Popular Financial Advice That You Should Avoid At All Cost
Last Revised on December 28, 2009Love Your Health Money Family & Relationship
When you are young, you get a lot of good advices from you parents and friends like save money, use your employer’s 401k plan and avoid credit card debts, if possible. But then there are other plenty other financial advices the world throw at you, which you shouldn’t take for granted as a good advice. There are these following financial suggestions gathered these from wall street journal that you should try to avoid:
1. AMASS CASH
According to some financial experts, we should be amassing an emergency reserve equal to six months of living expenses. And this cash can be put away in conservative investments like money-market funds and certificates of deposit.
But for many young people even if they regularly put away, lets say, 10% of the net income, it might take four years or so to amass six months of living expenses. At that point, you are also supposed to leave this money in low-risk investments, where it will earn modest returns for the rest of your life.
Sound bad? It gets worse. While you were building up your emergency reserve, you were likely neglecting important goals like funding your 401(k) plan, which might earn you a matching employer contribution, and saving for a house down payment.
You could also use your taxable account and Roth for a house down payment. Once you have bought the house, set up a home-equity line of credit, which you can then use as an emergency reserve.2. BUY BIG
Early in our career we might plan to buy big- for example big houses – because of what others say.
But the thing is that if we end up becoming dissatisfied with that place, then it will cost a lot of money in addition to all the debts -high selling commissions, mortgage application and closing costs, repair and moving expenses and lot more.
Borrowing a huge sum to purchase an unnecessarily large house is financial foolishness. You will saddle yourself with hefty monthly mortgage payments and a lifetime of large utility bills, maintenance costs, property-tax payments and home-insurance premiums. Rather, when buying that first home, you should strive to purchase a place that’s the right size for you and your family — and that you can see living in for a good long time.
3. GET A LIFE
Get a life – life insurance. Insurance agents push young folks to buy life insurance at cash-value. They say that it’s much cheaper to purchase these policies if you are young.
These policies are no good for folks in their 20s. Remember, the principal reason to buy life insurance is to protect your family — and you may not even have a spouse, let alone kids. And if you are married with young kids, you no doubt need a heap of coverage. The cheapest way to get that coverage is with term life insurance, which offers a death benefit and nothing more.
4. GO FOR GROWTH
Often times, young people are advised to invest in stocks for they have many years available until the retirement hits. So they get a lot of chances to get out of market when it declines and get in when the market is good.
That theory maybe good in theory, but in practice, it might not be. You don’t want to invest heavily in stocks and then panic and sell during the next market plunge. Yet that’s a real danger if you are new to the market and you have never lived through a market decline.
Younger investors are often also told to favor highflying growth stocks. Growth stocks can be wild short-term performers — but the hope is that they will deliver superior long-run returns. Unfortunately, there’s a good chance this hope won’t be fulfilled. Academic studies suggest the highest returns are earned not by growth companies, but by prosaic bargain-priced value stocks.
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