The Good News�

USC played for the BCS title at the Fed Ex Orange Bowl game. After 22 straight wins and two back to back National Titles, the USC football team is the undisputed Champion. Quarterback Matt Lienart, Heisman winner, and the offensive line was awesome and our defense was dominating over the Oklahoma Sooners in a crushing 55 to 19 win. I am an avid football fan so this will was a great end to the season. Note the BCS title game will be held at the Rose Bowl in 2006. Now, if only my Minnesota Vikings could pull it together in the playoffs.

More good news: Joanne Liu, our paraplanner and research analyst is pregnant! She is due in July with her first child. We wish her an easy pregnancy and the office hopes she has a girl.

Investment review: 2004 was a good year!
After a difficult summer, both large and small-cap companies rallied impressively in 2004�s fourth quarter. For the quarter, the S&P 500 was up 9.2% versus gains of 14.1% for the Russell 2000 and 14.7% for the Nasdaq Composite.

Despite underperforming in the more difficult second and third quarters, small-caps significantly outperformed their large-cap counterparts for the full year. In 2004, the Russell 2000 was up 18.3% versus gains of 10.9% for the S&P 500 and 8.6% for the Nasdaq Composite. As I have said, you can never tell where the �party� will be between small cap and large cap, value verses growth. Diversification plays a key part in every portfolio.

There is almost always something to fear-recessions, inflation, deflation, political instability, and so on. We have found we have no ability to add value by incorporating these fears into our investment process. Instead, we use a time horizon that is long enough that such issues fade in importance. Bill Nygren, Oakmark Funds portfolio manager.

IRA and retirement contribution limits increase
You may now contribute $4,000 to your IRA for tax year 2005, those over 50 can add a catch up of $500. The annual contribution for 401k, 403b, SEP, 457 plans is $14,000 with a catch up of $4,000. Simple plans can contribute $10,000 with a $2,000 catch up.

Long Term Care Insurance tax deductions
Under new 2005 limits, policyholders between age 50 and 60 can deduct $1,020; those between age 60 to 70 can deduct $2,720 and those older than 70 can deduct $3,400. This is still subject to itemizing your medical expenses and 7.5% of your AGI. Check with your CPA for clarification if you pay LTC premiums.
Credit Report for free

You can now obtain an annual credit report for free. www.annualcreditreport.com. The toll free phone is (877) 322-8228. Do not respond to e-mail requests for personal information purporting to be from reporting companies- it�s a scam. Citibank and Washington Mutual also have been hit by scam emails asking customers to click on a link to verify their personal information. The emails carry the Citibank and Wa Mu logos and look authentic. Beware.

The Bad News�
The Tsunami
The thing about national disasters is the feeling of helplessness it brings. I watch TV and witness the devastation with horror. I want to help people and comfort those who have lost family members and feel helpless. I can only send money and hope it is applied to those in need, in the best way they see fit.

If you wish to help the victims of this horrific disaster, here are a few web sites that will aid the victims in Asia. Red Cross:www.redcross.org Doctors Without Borders/Medecins Sans Frontieres (I have been involved with this group for years) www.doctorswithoutborders.org U.S. Fund for UNICEF (helping the children) www.unicefusa.org Another useful site is www.USAfreedomCorps.gov Here you will find information on over 70 different organizations that can help the victims. Try to give checks, not cash, and do not give to telemarketers since their administrative cost is the highest.

The Deficit and the Dollar
A growing number of economists are asking how much longer the U.S. can rely on Asian central banks to finance the federal budget deficit. China, Japan and other Asian nations have amassed $2.2 trillion in foreign reserves with the majority in our treasuries. China has been buying more euros, pounds and yen than dollars lately, which may contribute to the rise in the euro and the further fall of the U.S. dollar. The greater the budget deficit, the more the U.S. has to borrow to fund the federal machine. More borrowing increases the supply of Treasury bonds and more bonds on the market results in further devaluation of our dollar.

A partial answer? Reduce the fiscal deficit and increase savings by Americans. Look for more incentives to save on a tax deferred basis coming from the Bush administration. You will begin to hear about the Lifetime Savings accounts (LSA) and Retirement Savings Accounts (RSA) he proposed four years ago.

Happiness is wanting what you have and not wanting what you don�t have. ~Shakyamuni Budda,500 BC~

Social Security Reform
It will be interesting to watch the push for partial privatization of Social Security. I am personally against the formation of private accounts to allow individuals to invest their social security accounts. I am fearful of the future when individuals make the wrong investment choices and diminish their account balances. The system needs reform but I am not sure this is the correct answer.

The maximum annual earnings subject to Social Security tax will be $90,000 in 2005. Earnings required for a quarter of coverage will increase to $920. Those retired under full retirement age can earn $12,000 per year without giving up earnings and for those that reach your full retirement age, you can earn $31,800 in 2005. Current beneficiaries will receive a 2.7% cost-of-living adjustment beginning in January.

Set Goals for 2005
I have been elected to the Board of Directors of the Orange County Financial Planning Association. I am also the Education Chairperson for the FPA and the leader of the Orange County NAPFA study group. There goes my spare time for golf.

Don�t forget to think ahead and plan what you want to accomplish in 2005. A goal to work on or a milestone to achieve makes the journey much more meaningful. I will be swimming with dolphins (Discovery Cove in Orlando) this coming Easter Sunday with my family. I will be on vacation from March 25 to April 2, 2005 so plan your IRA and SEP contributions early.

If you obey all the rules, you miss all the fun. � Katharine Hepburn, American Actress


Sandra C. Field, CSA, MBA, CFP