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Politics : Ask Michael Burke
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To: Mama Bear who wrote (35195)11/4/1998 5:31:00 AM
From: accountclosed  Read Replies (2) of 132070
 
I agree with your observations about all the credit card offers out there, how vigorously the credit card companies pursue the customer when you leave, and think you did a good job of digging yourself out from under.

The part of the debate I was trying to advance was that investors should think about their portfolio more broadly than just the balances on their mutual fund and brokerage statements. Investing in your own debt is often a better option. We hear statistics all the time about margin debt levels. Also we hear about record consumer debt.

I know people who double dip here. Get a home equity loan or a new teaser credit card and put the proceeds into a brokerage account and then in turn buy stock in that account on margin. Talk about living on the edge. Not only a very risky strategy, but in my judgment a very poor one for a couple reasons. First of all, expected returns. Teaser rates go away. Stock investments don't necessarily go your way in the same time frame that the teaser rate goes away. Secondly, can anyone make sane decisions when leveraged up to the eyeballs?

But usually the process is not as direct as the situation I outlined. Most people would say that's crazy. However, lots end up in similar positions in a more roundabout way. The home equity is used to buy a car. Some money is saved and put into investments. The credit card bills run up from holidays or emergencies. In the end it is the same. 22%, 18%, 16%...whatever it is. Is it smart to expect better returns in the brokerage account than withdrawing the money to pay off the credit card rates?

Back to focus my point. I think portfolios ought to be thought out more fully to include the entire financial picture.
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