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Author: StockGoddess Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75802  
Subject: Re: Refinance Home to Invest Date: 10/31/2011 3:13 PM
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Here's mine:

1. Do you have an E-fund of at least 6 months living expenses beyond what you're planning to invest? Maybe even a year's worth?

2. Do you have any credit card debt, or other debt at all that costs more than 3%?

3. Do you have a plan for how to cover medical costs should you become unemployed?

4. Do you have a plan for getting a new job should you become unemployed?

5. Do you have a well-thought-out portfolio of large/small/dividend paying stocks or are you picking mutual funds? Or are you following some stock Uncle Floyd or the Fool (same thing) touted last week?

6. Are there any other people who depend on your income for a living? Would anyone other than you be homeless if this fell though?

7. Are you going to dump it all into the market at once or dollar-cost average it in?

Since you claim you can get a 3% morgage, and since there will be mutual fund fees and/or closing costs you're starting out 4% in the hole. You're going to have to generate 7-8% returns just to make the risk worth while. Then there's taxes. Even at 7-8%, since you're starting 4% in the hole, your gain on $50K is a measly $2,000 a year. Minus taxes. Best case scenario. Worst case you're in the red. Just get a job playing Santa or driving UPS for the holidays and you could pull that in without the risk.

If we can assume you're a great money manager you should already have an extra $500 a month you could invest and just dollar-cost-average it in without using money you have to PAY INTEREST on. If you don't have an extra $500 a month, you can't afford to do this anyway. Everyone I've ever seen try a get-rich-quick idea, tried to be BMOC (big man on campus) with some hairbrained idea he could brag about, ended up get-poor-quick. Obviously, I'm in the just-say-no camp on this. I don't invest borrowed money (other than real estate). I don't invest money needed to pay the bills.

YMMV.

SG
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