Ying Wu, from Cleveland: “Since you mentioned fortune cookies in the context of Chinese food, I just wanted to point out that they belong to the category of things that I call non-Chinese Chinese food. Other members of this category include baby corn and beef broccoli. As a native of Shanghai, I’d never seen or heard of fortune cookies before I came to this country (and that was more than 10 years ago). Baby corn and broccoli are only a recent addition to the Chinese diet. They are imported; and people have grown to like them because the Americans like them (according to some of my friends who still reside in Shanghai). This is only my opinion. Other Chinese you encounter may have different notions about what constitutes Chinese food. After all, it’s a big country with many regional foods.”

There is something to say here about French fries as well, but I am obviously in over my head.

Brooks Hilliard: “Isn’t it a logical extension of what you said to the person who wondered if he should take out a home equity loan to buy stocks [I said: no] that I should pay off my mortgage in full before I begin to invest? If not, why not? Does it depend on the rate of my mortgage? When I first read your column, I assumed it meant second mortgages . . . but why only second mortgages/equity lines . . . why not first mortgages too?”

Well, yes and no. Clearly, my one-word answer begged that question (so thank you for asking it), but I was just so dazzled by the notion of — me! — answering a question in one word . . . well, you can be sure it will never happen again. (What’s that line about asking for the time and getting a lecture on how to build a clock?)

Partly you are right. It does depend on the mortgage rate (the rate on a second mortgage, which is what he was asking about, is almost invariable higher than on the first) and on his tax bracket and, of course, how you will do in the stock market — an unknowable. My emphatic No was in part from my sense that anyone asking this question is probably an unsophisticated investor, a little guy, and very likely tempted by all the hoo-hah that has everybody and his shoeshine boy boasting double-digit returns in the stock market.

(If you don’t catch the reference to the shoeshine boy — from an era before we would have said shoeshine person, by the way, no disrespect intended — that’s another reason to be cautious, or to read more about the history of the market before borrowing money to jump in.)

I’m not predicting crashes, but I know it is always dangerous to invest on margin — and borrowing against your house to buy more stocks is not that much different from borrowing against your stocks to do so.

There’s also the issue of diversification. If you waited 30 years until you owned your home outright to invest in the market, that would be a mistake. A steady program of investing a few hundred or thousand dollars a month in the market is a crucial part of anyone’s financial future — and the sooner you start, the better. So you probably wouldn’t want 100% of your net worth in your home, which is what would happen if you waited to invest until the mortgage was paid off.

(By contrast, it wouldn’t be terrible to have 100% of your net worth in the stock market, given all that can mean — i.e., a mix of U.S. and overseas, and at least some conservative high-dividend-paying stocks once you begin to accumulate some real money and responsibilities — although that’s clearly not right for most people either.)

It’s just that there’s a world of difference between having a steady program of periodic investments in the market, through good times and bad, on the one hand . . . and, on the other hand, suddenly borrowing a large lump sum against your house to invest in the market not far from its all-time record highs.

Tomorrow: The 10 Principles of Gift Recycling

 

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