D Magazine Best Mortgage Professionals in Dallas list in the July issue of D.

No small achievement when you consider how many mortgage brokers and mortgage

bankers there are in the DFW metroplex.

If you are buying a house or if you're considering refinancing, either of these two 

can help you evaluate your best course of action (even if that means sticking with 

the financing you already have).

Two Yale professors have recently decided to write a book advocating "Why young people should buy stocks on margin."

 

File it under the worst idea in the history of bad ideas.

 

Let's suppose for a moment that it weren't such a bad idea.  There are some fairly large obstacles to its implementation.

 

Number one, company retirement plans and IRAs don't allow borrowing on margin (sound legislation since the rest of the world knows its not a good idea to leverage up with one's retirement funds).

 

Number two, the few investment vehicles that employ a leveraged strategy are fatally flawed.  Leveraged ETFs as an example, because they are based on tracking a multiple of an index on a daily basis, often produce wildly distorted returns from what one would expect (for a good piece on the danger of such funds, read John Waggoner's "When leveraged funds are bad, they're very, very bad.")

 

Even if you could pull it off, there's a huge danger involved:  leverage (borrowing to invest) creates a situation where you can potentially lose more than you invest.

 

Imagine a 20-something investor (who by definition has zero investment experience) leverages up and invests all of his money and then some in the stock market in October of 2008.

 

The market plummets 50% in less than six months and during the fall he repeatedly has to pull money that he probably doesn't have out of his pocket to cover the margin calls on his disappearing nest egg.

 

A 50% loss takes a 100% gain to recoup.  At two to one leverage the required gain is substantially greater and that assumes he has the emotional maturity and the additional capital to weather the storm.

 

It doesn't matter how long your time horizon is, to quote Warren Buffett, "In order to succeed, you must first survive."

 

Ironically, this brings to mind the late Yale Professor Irving Fisher who lost most of his personal money in the stock market despite his correct forecast of the 1929 stock market crash.  In an interesting twist, Yale bailed him out by purchasing his home and renting it back to him.

 

 Perhaps Yale professors are "too big to fail."

 

  

"Just as the rich rule the poor, so the borrower is servant to the lender."

Proverbs 22:7

 

"... he who gathers money little by little makes it grow."

Proverbs 13:11

 

"People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction."

1 Timothy 6:9

 

According to Yale economist, Robert Shiller (co-creater of the Case-Shiller home price indices), residential housing prices in the U.S. increased by 0.4% beyond the CPI from 1890-1990.

Factoring in the housing bubble and bust of the last twenty years doesn't change the average much but it does illustrate the great volatility involved.

Most of the people who have gotten wildly rich in residential real estate have done it in one or both of two ways:  They've gotten lucky by being in the "right place at the right time," or they've taken on great risk by using leverage (borrowing other people's money).

Does that mean you can't make money in residential real estate?  No.  But it's the cash flows that usually determine the profitability of such an investment, not the price appreciation.

And what about owning your own home?  Owning a home does have a tremendous benefit, but it's not the future price appreciation (0.4% beyond inflation hardly makes up for the costs involved in being a homeowner).  Nor is it the tax advantage (only one of the ways our screwed-up tax code rewards excessive risk-taking).  The big advantage to owning your own home is the "implicit rent" that accrues.  If you were living somewhere else, you'd be paying rent each month at an ever-increasing rate, whereas by living in your own home, your payments (at least the principal & interest components of a fixed mortgage) never increase and ultimately end.  This, by the way, is true whether you have a big mortgage, small mortgage, or no mortgage.