Smart Money: High-return investments usually have significant risks

Bruce Williams is a national radio talk show host and syndicated columnist.

Dear Bruce: On Sept. 17, 2001, my financial adviser advised me to sell some subordinated notes, which were due in 2008 and were paying 9.75 percent. He suggested another note for 12.9 percent, callable in 2003. I bought 11,000 shares at a discount. Now the company is in serious trouble, and I could lose everything. He said that he can't get any information for quite awhile. Can you help me? D.F., via e-mail

Dear D.F.: I have a hard time understanding why he suggested you give up a solid investment of almost 10 percent and go to another for almost 13 percent. This was a very high interest rate, which should have told you that there was significant risk. Anytime that you find a note paying way above the market, you are loaning your money to a company that is not on the strongest financial footing.

At this point, I don't know of anything that you can do. I don't know whether the broker acted improperly. You might ask the compliance officer of that firm to give an explanation of his actions. You are entitled to that.

Dear Bruce: I was recently turned down for an online auto loan approval from several Web sites, even though I am in my early 30s, single and make about $76,000 a year. I checked my credit reports from all three major credit bureaus, and there were no derogatory items listed.

I have no debts to speak of, and I have a couple of 10-year-old credit cards in which I carry a minimal balance. So why was I turned down? What recourse do I have to get some financing? The car I have in mind is about $22,000, and conceivably, I could pay cash for it. I would, however, like to finance some part of it to build up credit. I.H., via e-mail

Dear I.H.: On first look, it would appear that you would be a very good credit risk. You say that you checked your credit report from the major credit bureaus. There are smaller credit bureaus that subscribe to these guys. If you were turned down for the loan application, you have the right to get a copy of the credit report and require them to give you the name of the provider of the information that they relied upon to make the credit judgment.

Part of the problem may be that you have little debt and 10-year-old credit cards. Having little or no credit is frequently worse than having bad credit. They are going to wonder why you haven't had more credit activity in the last several years.

Borrowing money to build up credit makes little sense, in my opinion. You borrow when borrowing makes sense.

Investing the $22,000 in cash is yet a third possibility, but you need to consider how the money is currently invested and what you feel are the near-term growth possibilities.

Dear Bruce: My wife and I know a young couple that is having major debt problems. They got married with credit card debt from his previous marriage. Now they have three mortgages on their home and a credit card company that charges them so many fees that they can't afford to make the payments. I feel like telling them to go bankrupt. They have tried to make deals with these card companies to no avail. Will they lose their home? What suggestions can I offer? B.T., via e-mail

Dear B.T.: These people must face the problem that they are living well beyond their means. Until that reality is addressed, there is nothing that anyone can do for them. Bankruptcy will not be an avenue available to them. And even if it was, it would only be a temporary respite, because they will go right back to their inappropriate ways and find themselves in the same boat. In my opinion, they should talk to a reliable credit counselor to see if accommodations can be negotiated. I also suggest to young people that they find a part-time job, in addition to their regular work, with every extra dollar going toward debt reduction. Further, they must be put on a very strict budget. None of these things are pleasant, but they have all of the signs of irresponsibility. Until that is corrected, there is no hope for them.

Dear Bruce: You always say that you should retain a lawyer when buying a house. Why? What specifically should the lawyer do that the "closing attorney" isn't already doing? Mark, via e-mail

Dear Mark: First of all you mentioned in your question a "closing attorney." Who's the closing attorney? Who's paying for them? Where does this attorney's loyalty lie?

Most lenders would have you, the buyer, pay for the bank's attorney to protect the bank's interest. You need an attorney in your corner protecting only your interest because yours and the lender's interests are not necessarily parallel. As an example, there may be zoning considerations, and while the value may not be affected, your plans for the property could be materially affected. I want my guy, or at least his surrogate, to do the search as well as arrange for title insurance.

You might wish to take a look at my book "House Smart," which was written by me and my late friend and attorney, Nate Rosenhouse. We give you dozens of good reasons why only an idiot would purchase or sell real estate without being specifically represented by someone whose only loyalty is to you