Should I Borrow to Buy?
Ask the Fool
Q: Why shouldn't I borrow against my credit card and invest in the stock market?

- K.L., via e-mail

 

 

 

A: Danger, Will Robinson! The U.S. stock market has, over decades, averaged about 10 percent per year in returns. But that's an average. In some years, it loses money such as 9 percent in 2000, 12 percent in 2001 and 22 percent in 2002. (This was followed by a 28 percent gain in 2003 and an 11 percent gain in 2004.) Meanwhile, credit cards were recently charging an average rate of about 13 percent to 14 percent. So overall, in the long run, you're likely to lose more than you gain if you try to make money in stocks while forfeiting money to credit card issuers.

Q: What does "UIT" stand for? - Liz, via e-mail

 

 

A: It's a unit investment trust, invested in a relatively fixed portfolio of securities (such as, say, five or 20 stocks or bonds), with no investment manager buying and selling holdings throughout its life. The UIT components are held until the trust is liquidated at a predetermined date in the future - which could be several or many years down the road. Investors who want to trade shares of UITs before they mature can often do so on the secondary market.

Unlike a mutual fund, UIT share prices in the secondary market may be priced above or below the net asset value of the trust's actual holdings. When you buy shares of UITs, you typically pay a sales fee, or load, of around 4 percent or 5 percent. But you should note that many mutual funds carry no sales load at all.

You can learn more at www.sec.gov/ answers/uit.htm.

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