Jewish World Review Jan. 21, 2000 /14 Shevat, 5760
My question revolves around your thoughts on a compensating balance on a mortgage. I understand that if you have a good rate, say, 7 percent, then you should pay the minimum on your mortgage and invest any extra that you are able to in the stock market. Is this true for other types of debt? -- M.H., Syracuse, N.Y. DEAR M.H.: You bet your life it is.
In the event that you are borrowing inexpensive money on the one hand, you can invest the dollars that would either reduce the debt or grow more quickly in the parallel debt. I would opt for the later.
You must realize that there is no guarantee here. You could lose, but over a period of time that strategy will serve you well.
DEAR BRUCE: My wife and I decided that we would consider a congregate-care facility for ourselves so that our responsibility would be diminished.
Our stockbroker suggested that we put part of our money in preferred stock and the other half of our money into a variable annuity with a death rider. The investment took place just six months ago.
We received our first statement showing the value down $8,000. She told us not to worry, that this was OK. What do you think? -- H.N., Las Vegas
DEAR H.N.: Well, she may not be worried, but I would be a bit concerned. The problem is -- and this is not the case in every situation -- annuities are a very high-commission product and many sales people put their own needs for earnings ahead of the clients' welfare.
While there are certain circumstances in which an annuity is a viable investment for someone as old as you are, I have some serious doubts. Further, having a death benefit does not appear to be needed, assuming that the bulk of your expense money is coming from your investments, as you indicated.
DEAR BRUCE: I just turned 60 and retired, drawing a modest pension. I inherited $70,000, and $15,000 of this came right off the top to pay my outstanding debts. The balance is in a money market account while I consider investment options.
Given my situation, how should I invest this money in the market place? -- H.W., American Canyon, Calif.
DEAR H.W.: My answer cannot be specific, because I have no idea how risk-tolerant you might be and what other assets you might have.
In general, I would certainly get out of the money market account and pick a well-performing mutual fund.
I know that past performance doesn't ensure the future performance, but with a good five-year track record it will likely continue to succeed.
While individual stocks will likely give you a greater return, they also require a great deal of stewardship, and I suspect that is something that you might not be comfortable
Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).
01/20/00: Is 15-percent growth achievable?