12/5/2011 5:06 PM ET|
6 tales: Worst money advice ever
When it comes to bad financial guidance, these stories from average Americans are hard to top. But they offer valuable lessons on what not to do, financial planners say.
What's the worst financial advice you've ever received?
MainStreet posed this question to a group of average Americans and received a variety of colorful responses -- from investment mistakes to real-estate blunders.
To find out what can be learned from each person's story, we picked the brains of financial planners from around the country. Interestingly, while the advisers agreed that some advice was indeed unwise, in other cases they argued that the advice could be sound in certain situations.
"A lot of financial advice is not 'one size fits all,'" says certified financial planner Helen Huntley of Holifield Huntley Financial Advisers in St. Petersburg, Fla. "Advice that's good for one person may not be at all good for another who is in different circumstances."
You should also keep in mind that while seeking professional financial advice is often the way to go, you should be wary of an adviser who is too pushy.
"When a client feels pressure from anybody to make a financial decision -- especially those taking their money -- run for the exit," says certified financial planner Phyllis Carlton of Carlton Advisors in West Linn, Ore. "A true financial professional will be able to answer any and all questions in terms the client understands. If they don't, either they do not understand the risks themselves or they don't have their client's best interests in mind."
Read on to hear the stories of six Americans, plus comments from the pros.
Name: Janet Zinn
Hometown: New York
"About 10 years ago an old accountant advised we cash in a substantial 401k plan to pay off credit card debt, instead of instituting a plan to pay it off over time and learn how to spend and save at the same time."
What the experts say:
In general, touching your retirement plan before you reach retirement age is a no-no.
"When folks are under 59½ years of age, there is a 10% penalty (for cashing in your 401k) in addition to the current income taxes owed on whatever amount was cashed in," says certified financial planner Debra L. Morrison of Trovena in Roseland, N.J.
Morrison says a better idea is to consider taking out a loan on 401k money following "a rigid, monthly repayment schedule, which requires the participant to pay off the loan, thereby maintaining the retirement funds for their original intended use."
Of course, there are exceptions. "The advice may have been appropriate if, say, the credit card was charging 29% interest and the consumer was in the 15% bracket with a 10% penalty," says financial adviser Fred Amrein of Amrein Financial in Wynnewood, Pa. In this instance, "your cost of the 401k redemption is 25%, saving you 4%."
Always do your homework, and run the numbers before making any decisions to touch your retirement fund, Amrein adds.
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Worst financial advice I ever got? Get an adjustable rate mortgage. This was about a year before the housing market collapsed and ARM's were all the rage; everyone from my parents to my mortgage broker to my best friend tried to sell me on the idea and my response was "I'd have to be an idiot!" It took me a while but I managed to get a fixed rate at 6.5%, which I then re-wrote at 5.1% a year later while all of my friends were trying to figure out how to deal with their mortgage adjusting up instead of down. Now I know what my mortgage payments will be for the next 20 years, unless I do something to change it, they have no idea from quarter to quarter or however they are set up.
The best financial advice I can give is to prepare for your future. I do not care how you do it, but I have heard many people say they are just going to work until they die; don't assume you will be able to. My Grandmother-in-law had a massive stroke and was disabled, in a home ank in need of constant medical care for 7 years, she didn't even remember her children or grandchildren and had no idea when her husband and son died. My M-I-L was left to cover her expenses on a waitresses salary, but thankfully my Grandfather-in-law had a job with a pension and good retirement benefits that provided 75% of the medical care. My M-I-L got out of waitressing and found a job that has some benefits and she purchased a disability insurance plan; I started paying for a life and disability plan for her as well seeing as how my husband and I are the only family she has left, so if something happens to her it is up to us to care for her. I also have a job with a pension and great benefits that I keep after retirement and that my husband can keep in the even that something happens to me, so we are covered for life. Think about that before you leave your children with the burden of paying for your advanced care and if you don't need it, great, but at least your grandkids college fund won't have to cover your old age.
yeah...........and 4% ....alrighty then.
You still think you are going to have more than ME? I doubt that highly. But you go ahead and Invest in what has been created for you to funnel your money into others hands. Have fun with that.
And who has YOUR money? It in the vault for you when you need it right? I mean in an emergency it's real , liquid cash you can go get right now down the road right? Or in the safe in the basement? MMMmm so it's a a fundamental "belief" in the system that your money is there is it not? Oh it's there to counter Inflation (love that argument) I have 100 grand from 10 years ago btw. Its still worth ...you win a prize!!!! 100 grand. I can't buy as much with it now as I could then yes. But on the other hand there really isn't anything once you reach a certain amount of toys that you really need anyway now is there. To each his own. I am greedy but I am not THAT greedy. You can't take it with you.
So your 401k (which is a safety net basically) is there for you when the system crashes when you need it most. OK......
PRO TIP: When the system crashes your "money" will be gone. Even today's teens educated by text message have figured this one out, and are staying away from the "market"
You want to look out for your retirement or invest...HARD TANGIBLE PRODUCTS, GOLD BARS IN YOUR SAFE, FARMLAND to lease etc will make you rich LONG TERM.
Have fun with your "derivatives" based 401k's.
I will lease out my land cause everyone has to eat.
Who's investment is "safer"
The only advice on "personal" money matters I would give anyone that I think applies across the board is if you buy gold..... GET the physical BARS and put them in your safe. (Or a bank vault if you trust any of those scumbags...I don't). Don't buy coins that are worth 1/10 of the selling price , don't buy jewelry, basically don' be a slep. Buy a straight up BAR of gold. They come in all sizes - for any budget.
Buying Gold and receiving a piece of paper is NOT gold. It is a shitty piece of paper worth nothing. And beware anything with a certificate of authenticity. If you want to know how utterly retarded that is try this. PM me And I will send you my financial advice and as a bonus I will send you a certificate of authenticity from me stating it is really me so you can feel better about yourself over your purchase. I can number it if you like and call it limited as well (that costs extra)
The company I work for has a 4% match in their 4O1K, every time someone tells Me not to put money in it that I will just lose it, I tell them one thing is guaranteed, I will have more than You.
BEST adice regarding financial was told by a good friend of my, Buy GOLD and Silver that was 10years go. BEST thing ive ever done regarding financials. Get real money!! Don't take main steam adice you'll get BURNed!
Actually within a ROTH you can invest in a much wider range of investment vehicles than a typical 401(k). Most companies with 401(k)s offer somewhere between 4 and 20 investment options and those are generally just various mutual funds whether they be actively or passively managed.
With a ROTH you can invest in individual stocks or mutual funds or bonds(mutual or individual), treasury securities, REITs, or just a simple money market, and even some of the more exotic investments if you wish. In addition you of course get the 0% tax and the savings account gets your marginal tax rate. You paid the same taxes going in on both.
So even if you wanted to go the super conservative savings account route, do it as a money market in a ROTH and save the taxes on the back end.
The worst financial advice ever is:
Invest in a Roth IRA instead of putting the money in a savings account.
Here's why: If you already invest in a 401K, a Roth is a good alternative because there isn't a penalty if you withdraw money (principal) before you retire because you invest after-tax dollars. HOWEVER, a Roth is STILL invested in the stock market where not only aren't gains guaranteed but neither is the money you invested. At least with a saving account, what you put in is guaranteed and so is the interest (to a point).
BOTTOM LINE: I would rather a guaranteed 1 or 2% and my initial outlay than promises of at least 6% and end up with no gain and a loss.
Funny article. Females advising people about their money. Not realistic in today's world. Best piece of advice: Keep the females away from the money and hide it well.
The worst financial advice of all time is this:
Don't worry,she'll change.
Don't worry,he'll change.
The second worst piece of advice occurs when you're under thirty.
You'll have time to save.
The last and worst piece of advice for all tiem is this:
Her(or His) family might need some help.It will be easy to bring them over to this country.You can share your home.
I have lost over 20 grand taking "advisor's" advice. They often push products their company sells. The stock market is the east's version of Las Vegas. Advisors input is like racetrack tout sheets. My personal acvice: . Buy stocks in companies you know and who have been around a long time. (except for GM !!!) If I had stuck with Exxon (used to be Esso) I would now be in clover. Go with a low commssion outfit like Fidelity. I used to pay 1 to 2% at an upscale brokerage ouitfit. That's around 100 or $200 for a 10k trade. Fidelity: $8....Also, have a Roth IRA. I'm retired and have to pay tax on my regular IRA with drawals. I haven't done the numbers to see what the comparative tax benefits are, but it hurts to now pay taxes on that money. If people followed what investments I have made and done the opposite, they would now be wealthy.........
Michelle ....I agree 100 percent in what your saying about financial advisors. How can one investor keep tabs on...say 100 clients and say they work for the best interest of those clients ? Of course they have no interest ..... However not everyone has the time or knowledge to make financial decisions on their own regarding stocks and such.
Where do those people turn ? So Id say that leaves behind at least 50 percent of the public with no idea on how to invest or time to do investing.
My father made the mistake of taking a financial advisor's advice about 10 years ago when refinancing his home mortgage. He didn't think on his pension and social security income + expenses that he could afford the monthly rate, so he was sold on a Washington Mutual mortgage loan where he paid $1000/month less, with the balance (interest) rolled back into the principal. He did this with the understanding that this loan only makes sense if you plan do leave the house within a year or two. In addition, he had to take the entire amount of the mortgage/equity loan upfront, and was recommended to a mutual fund broker for investing the cashout above what was needed to pay back his original mortgage.
Well, after doing this my mother got sick and passed away, and my father didn't want to leave his home of 50+ years, etc.....and with the real estate downturn found himself "underwater" in a house that was worth less than the mortgage owed.
Explaining to him that this is exactly the type of loan that caused Washington Mutual to go under doesn't help him, now that the house is in foreclosure.
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