices at the pump, which is a welcome relief to cash strapped consumers.

1888 Kalakaua Ave., Suite C312 | Honolulu, HI 96815 | 808.791.2925 418 N. Fair Oaks Ave., Suite 101 | Pasadena, CA91103 | 800.266.0859

Securities and investment advisory services offered through Transamerica Financial Advisors, Inc., a registered broker/dealer

and investment advisor, Member FINRA & SIPC. TFA is not affiliated with 3 Financial Group.

Assets in Your Portfolio

Asset Class

Domestic REITs TIPS Aggregate Bonds Municipal Bonds High Yield Bonds Short Term Municipals Short Term Treasury International REIT Large Cap Value Small Cap Large Cap Growth Mid Cap Developed International International Small Cap Emerging Markets Commodities

Index

Dow Jones U.S. Real Estate Index Barclays TIPS Index Barclays Aggregate Bond Index S&P National Municipal Bond Index iBoxx High Yield Index S&P Short Term Municipal Index Barclays Short Term Treasury Index S&P Developed ex US Property Index Russell 1000 Value Index S&P Small Cap Index Russell 1000 Growth Index Russell Mid Cap Index MSCI EAFE Index FTSE Developed Small Cap ex-North America Index MSCI Emerging Markets Index S&P GSCI Total Return Index

Q2 Returniii

3.83% 3.15% 2.06% 1.93% 1.59% 0.41% 0.40% 0.29% -2.20% -3.58% -4.02% -4.40% -7.13% -8.70% -8.89% -12.38%

In the first quarter 2012 we saw global equities trounce fixed income by a tremendous margin. That trend was reversed however in the second quarter, as equities sold off across the board and posted negative results for the quarter with the exception being REITS, which proved to be somewhat resistant to the selloff. All bond indices posted positive gains for the quarter with TIPS being the standout. Emerging markets and commodities were hit the hardest. The drop in energy prices, coupled with the fear of a slowdown in China is viewed by many to have led to substantial drop in commodity prices.

1888 Kalakaua Ave., Suite C312 | Honolulu, HI 96815 | 808.791.2925 418 N. Fair Oaks Ave., Suite 101 | Pasadena, CA91103 | 800.266.0859

Securities and investment advisory services offered through Transamerica Financial Advisors, Inc., a registered broker/dealer

and investment advisor, Member FINRA & SIPC. TFA is not affiliated with 3 Financial Group.

LD 044218-07/12

Using diversification/asset allocation as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of declining markets. Indices shown are for illustrative purposes only and frequently are used as a general measure of market performance. Past performance does not guarantee future

results. It is not possible to invest directly in an index. Neither TFA nor its representatives provide legal, tax nor accounting advice. Persons who provide such advice do so in a capacity other than as a registered representative of TFA. The Standard and Poor's Index of 500 Common

Stocks is an unmanaged index of common stocks and is frequently used as a general measure of market performance. The S&P 500 Index is used for illustrative purposes only; while there are index funds that buy securities in the same proportion as the S&P 500 Index in an attempt to mirror its performance, you cannot actually

invest in the S&P 500. i Bureau of Labor Statistics, Employment Situation Summary - June, Economic News Release, July 6, 2012 ii BlackRock, Interactive Data Corp. and Lipper iii BlackRock, Interactive Data Corp. and Lipper, 3/31 ? 6/29/2012

1888 Kalakaua Ave., Suite C312 | Honolulu, HI 96815 | 808.791.2925 418 N. Fair Oaks Ave., Suite 101 | Pasadena, CA91103 | 800.266.0859

Securities and investment advisory services offered through Transamerica Financial Advisors, Inc., a registered broker/dealer

and investment advisor, Member FINRA & SIPC. TFA is not affiliated with 3 Financial Group.

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