Q: My husband and I are talking with a financial adviser about developing a retirement strategy. We have been investing in mutual funds and stocks. I have a 401(k) retirement plan and my husband, who is self-employed, has a variable annuity.
While I agree with most of what the adviser is suggesting, I am uncomfortable about one suggestion: Mortgage our home and invest the money in the stock market.
We purchased our home in 1993. The house is valued at about $165,000 and we owe about $30,000. I have a good feeling about having our home paid for and don't think we should take equity out and invest it in the market.
My husband, on the other hand, agrees with the adviser. Am I being too conservative? Should we take more risk?
A: It sounds like you've got the right instincts. You're not being too conservative -- you're being sensible.
In today's financial environment of plummeting interest rates and raging bull markets, it's easy to see why people are attracted to such a scheme.
Just imagine the profit potential: You take out a home equity loan at 7 percent and invest the proceeds in a stock market that is returning 20 percent or better (which has happened for three consecutive years). A 13 percent return is nothing to sneeze at.
Unfortunately, stock markets don't always achieve such lofty heights, let alone rise.
On average, the stock market has returned about 11 percent each year. The long-term return on balanced portfolios of stocks and bonds is more on the order of 8 percent.
So why risk your home by borrowing money to invest in the stock market?
"It never makes sense to borrow to invest," said Ron Roge, a partner at the financial planning firm of Advisors Portfolio. "You save to invest."
You should stand firm in your opposition to hocking the house.
Q: In 1991, my mother passed away, leaving me some shares of E.I. DuPont and General Motors. The certificates were lost in the shuffle of settling the estate.
Who would I write to or call at these companies to determine the status of these stocks. The certificates have not been changed over to me since my mother's death. As far as I know, the dividends have been reinvested.
A: If your mother acquired the shares through a brokerage firm, that would be a good place to start.
Otherwise, you'll need to contact the transfer agent. A transfer agent is a company, typically a bank, that issues, registers and redeems securities on behalf of the issuing company, in this case DuPont and GM.
You can get the name of the transfer agent by calling the investor relations department at the two companies.
The toll-free number for General Motors is (800) 331-9922. The number for DuPont, which is not toll free, is (302) 774-4994.
You'll need to be able to demonstrate that the stock certificates have been willed to you.
John Finotti is a business writer for The Florida Times-Union in Jacksonville. Send questions about money matters to him in care of Business News, The Augusta Chronicle, P.O. Box 1928, Augusta, GA 30903. He can be reached on the Internet at firstname.lastname@example.org.
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