Year End Summary, 2002

Only 3.8% of U.S. Stock funds made money in last year's down market despite an end of the year rally. This is the third consecutive year of losses and the worst year for the S& P500 Index since 1974. The Nasdaq Composite Index dominated by big tech stocks fell 31.50% for the year and remains 73.60% off its record high in early 2000. The Dow Industrials composed of less tech stocks are 28.80% off their record. Optimists point out that a four-year streak of losses would be almost unheard-of. That happened only once in the 20th century, from 1929-1932. When stocks finally recovered following past bear markets, they tended to do so with a bang. In 1991 coming off a much shorter bear market the Dow Industrials surged 20%. In 1975, rebounding from the 2 year bear market of 1973 though 1974, the Dow soared 38%. The Blue-chip average was up 67% in 1933, after finally bottoming in 1932 following the crash. In fact, in spite of the pain from the bursting of the Internet bubble, the economy has inched forward, productivity has continued to rise and corporate houses are being put in order both thorough cost cutting to help the income statement and capital-raising moves to help the balance sheet. No systemic meltdown has appeared.

So sit tight and try to enjoy the ride. If you are young and have plenty of time ahead of you, this is an opportune time to spend less, save more and invest more. You will be buying at rock bottom prices. Use tax-deferred vehicles whenever possible. Not many people are subscribing to this advice when you read that the savings rate has fallen alarmingly over the past decade, tumbling to just 1.6% last year from 8.7% in 1992, according to the Commerce Department’s Bureau of Economic Analysis.

Close to retirement? Put it off for a few years. You can also delay your pension and Social Security checks to qualify for bigger checks later. Already retired? Get an annual check-up to make sure your portfolio is balanced and allocated correctly. Make use of diversification to reduce risk and increase income. Many clients are relocating to a less expensive part of the country www.bestplaces.net. Take out a reverse mortgage if you want to tap equity but stay in the home.

Other tips are: Focus on your personal goals. People chase performance because they don't know where else to focus their attention. You must understand that it is unnecessary to take action as long as you are making progress towards your long-term goals. Measure progress in terms of overall net worth. Clients who focus on the performance of each component of a portfolio are bound to experience more anxiety than clients who have learned to measure success in terms of the growth of their overall portfolio.

Build broadly diversified portfolios. Loss aversion is a very common behavioral characteristic among investors. One way to deal with this is to build broadly diversified portfolios to soften portfolio volatility.

Use an Investment Policy Statement. Using an IPS allows you to document your goals, objectives, and investment strategy information. This document gives you a framework that you can refer to when the road gets bumpy.

Measure your risk tolerance. Staying the course is key to investment success. Make sure your investment strategy is designed to reflect your risk tolerance. Risk tolerance is difficult to measure and changes over time.

Educate yourself. Know about the history of the markets. If you understand that the markets run in cycles, but over time, the trends have always been positive, you are less likely to panic when the markets hit a rough spot.

I want to welcome Gabriel Brenner as our new Financial Advisor. Look for his bio on our website soon.

"For our success to be real, it must contribute to the success of others"
- Author unknown

-Fern Alix LaRocca CFP® EA

*Thanks to the Wall St. Journal for their statistics and Julian Bloch JD