Here's a bad idea: buying stock with home equity
Oh, this is the road to ruin. By its very nature, the stock market is volatile: everyone who tells you that they have a "program" or a "plan" or a "model" that predicts the fluctuations in the market is lying to you. If they've got it all worked out, why do they have to sell their information product to you??
The NASD reports that a scary 11% of cash coming out of home refinancings is going into stocks. Can you say "dotcom collapse"? Can you say "questionable economic future"?
There are signs that the market is not going to be particularly healthy in the next 6-12 months too, not the least of which is the horrible situation with international currency and the current value of the US Dollar on the world market. The ever-increasing national debt coupled with a puzzling increase in government spending (read "Iraq") and decrease in taxation is sure to spell disaster down the road too. But even without those signs, the stock market has always been volatile and unpredictable.
The Reuters story says it well:
This is a strategy that's the opposite of saving for retirement. It involves taking money that was already saved, in the form of real estate, and turning it into speculative cash.
Should those investments fail to do well; or should job loss or other cash flow crunches cause borrowers to have problems making payments on these loans, the borrowers' homes would be put at risk.
Even if they don't lose their homes, they could end up having to sell those stocks, at a loss, to cover their home loans. Should they fall into an unexpectedly early retirement, they could end up with less money than they would have had if they had just kept the equity in their homes.
But don't take my word for it. Go read the Reuters story for yourself.
Send a comment to cricket
