Ask The Expert with Larry Swedroe, December 2007 Issue

This is the inaugural issue of the Ask The Expert column by Larry Swedroe. You can see Larry’s full biography and important disclaimer below. If you are interested in having your question answered by Larry, please send me an email via the contact page.

Now, let’s get to the questions and answers (please note that the emphases and links are mine).

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1. I would like to hear your thought on borrowing money from my 401k to start a business. According to my employer, the current interest rate is 9.25% and there is a $45 fee to process the $5,000 loan. Over the next 36 months, I have to pay back $160.76 per month, or $5,787.36 for the life of the loan. I will be paying myself interest so the only cost is $45. What do you think?

From Malcolm

Short and simple: Never borrow money from a tax advantaged account unless there is no other resort — it is an emergency. You borrow money that is growing tax free and pay it back with after tax dollars.

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2. Should the decline in the dollar affect our current investing decisions, and if so, how?

From DR @ The Dough Roller

Simple answer is NO. And the reason is that would be making the mistake of confusing information with knowledge you can use to generate excess profits. Put simply, if you know something the odds are great that the market also knows it and thus has already incorporated that information into prices. Thus it is too late to act.

The time to act is when you are designing your investment plan, an asset allocation table. And that should include a large allocation to international stocks. That will provide the diversification benefit you are looking for, diversifying the economic and political risks of US stocks. I recommend that everyone should have at least 30% of their equities in international stocks, with as much as 50 percent, which is my own allocation.

Understanding the difference between information and knowledge (discussed in my book Rational Investing in Irrational Times and also in Wise Investing Made Simple) is one of the most important lessons investors can learn.

Disclaimer

• Mr. Swedroe’s opinions and comments expressed are his own, and may not accurately reflect those of the firm, nor Moolanomy and its owner.
• Not all questions will be answered
• By submitting a question, you grant us the right to publish your question.
• The answer is given based on the information provided in your question. Please seek professional assistance for more personalized advice.

If you are interested in having your question answered by Larry, please send me an email via the contact page.

Larry Swedroe is a principal and director of research at Buckingham Asset Management, LLC, an SEC Registered Investment Advisor firm in St. Louis, Missouri (www.bamservices.com). He is also principal of BAM Advisor Services, LLC, a service provider to investment advisors across the country, most of whom are affiliated with CPA firms. However, his opinions and comments expressed within this column are his own, and may not accurately reflect those of Buckingham Asset Management or BAM Advisor Services. Before joining Buckingham in 1996, Larry served as senior vice president and regional treasurer at Citicorp and vice chairman of Prudential Home Mortgage. Larry is author of The Only Guide to a Winning Investment Strategy You’ll Ever Need (updated and re-released in 2005), as well as six other books. Most recently, he authored The Only Guide to Alternative Investments You’ll Ever Need (2008). Larry has started his own blog called Wise Investing at CBS Money Watch. Please check it out!

All posts by Larry Swedroe

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