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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: accountclosed who wrote (88572)	1/16/2001 6:00:06 PM
From: Knighty Tin	Respond to of 132070

Ant, Non-beginner is not as important as the mindset and character of the investor. Debt is a lot like wine. A moderate amount can be healthful, but if it is abused, it can be a killer. A lot of folks flat out cannot handle debt and are better off never using it. You are not talking about that sort of person, but I mention because I have met so many folks who have huge debt monkeys on their backs and the interest rate is not even the big problem, the principal is. Essentially, you are always deciding about when to use debt. I use it when it is such a good deal that I can't turn it down. Borrowing at below T-Bill rate to buy bills is certainly one such situation. Buying a car at an introductory great rate may or may not be. My guess is that the price is jacked up to accomodate the lower rate, so I will opt for lowering the price before accepting the lower loan. One place where I made an exception was my student loans. I paid them off immediately despite the lower rate. I wanted that money to be available for other needy students. But that was not a business decision. It was almost a charity gift. I honestly do not carry any debt. I have used debt in the past and will again, but for investing in max income, I'd use a criterion something like this: if I have a reasonable expectation of earning double my debt rate in the Maximum Income, then the new money would probably go to the MI. The max income strategies do have risk, though the total portfolio is VERY low risk. Debt has no risk. You have to pay it or face some consequences you don't want to face. So, I would require MI to give me much more than the debt will reduce my cost. Then you have to get around to taxation. If you have debt that is deductible, either a mortgage or a business expense, that is obviously more desirable than non-deductible. With the MI, most of the strategies will be taxable in a regular account, though at advantaged rates in many cases. So, I'd have to take a look at net cost vs. net return in determining that double rule. And, of course, income from work or other sources may make the decision easier or harder. If you can make the debt nut every month out of job income, without a lot of sacrifice, then the decision to invest rather than reduce debt becomes easier.