Stay Engaged to Cultivate Your Finances

Physician's Money Digest, August 2005, Volume 12, Issue 12

The answer:

Investing in an uncertain world is adifficult thing to do. If even the bestforecasting professionals are oftendead wrong about key economicdevelopments, do the rest of us have anybusiness trying to guess which way themarket might go? We haveno choice. We are all financially connectedto the world no matter how hard wetry to insulate ourselves. Rising inflationcan eat away the value of our seeminglysafe savings account.

On the positive side, money we oweis paid back in cheaper dollars in inflationarytimes. Because of fluctuations ininterest rates, refinancing mortgageswhen interest rates dip enough can oftenyield terrific savings, and is actually oneof the few times a small borrower cancause the big financial players to cringe.

By the same token, rising rates willcause our safest bond holdings or incomefunds to dip in value, often an unexpectedsurprise to an investor who thoughtthey had safety as well as income. Finally,all those dry statistics about economicgrowth, employment, and trade have areal world impact on our jobs, the futureprospects for our children, and thegrowth of our investments.

How do we reconcile the uncertainfuture with our need to affirmativelymanage our financial lives? The first stepis to stay engaged. By following just afew numbers you can have your hand onthe pulse of the economy. Start with theDow, Nasdaq, and S&P 500 stockindexes. Keep an eye on the 10-YearUnited States Treasury bond interestrate—a good proxy for mortgage rates.Know the fed funds interest rate set bythe Federal Reserve because it is close towhat your savings account should yield.Finally, follow the ups and downs of themonthly unemployment rate to gaugehow the economy is doing.

Staying engaged also means knowingwhere your finances stand at all times.What do you owe, how much is in thebank, what is your net worth, and what isyour proportion of stocks vs bonds? Makeuse of financial software such as Quickento track everything and the Internet to followthe news. Last, staying engaged meansdealing with personal risk, and that meanshaving adequate levels of insurance forhealth care, liability, and family security.

By closely following the economy andknowing our own financial situation, wecan make financial and investment decisionswith more confidence. We will still beunsure about the future, but that first stepforward becomes much easier when weknow from where we are coming.

is the principal

at Arrival Capital Management

LLC. He welcomes questions or

comments at jay@arrivalcapital.

com. This article was reprinted

with permission from the Southern

Ulster Times.

Jay A. Rosenberg