Ben Sharvy wrote:

- quote -

Some do--some don't. What you are describing is a rather
simple concept--financial leverage. It's essentially
borrowing from one source and paying a rate to increase the
amount available for investment at a (hopefully) higher rate
of return.

Leverage magnifies the rate of return, since actually have
less invested. If you were 100% leveraged (had only
borrowed funds invested) you would have an "infinite" return
if your investment beat the rate you were paying, since you
had $0 actually invested, but received a return. That's the
ultimate magnification.

Unfortunately, leverage magnifies returns *AND* losses. So
if you underpeform the rate of return of the debt, you are
losing money even though someone invested with their own
funds still shows a positive return.

As leverage changes the spread of returns, it increases risk
(which is really about the amount of variance in returns).
Appropriate risk ultimately involves a judgment call, but it
is one that needs to be evaluated openly and there are
levels that would appear inappropriate for certain individuals.

Remember that during the end of 1990s, we had people
borrowing on cash advances on credit cards (at incredibly
high interest rates) to invest on the theory that the market
would give them 25% to 30% returns consistently, so there
was no real problem paying 18% interest on the advance...

--
Ed Zollars, CPA
Phoenix, Arizona

"cal-lester" <cal-lester[at]comcast.net> wrote in message news:<jrbVa.167568$Ph3.20712[at]sccrnsc04> ...

- quote -

that the interest on debt is greater than the yield on an investment.
The original poster said that part of the debt was a student loan. The
interest on my student loan is something like 4%. If I think I can
get a return of better than 4%, it makes sense to invest before paying
the debt. In addition, some debt interest, like a student loan, is
deductible. Add that the return on a Roth IRA is tax-free, and it is
very easy to justify investing before paying back the loan.

The wealthy are constantly borrowing to make investments.

Pay off ALL debt FIRST.
It does NOT make any economic sense to EARN
interest on some dollars while you are currently
PAYING even higher interest on OTHER dollars.

Get debt free (or as close as you can) THEN start
your Roth IRA.
Cal Lester CLU



zak wrote:
- quote -

--
I love cooking with wine. Sometimes I even put it in the food.

This signature file is generated by Pick-a-Tag !
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"MB" <beltmt[at]deadspam.com> wrote in message news:<bg1i2h$jb0vb$1[at]ID-137391.news.uni-berlin.de> ...
- quote -

You can convert from a traditional to a Roth by paying taxes on the
IRA balance, but you can't convert from a Roth to a tradtional IRA in
order to get a tax deduction. There's nothing wrong with having both,
so that you contribute to the traditional when you want the tax
deduction and to the Roth when you don't. For money that you are
saving for retirement, a Roth is clearly superior to unsheltered
mutual funds.

On 27 Jul 2003 23:05:01 GMT, "Elizabeth Richardson"
<erichktn[at]worldnet.att.net> wrote:


- quote -

Good point about using Roth (and other investments) as emergency
funds. You can't access the Roth growth until 5 years/age 59.5
without federal penalty - not to mention that it is typically more
difficult to access Roth IRA than a local bank savings account.

One other thing. I'd also pay off those debts first. Paying out more
interest than your investment brings in is the REVERSE of wealth
building. It's been a while since folks in debt made any future
movement. <grin

-HW "Skip" Weldon
Columbia, SC

Group

I was hoping to hear some of your thoughts about retirement accounts. I am
planning on starting a retirement investment account (invested in mutual
funds). I am 25, married, and in a lower tax rate. I have paid down most
of my high-interest debt, with the exception of some remaining student loans
and a car loan. While I realize the importance of paying down this debt, I
am anxious to start investing in the future.
I don't feel that I really need a break on my taxes right now so I am
leaning toward a Roth IRA. I also like the idea of being able to withdraw
my contributions (without penalty) in an emergency. However, I like to
think that I will not be in a lower tax bracket by the time I retire. If I
start a Roth now, can I start a traditional IRA later in life when the
immediate tax break would be more beneficial? I have briefly read over the
IRS's rules for rolling over IRAs, but most of the information I found is
about going form a traditional to a roth. I am interested in going the
other way. Should I just go straight for the unsheltered mutual funds? Any
thoughts would be appreciated. Thanks in advance.
MB

"MB" <beltmt[at]deadspam.com> wrote in message
news:bg1i2h$jb0vb$1[at]ID-137391.news.uni-berlin.de...
- quote -

The big advantage of the Roth is that, while you pay taxes on the money
going in, it is allowed to grow tax-free, and you can redeem the funds
without paying any additional taxes. Regardless of your current tax bracket,
I believe your age makes investing for retirement via a Roth your best
opportunity (absent an employer sponsored plan). However, I believe you
still have to be 59-1/2 to withdraw the funds without a penalty, so you
wouldn't want these monies to be your emergency fund. You will want to
establish a regular savings account or money market account for that
purpose.

Elizabeth Richardson