Wednesday, April 14th, 2005

Behind the Headlines with Compass Planning

This Issue: Rising Interest Rates
By Lauren Gadkowski CFP

Market Cycles
Every market cycle brings with it a downside and an upside. Low interest rates may coincide with lower returns on fixed investments, but provide a good opportunity to lock in lower rates on mortgages, student loans or credit cards. It is tempting to succumb to the media hype that often accompanies varying market cycles, but this can be disastrous to your financial planning. Your best course of action is to focus on your financial and life goals and how to achieve them, regardless of market conditions.

Your Goals Come First
Market conditions don't determine your goals, you do. A good example is provided by a couple who recently came in for a financial review with me. They bought their home in 1976 when interest rates were 19% and they refinanced most recently in 2003 when the interest rate dropped. Could they have put off their dream of home ownership while raising a family? Yes, but…that was a trade-off they were unwilling to make. Market conditions are never perfect and waiting for the "perfect time" may place your goals on permanent hold.

Stay Focused On Your Goals
It can be dangerous to get caught up in the hype about rising interest rates and how it affects the economy and your own personal financial situation. Remember, the market has always fluctuated. Our economy is interconnected in many complex and subtle ways and interest rates or mortgage rates shouldn't drive your life decisions, but inform them. Financial planning is about setting your goals first, determining a timeframe, and developing a means to achieve your goals.

Economic Conditions Are Changing
Newspaper headlines and TV newscasters have an impact on our thinking about the economy and where it is headed, but the media is not the place to turn when you are making important decisions about your own finances. We hear that Alan Greenspan is raising the interest rates and we see that the heated debate continues about changes to Social Security. It's only natural to worry about what this means to you.

Take Advantage of the Current Situation
How can you make the best of the opportunities present in the market right now? There may be some opportunities available to strengthen your financial position. For example:

* The high return on investments that we reveled in during the 90's also came along with a very high rate of interest on credit cards. Last summer we had the lowest interest rate in the past 42 years and this offers an opportunity to consolidate student loans, get a lower rate on credit cards, and refinance the mortgage.

* If you are planning on buying a home, keep your emotions in check. Making a good decision about where to live will help ensure that you get back more than you paid out. Look at town property values and how they have increased over time. Will the value of your investment in a new home outpace the rate of inflation?

Don't Postpone Your Dreams
Remember your financial goals first and foremost. The law of market cycles is never repealed and each wave and trough has its benefits if you are willing to take advantage of them.

Please contact Lauren Gadkowski or Jennifer Lane at 888-320-9993 for a meeting to review your financial plan, your goals, and your timeline.