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       Investor's Insight - Friday, January 13, 2006           
          "A Digest of Investment Opinion From the 
             World's Leading Financial Advisers"

Comment The Post Below...


by Scott Burns

Q: Dave Ramsey, author of "Financial Peace," suggests that 
people should never purchase something on a credit card 
that they can't pay for when the statement arrives. Suzi 
Orman has similar ideas.

It seems to me that this would be a good thing for indivi-
duals, but it would be a disaster for the American economy. 
The economy depends on revolving debt for its growth. If 
everyone followed this advice, there would be massive un-
employment in our nation, with a lot of people not able to 
meet their expenses. What do you think? -- R.J., by e-mail

A: I believe there is an inverse relationship between 
credit cards and IQ. A high credit card count is a good 
indication that the holder is a dim bulb. Mail box credit 
card offers and the credit card companies that make them 
should be seen in much the same way as an offer from the 
neighborhood heroin dealer.

But that's just how I feel.



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While our consumer economy runs on credit, I believe it 
would be bigger and stronger -- not smaller and weaker -- 
if everyone made an effort to use credit prudently. That 
means eliminating the revolving debt that can cause you 
to pay 21 percent interest on a dinner out. It means pay-
as-you-go financing for things that are consumed immed-
iately. It means opportunistic use of credit for large 
purchases that are likely to provide years of service. It 
means eliminating the enormous drain of purchasing power 
that many consumers suffer because of the interest they 
pay on credit cards.

Remember, the estimated $50 billion a year that is spent 
on consumer finance charges could just as easily be spent
on actual products.

Q: We are interested in your Margarita Portfolio. Right 
now we are invested through a fee-based adviser in Dallas. 
We started with about $133,000. The adviser put $20,000 
into Wells Realty, which has performed pretty well. The 
balance was put in an array of mutual funds. We have 
$16,000 in Rydex URSA and $11,000 in Prudent Bear Funds. 
Furthermore, we have about $5,000 to $6,000 in each of 
these funds: Fidelity Balanced, American Funds Capital 
Income F shares, Delaware Dividend Income A shares, Dia-
mond Hill Focus L/S A shares, Evergreen Asset Allocation 
A shares, Federated Market Opportunity A shares, Leuthold 
Core Investment, Pimco All Assets D shares, T. Rowe Price 
International Bond Advisor shares, Rydex Long Dynamic Dow 
30 fund, Rydex Inverse Dynamic Dow 30 fund and Rydex Nova 

We are very disappointed. We are down to $107,300 from 
$113,000. The fee is always roughly $400 a quarter. I'm 
afraid we are lining his pockets. Do you have advice for 
us? We are not very savvy about investing. -- B.S., by 


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A: Yes, your so-called adviser is lining his pockets at 
your expense. Also, his portfolio doesn't make much sense 
because many of his fund choices are in the same category. 
Most are "moderate allocation," or balanced funds, that 
invest in both stocks and bonds. 

In most, but not all, of his choices you have paid a sub-
stantial up-front commission. In addition, many of the 
funds pay a trailing fee. Then, on top of that, you are 
paying about 1.2 percent a year for ongoing advice direct-
ly to the adviser. 

And that's just the money your adviser is collecting. The 
annual expense ratios of the funds -- are also quite high, 
with most over 1.5 percent a year. Add it all up, and the 
fee burden on your investments approaches 3 percent a year.

That's good for your adviser and for the funds he is using. 
But it isn't good for you. Then again, he probably thinks 
that two out of three isn't bad, as long as he is one of 
the two.

Before you move your money -- and I think you should do it 
ASAP -- ask your adviser for an accounting of his commiss-
ions, his billed fees, and what he collects in trailing 
fees. I'll bet you won't get an answer.

Move your money to a major fund company and invest in a 
small number of funds. My Margarita Portfolio is one way 
to do it -- it would get you real diversification and 
would save you about 2.5 percent a year in fees.

(Investor's Insight reflects the opinions of experts. It does 
not recommend any specific investments, and no endorsement is 
implied or should be inferred. For more information, contact 
the individual firms cited).



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