December 31, 2002

The threat of war, market uncertainty, and corporate scandals filled the headlines throughout the year. While wars have come and gone and markets have gone up and down, consumer confidence in our corporate leaders is at an all time low. Major corporations are being investigated for insider trading, cooking the books, and outrageous loans and compensation packages. Every company is examining the ethics in what they do. As I was shopping for holiday candy in the bulk bin at the grocery store, an employee informed me that it would be cheaper for me to buy packaged candy. “ How can packaged candy be less expensive?” I asked. She replied that because of people stealing the candy, the prices have gone up to cover the grocer’s loss. I think that says something about the society that we live in today and about the changes that need to be made.

I am constantly updating the structure of my firm to make sure that conflicts of interests are minimal and full disclosure is at the forefront of what we do. I made a decision a long time ago that I would not accept referral fees from other professionals (accountants, estate planning attorneys, and insurance agents), and custodians like Schwab and TD Waterhouse. My firm did not grow as fast as it could have, but thanks to you, the referrals alone have created increased growth year after year. Thank you for your support throughout the last 21 years. The surveys that you fill out have been helpful in tailoring our fees, services and communications. The bottom line is a more efficient office that provides more value and service to you at a fair price.

This year I began the “Talk-to-a-Planner” program. This service started out slow and is gaining momentum. It is a way that investors of little means can get all of their questions answered at a reasonable price. An analysis of our financial plan process showed that the formal written report and analysis takes up most of the time. A lot of people do not need a formal analysis and could get us the data for review and talk to us and get their questions answered for a small hourly fee. Tell your friends that this service is available with no net worth minimum requirement. I believe that fee-only financial planning should not just be for the wealthy. I am committed to this program and upcoming educational teleclasses to help all people who desire a secure financial future. More information is at our website, www.afdadvisors.com.

It does pay to be a long-term optimist as I am. The easiest way to show the importance of staying invested is with the Rule of 72, which illustrates how compounding builds long-term wealth. To see how many years it will take to double your money at any compound growth rate, just divide 72 by that rate. Assuming a 7% compounding rate, your money will roughly double in 10 years. Over 50 years, you will have five doubles -with the last 20 years being the most important doubling points because you are working with a greater principal amount. For example, $1 million compounding at 7% will grow to almost $32 million ($29.46 to be exact) in 50 years. In the first decade your money will double from $1 million to $2 million, in the second decade from $2 million to $4 million and in the third decade from $4 million to $8 million. Then it starts to get really interesting because the dollar amounts you are doubling are so much greater. In the fourth decade your money will double from $8 million to $16 million and in the fifth decade from $16 million to $32 million. If you can compound your money at 14%, then your $1 million will grow to more than $700 million in 50 years. In such case, your money will double about twice as fast- about every five years, not every 10 years- and so you will have almost 10 doubles over a 50-year period. This is why it is important to stay invested.

Here are some of the best investment minds in the country offering their wisdom and insights on the issues confronting all investors:

• “Diversification is an established tenet for conservative investment.” Benjamin Graham
• “To refer to a personal taste of mine, I am going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the “Hallelujah Chorus” in the Buffett household. When hamburgers go up, we weep. For most people, it is the same way with everything in life they will be buying -except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.” Warren Buffett
• “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” Peter Lynch, former Fidelity Magellan Fund manager.
• “Your success in investing will depend in part on your character and guts, and in part on your ability to realize at the height of ebullience and the depth of despair alike that this too shall pass.” John Bogle, Chairman of Vanguard.

I wish for you and your family to have a happy and healthy holiday season and a very prosperous New Year!

-Fern Alix LaRocca CFP® EA