TOP DRAWER BOOK REVIEW
by
HL Carpenter

 

Missed Fortune 101
by Douglas R. Andrew
ISBN 0-446-57657-3
282 pages; hardcover; $23.95
Time Warner Book Group, New York, 2005

You probably figured buying your home was the easiest financial planning decision you ever made. After all, the standard advice seems to fit everyone: Save a healthy down payment, take out the shortest term mortgage you can afford, and pay off the balance quickly. Then sit back and enjoy living mortgage-free, watching your equity grow.

But following conventional wisdom could be a mistake, according to Douglas R. Andrew, financial consultant. His argument: You’ll come out ahead by putting all that equity to work for you.

The advantages of drawing on your equity, as explained in Missed Fortune 101, are increased liquidity, tax deductible interest expense, and the opportunity to earn a higher interest rate than you’re paying. The hitch? If you’re not disciplined – that is, if you spend the equity you extract from your home instead of investing it – you could be creating a personal financial disaster.

Missed Fortune 101 does a fine job of providing a brief overview of various tax laws affecting retirement accounts and home mortgage interest (with the exception of an incorrect paragraph regarding Roth IRAs). There’s also a lucid description of life insurance policies and the related tax treatment.

In addition, the book makes three valid points. First, debt is not always a bad thing. Second, liquidity provides flexibility and a cushion to help you through unexpected tough times. And third, some forms of life insurance can serve investment purposes.

But the tables and charts used to make Mr. Andrew’s case tend to employ favorable assumptions about his preferred investments. The estimated return is very optimistic, as well, and the big, impressive numbers come about only after applying a very long time frame.

Missed Fortune 101 may give you a new perspective about managing your finances. That’s one of the best reasons for reading any financial book. Still, no matter how persuasive, generic planning advice always has limitations. And no matter how unadventurous, conventional wisdom is frequently right.

 

Review originally published June 2005.