SMART MONEY: Investing in bank shares canbe hit and miss
October 20, 2013 1:50 AM

DEAR BRUCE: Do you think it’s wise for someone to buy bank shares in this hurting economy? — L.S., via email

DEAR L.S.: If you are very knowledgeable, it may be that there are some good bank shares worth considering. We are talking about many banks. Let’s take them one at a time.

The big ones and the large regional banks oftentimes are decent buys. Banking rules very much favor them, and they can manipulate the rules in ways that small banks can only dream of. Small neighborhood banks (there are around 8,000 in the country) are not places where I would choose to invest. In most, but not all cases, the shares are depreciated, and I don’t see any immediate recovery in their future.

With that being observed, you have to consider each individual bank on its own merits.

On balance, the small banks are recovering and eventually the shares may reach the plateaus they were at just a few years ago. But I would not have much interest in that type of an investment. You have to examine them and see which one suits your needs.

DEAR BRUCE: I have a property worth approximately $100,000. When I shopped around to purchase homeowners insurance from four different national carriers, the replacement costs ranged from $200,000 to $250,000. Why are they so high compared to the actual value, and how can I get this cost lowered? My premium is based on this amount. — K.S., via email

DEAR K.S.: I understand where you could be confused. You are trying to find out why the assessed value of your property is so much less than the replacement cost. That should be pretty obvious.

Let’s say the building is assessed at $100,000. It is probably worth more than that because most properties are worth more than the assessed value.

Let’s say it’s worth $150,000 to sell it, yet if it was to burn down, it might cost $500,000 to replace.

Replacement value is the only way to go when insuring a property, not actual cash value. If you have insurance covering only the cash value, the $150,000, if the place burned down, you wouldn’t have enough money to replace the house. You only have the amount noted on the policy. You want enough money to replace what you have lost and that’s only accomplished with replacement value, not actual cash value.


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