Getting the Wrong Advice from the Right People

Being With Your Investment Adviser

People ask me questions all the time about finance. Most of the time they ask me what I would do in their situation. Most of the time, they never tell me what their situation is so I can’t answer their question. One man asked me what financial item should he buy but would not tell me why or how much money he plan to put into it, or anything else about his situation. He said it was none of my business. So I can’t help him.

This is why you see articles like the U.S. News article below that is rather veg about how to invest.

5 Money Myths You Shouldn't Fall For

When it comes to these so-called money rules, following conventional wisdom can cost you. by U.S. News  Dec 6th 2013 12:43PM

Conventional wisdom is often a good thing, or at least harmless. For instance, even if chicken soup doesn't help your cold -- and research shows it probably does help -- it won't hurt you. Plus, you'll help keep someone employed in the soup industry.

But there are plenty of times when conventional wisdom isn't just wrong -- it can cost you money. So the next time you're about to make a big financial decision, keep in mind that rarely is anything black and white when it comes to the green stuff. Here are five money "rules" that are largely wrong.

Carrying a credit card balance will help your credit score. Not at all. If you are carrying a balance you can't pay off, it will help to keep the balance as low as possible because credit bureaus don't like to see a high debt-to-income ratio. In other words, they want to see that you aren't maxed out to the limit every month. So intentionally carrying a balance on your card won't put your credit in better standing or save you money; paying interest only benefits the credit card companies. 

I agree with this one.

Having a zero balance every month on your credit card is fine, especially if you're making regular or occasional purchases and paying them off monthly. Credit bureaus like to see that people are using credit cards responsibly. That's why never using a credit card that has a zero balance won't appreciably help your credit score, either. 

The author should come out and tell you to use your credit card and pay it off at the end of every credit card cycle.
Pay off credit card debt before saving for retirement. Ultimately, it comes down to how much debt you're talking about, and what kind.

"One myth that young professionals -- actually, many professionals -- initially question is whether they should pay off consumer debt, like credit cards and student loans, 

before fully investing in their company's 401(k) plan," says John Oxford, director of external affairs at Renasant, a financial services company headquartered in Tupelo, Miss.

What's so wrong with paying off the massive credit card debt you accumulated in your early 20s before sinking money into a 401(k) plan? Oxford says if your company offers a 401(k) contribution match, and you instead shovel money into debt, you'll pass up on what amounts to free money that could have gone toward your retirement.

You're also losing out on the potential interest growth, he says.

So, yes, save for retirement at the same time, even if that means it will take longer to pay off your debt. 

Most 401(k) plans no longer match funds. Some will only match up to 3% of the 6% max. Pay contribution. If you are getting such a match then I would speculate in some of their mutual funds. However, if you have high credit card debt and your interest rate is over 10%, I would pay off my debt over a 10% interest rate as fast as I can, paying credit cards first. If you only have a car or mortgage left then I would buy junk bonds in an IRA if I could not take advantage of a 401(k) matching fund program.

Keep in mind that you may be able to reduce your interest rate by consolidating your loan.
Stocks make you rich -- and bonds keep you rich. A good rule of thumb, but this is another gray area.

"The bond bull market for the past 30 years is coming to an end," says Jon Ulin, a managing principal at Ulin & Co. Wealth Management, a branch of LPL Financial in Boca Raton, Fla. "Interest rates will begin to rise when the Fed starts to taper the monetary stimulus program. Bonds tend to fall in value when interest rates rise. As [when] there is a greater degree of price volatility for longer bond maturities, investors should move more into short-duration bond investments."

Benjamin Sullivan, a certified financial planner with Palisades Hudson Financial Group in Scarsdale, N.Y., echoes that thought.

He says it's a myth that retirees should be fully invested in bonds. "Even retirees may have a relatively long time horizon for a portion of their money," he says. "They need the superior growth that stocks can provide to retain purchasing power over their life." 

I can tell a stock broker or Mutual fund salesman a mile away. If you are retired or about to retire, I would not buy stocks at all. I would buy bonds with a Standard and Poor’s rating of “BBB” to “B-“.  They give interest rates of 7% to 16%. I would “latter” them meaning that I would have some maturing in less than 3 years, other maturing in less than 6 years, and some going out more than 6 years.  

Home additions increase your home sale value. Usually they don't, says Patrick Roberts, a certified financial planner and CEO of PKR Investments in St. Louis. If you add on a room or an amenity like a swimming pool for the sole purpose of adding value to your home, he says, you're likely to hurt your pocketbook. That's because even if your addition does add value to the house, you've likely taken on more debt in the process, so you may lose money in the long run.

Now, if your house needs a fresh coat of paint, feel free to slather it on. You will probably sell it faster and maybe for a bit more. But when it comes to high-priced add-ons and features proceed cautiously if your only goal is to add value to your home. 

What real estate people are not going to tell you is that houses do not sell as fast as they did in the 1990s. The baby boom people are in their late 50s to early 70s. They are starting to die off or going into nursing homes. Soon the housing market will be in a big glut. Instead of a house selling in 3 months, it may take 3 years. The chance of home prices falling is a better possibility than prices rising.  

Your money is safest in the bank. Not exactly. Money market accounts, savings bonds, your 401(k), a 529 plan and index funds may all be better alternatives (obviously, do your research or talk to your financial adviser). True, if your money is in the bank, it's safe because it isn't going anywhere. Banks' checking and savings accounts and certificates of deposit are insured by the Federal Deposit Insurance Corporation up to $250,000.

But if you have a lot of cash sitting in a savings account, you're technically losing money with interest rates so low these days, Sullivan says.

"You might have the comfort of seeing a stable account balance, but you are guaranteeing that your buying power will decrease due to inflation," he says.

Currently, inflation is at about 1 percent, which is pretty low. Unfortunately, the average savings account yields about 0.06 percent, so you're still losing a bit of money. But a couple of years ago, when inflation was about 3 percent, the loss was more pronounced: People were losing about 3 percent of their income's worth because their savings yields weren't keeping up with inflation, Sullivan says. 

If you are going to make a large purchase in 6 months or more, invest it in Junk Bonds. If this money is for emergencies like a sudden layoff or firing then invest it in Junk Bonds that mature in less than 1.5 Years.
So the next time you're faced with a big financial decision, do your homework rather than making a snap decision based on what you've heard your entire life. You probably won't lose much if you believe in myths involving vampires and zombies. But losing thousands of dollars or your entire life savings -- now that's scary.