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The current renewed volatility in financial markets is reviving unwelcome feelings among many investors—feelings of anxiety, fear, and a sense of powerlessness. These are completely natural responses. Acting on those emotions, though, can end up doing us more harm than good.

Last week we came across an "Economic and Policy Watch" update prepared by a major investment bank that reviewed recent government proposals to address the nation's funding crisis.

February 2009 turned out to be the low point in the most recent economic downturn. Last year, we blogged about where we were one year after the market low (click here for the March 31, 2010 blog entry). With February 2011 return numbers now behind us, let us share with you where we are two years after the February 2009 bottom.

The 2008 global market crisis and the struggling economy have left many investors fatigued. Despite two years of strong equity returns, some investors have been slow to regain market confidence. Many are accepting the talk about a “new normal” in which stocks offer lower returns in the future. [1]

The past year offered an interesting mix of positive and negative news as investors around the world eagerly anticipated signs of economic recovery and financial stabilization. While most financial markets logged positive returns for a second straight year, investors had to endure a host of troubling news and pessimistic market predictions.

The New Year is now upon us and brokers are notorious for offering up their top picks for this year. Should you trust them? If the previous few years are any indication, probably not. The Wall Street Journal published an article looking at the track record of the top picks for the last few years and it was not impressive when compared the least recommended stocks.

With interest rates near historical lows, some investors may be anxious about a possible rate climb and its potential impact on their fixed income investments. Rising interest rates typically cause existing bonds to lose value.

David Booth, Chairman and Co-Chief Executive Officer of Dimensional Fund Advisors, discusses the importance of balancing volatility risk and purchasing power risk when investing for retirement.

Our February 19, 2010 blog highlighted an article in the Wall Street Journal that discussed the possibility of a Japanese-style period of deflation in the United States. The article pointed out that although inflation was slightly positive, the core inflation rate (without volatile food and energy prices) was actually negative.

Proponents of active management believe that skilled managers can outperform the financial markets through security selection, market timing, and other efforts based on prediction.