DON'T DO IT!!!
Ok. I had a conversation this past weekend with an individual who has been trying to educate themselves on economics, investing, commodities, (Silver & Gold), and other venues to put his money. He has been getting advice from numerous sources. Unfortunately, at least in my opinion, he has been getting some pretty BAD advice.
The 3 pieces of advice, from different people, that really caught my attention, were as follows. I'll explain after each one why I think it is a BAD IDEA. Hopefully, anyone reading this blog will think twice about doing any of these things. Unfortunately, after thinking about it, I find that quite a few people have fallen into these traps.
1. Put all of his investments into some sort of Mutual Fund; either with an IRA, Roth IRA, 401K, etc. He is being told that "The Market" is the only real place to make money.
The truth is, ALL FINANCIAL ADVISERS, unless they are a trusted family member, only makes money if YOU INVEST YOURS. See, they don't care if the market goes up or down. They don't care what interest rates do. If they tell you they taking care of your interests, they are LYING!!! When you invest money, THEY MAKE A PROFIT. It doesn't matter if the stock, fund, etc. goes up or down. They make money. Especially if you have a monthly allotment. Even the investment companies taking care of your 401K or similar, is making money every month. That's what those fees and expenses are. So they will tell you anything they have to to get you to invest more money.
WHAT DO I RECOMMEND?
a) By all means invest some of your money in mutual funds. But as I've always said, NEVER put all your eggs (investments) into one basket. Invest in a diverse Fund or a number of funds that cover a diverse area. It can be a 401K, IRA, ROTH, or traditional Mutual Fund. Just don't put ALL of your investments there.
b) You need to also put about 3-6 months of your GROSS Income into a savings account to hold you over if you suddenly become unemployed or have a major financial hardship.
c) You should also have ON-HAND a certain amount of cash that's NOT in the bank. I suggest looking at all your expenditures in a month. If your rent/mortgage, food, cable, phone, electricity, mall shopping, etc. equals $2,500 for the month, then that is how much I recommend you have "CASH ON HAND". Obviously you want to store it in a safe place that can't get stolen, lost in a fire/flood, forgotten about, etc. If you have a good safe, that would be nice. Don't keep it in a safety deposit box. That's the same as the bank, and if there's problems with computers and banking, or you need cash in a hurry, the bank won't be able to help you.
d) Take a percentage of you leftover cash each month, (The money you're thinking of investing), and use PART of that to REDUCE YOUR DEBT. If you have a car loan, mortgage, etc. instead of investing 100% of whatever you were going to put into investments, take a percentage like 30-40% and use that to REDUCE/ELIMINATE your debt each month. Start with eliminating debt on credit cards.
2. Leverage his debt. Basically, refinance his debt, and invest the extra money he has each month. Of course, the advice didn't mention where or how to invest this extra money.
I pretty much answered this at the end of the last paragraph in the 1st point. Anyone who says something like: You can refinance your house at less than 3% or your car at 2%, and you can take the equity and invest it...... That person is a FREAKIN IDIOT!!! Kick their A$$ for me. Your GREATEST investment, is to be "DEBT FREE". Obviously, many people can't afford to buy a house or sometimes even a car in cash. Those kinds of items do require a load of some sort. And you'd probably never be able to invest if you waited until you were 100% debt free. However, other than your mortgage, it is best to eliminate all other debt first. This isn't the 1990's where a CD or savings account would get you 5-7% interest rate. Mortgaging or taking loans out to the furthest point and investing your money is no longer a smart move. That worked fine when you could GUARANTEE a return on the investment higher than the loan. But in today's economy, the only investments higher than a loan, including the small home and auto rates, is the stock market. That includes mutual funds and everything similar. Those aren't guaranteed. When we did this big loan - invest the rest stuff, we had 5% mortgages and 7% bank type investments.
WHAT DO I RECOMMEND?
a) Other than your mortgage, get rid of ALL your debt first. No credit card balance. Pay off your car loans. If you're the type of person who thinks you'll ALWAYS have a car payment, so you lease or trade your car in every 4-5 years on a new one and a NEW car loan, then you have no business investing. At least not anything you'd want to hear from me. I'd tell you that you should pay off your car and then keep using it PAYMENT FREE and invest what use to be the car payment. But if you continually have a car payment, you probably aren't reading this blog.
b) If you must have a loan, outside of the mortgage, then figure out how much you WERE going to invest, and only invest half of that. The other half, make double payments or whatever to get rid of the loans.
3. Pool all his investments and invest in commodities. Mainly Silver and Gold
While I am definitely PRO-SILVER, I've always said that you shouldn't invest everything in one area. That includes silver, gold, commodities, or anything.
WHAT DO I RECOMMEND?
a) First thing to determine is HOW MUCH do you want to invest. We're talking TOTAL. 401K, Roth IRA, Traditional IRA, Silver, Gold, Land, whatever it is. Figure out how much you want to invest MONTHLY. Do NOT make any large LUMP SUM investments. The only exception to this is land. If you're going to buy 10 acres of land and it's going to cost $20,000 and you have that money, then buy it in a lump sum. Don't get a loan for it. But any other investments, do it monthly. Even if you have a lot of money in the bank burning a hole. You need to DOLLAR COST AVERAGE. Don't risk buying a lump sum and tomorrow or next month the price drops. Then, when you figure out HOW MUCH you want to invest each month, and your debt is gone or under control, do the following.
b) Start by investing in you company's 401K if they have one. I suggest about 50% of whatever you decided to invest on a monthly basis. If you figured investing $1000 per month, then put $500 into your 401K. I don't believe in MAXING out your contributions like some recommend. I don't have that much faith in the Market. However, I do believe that given enough time, that the market is pretty safe. When the market crashes, that's ok. Keep your monthly 401K or IRA investment going in. You're buying MORE SHARES. Just like dollar cost averaging when you buy silver and gold. Obviously, if you're in your 50's or greater, the stock market or 401K mutual funds type investment is a risk. If it crashes, you may not have the time to be able to wait for it to come back up.
b) Invest 20% into an emergency fund if you haven't already. Get between 3-6 months of GROSS INCOME saved up to get you through emergencies. Once your 3-6 months of GROSS INCOME is saved, start a 2nd fund with the same amount. This is your LUXURY Fund. Use this money for the vacation you want, car, piece of land, etc.
c) Take the next 20% and invest that in Silver and Gold. Only invest in PHYSICAL. If you can't hold it in your hands, then you DON'T OWN IT. There is no "WHAT IF" here. There are no exceptions. Physical Silver and Gold only. If you need a good safe to store the silver and gold, and any other possessions, that's also where that 2nd account in "b)" comes in for luxury. After your emergency fund. Buy the safe with this money. Either way, 20% of your investing in silver and gold. I suggest that you buy the silver and gold on a weekly basis. At the most, on a monthly basis. DOLLAR COST AVERAGING. Don't buy thousands of dollars worth at a time. Also, don't wait 3-6 months and buy a lump sum. You CAN'T TIME THE PRICE!!!
d) The last 10% of your investment money needs to be in versions of CASH. SOME actual cash at home. (In that safe). At least 1 months of expenses. Look at your check book or online bank account. Add up everything you SPENT last month. Mortgage, car payment, food, gasoline, clothing, going out to dinner, etc. ALL OF IT. Add this up for a month. $1,000 - $1,500 - $2,000 - etc. Whatever it is, have THAT MUCH CASH in your safe at home. You can definitely have MORE, but as a rule of thumb, that's a good MINIMUM amount. After that, let the rest of the 10% investments each month go into regular savings type accounts. Now, if you've already taken out SAVINGS prior to figuring out how much to invest each month, then that's fine. Just work backwards in determining how much to invest total. Other cash investments can be CD's, (Yes, there are a couple not too bad), I-Bonds, etc.
The key to all of this is that you can't invest everything in one place. You DON'T go into debt to try and invest. Your best investment is to be debt free. Follow this basic advice that your parents and grandparents learned to live by, and you'll be fine. Don't live outside your means. And definitely enjoy life. Don't save every single penny and never spend anything. What good is life if you can't enjoy it.
CYA: SE:
The 3 pieces of advice, from different people, that really caught my attention, were as follows. I'll explain after each one why I think it is a BAD IDEA. Hopefully, anyone reading this blog will think twice about doing any of these things. Unfortunately, after thinking about it, I find that quite a few people have fallen into these traps.
1. Put all of his investments into some sort of Mutual Fund; either with an IRA, Roth IRA, 401K, etc. He is being told that "The Market" is the only real place to make money.
The truth is, ALL FINANCIAL ADVISERS, unless they are a trusted family member, only makes money if YOU INVEST YOURS. See, they don't care if the market goes up or down. They don't care what interest rates do. If they tell you they taking care of your interests, they are LYING!!! When you invest money, THEY MAKE A PROFIT. It doesn't matter if the stock, fund, etc. goes up or down. They make money. Especially if you have a monthly allotment. Even the investment companies taking care of your 401K or similar, is making money every month. That's what those fees and expenses are. So they will tell you anything they have to to get you to invest more money.
WHAT DO I RECOMMEND?
a) By all means invest some of your money in mutual funds. But as I've always said, NEVER put all your eggs (investments) into one basket. Invest in a diverse Fund or a number of funds that cover a diverse area. It can be a 401K, IRA, ROTH, or traditional Mutual Fund. Just don't put ALL of your investments there.
b) You need to also put about 3-6 months of your GROSS Income into a savings account to hold you over if you suddenly become unemployed or have a major financial hardship.
c) You should also have ON-HAND a certain amount of cash that's NOT in the bank. I suggest looking at all your expenditures in a month. If your rent/mortgage, food, cable, phone, electricity, mall shopping, etc. equals $2,500 for the month, then that is how much I recommend you have "CASH ON HAND". Obviously you want to store it in a safe place that can't get stolen, lost in a fire/flood, forgotten about, etc. If you have a good safe, that would be nice. Don't keep it in a safety deposit box. That's the same as the bank, and if there's problems with computers and banking, or you need cash in a hurry, the bank won't be able to help you.
d) Take a percentage of you leftover cash each month, (The money you're thinking of investing), and use PART of that to REDUCE YOUR DEBT. If you have a car loan, mortgage, etc. instead of investing 100% of whatever you were going to put into investments, take a percentage like 30-40% and use that to REDUCE/ELIMINATE your debt each month. Start with eliminating debt on credit cards.
2. Leverage his debt. Basically, refinance his debt, and invest the extra money he has each month. Of course, the advice didn't mention where or how to invest this extra money.
I pretty much answered this at the end of the last paragraph in the 1st point. Anyone who says something like: You can refinance your house at less than 3% or your car at 2%, and you can take the equity and invest it...... That person is a FREAKIN IDIOT!!! Kick their A$$ for me. Your GREATEST investment, is to be "DEBT FREE". Obviously, many people can't afford to buy a house or sometimes even a car in cash. Those kinds of items do require a load of some sort. And you'd probably never be able to invest if you waited until you were 100% debt free. However, other than your mortgage, it is best to eliminate all other debt first. This isn't the 1990's where a CD or savings account would get you 5-7% interest rate. Mortgaging or taking loans out to the furthest point and investing your money is no longer a smart move. That worked fine when you could GUARANTEE a return on the investment higher than the loan. But in today's economy, the only investments higher than a loan, including the small home and auto rates, is the stock market. That includes mutual funds and everything similar. Those aren't guaranteed. When we did this big loan - invest the rest stuff, we had 5% mortgages and 7% bank type investments.
WHAT DO I RECOMMEND?
a) Other than your mortgage, get rid of ALL your debt first. No credit card balance. Pay off your car loans. If you're the type of person who thinks you'll ALWAYS have a car payment, so you lease or trade your car in every 4-5 years on a new one and a NEW car loan, then you have no business investing. At least not anything you'd want to hear from me. I'd tell you that you should pay off your car and then keep using it PAYMENT FREE and invest what use to be the car payment. But if you continually have a car payment, you probably aren't reading this blog.
b) If you must have a loan, outside of the mortgage, then figure out how much you WERE going to invest, and only invest half of that. The other half, make double payments or whatever to get rid of the loans.
3. Pool all his investments and invest in commodities. Mainly Silver and Gold
While I am definitely PRO-SILVER, I've always said that you shouldn't invest everything in one area. That includes silver, gold, commodities, or anything.
WHAT DO I RECOMMEND?
a) First thing to determine is HOW MUCH do you want to invest. We're talking TOTAL. 401K, Roth IRA, Traditional IRA, Silver, Gold, Land, whatever it is. Figure out how much you want to invest MONTHLY. Do NOT make any large LUMP SUM investments. The only exception to this is land. If you're going to buy 10 acres of land and it's going to cost $20,000 and you have that money, then buy it in a lump sum. Don't get a loan for it. But any other investments, do it monthly. Even if you have a lot of money in the bank burning a hole. You need to DOLLAR COST AVERAGE. Don't risk buying a lump sum and tomorrow or next month the price drops. Then, when you figure out HOW MUCH you want to invest each month, and your debt is gone or under control, do the following.
b) Start by investing in you company's 401K if they have one. I suggest about 50% of whatever you decided to invest on a monthly basis. If you figured investing $1000 per month, then put $500 into your 401K. I don't believe in MAXING out your contributions like some recommend. I don't have that much faith in the Market. However, I do believe that given enough time, that the market is pretty safe. When the market crashes, that's ok. Keep your monthly 401K or IRA investment going in. You're buying MORE SHARES. Just like dollar cost averaging when you buy silver and gold. Obviously, if you're in your 50's or greater, the stock market or 401K mutual funds type investment is a risk. If it crashes, you may not have the time to be able to wait for it to come back up.
b) Invest 20% into an emergency fund if you haven't already. Get between 3-6 months of GROSS INCOME saved up to get you through emergencies. Once your 3-6 months of GROSS INCOME is saved, start a 2nd fund with the same amount. This is your LUXURY Fund. Use this money for the vacation you want, car, piece of land, etc.
c) Take the next 20% and invest that in Silver and Gold. Only invest in PHYSICAL. If you can't hold it in your hands, then you DON'T OWN IT. There is no "WHAT IF" here. There are no exceptions. Physical Silver and Gold only. If you need a good safe to store the silver and gold, and any other possessions, that's also where that 2nd account in "b)" comes in for luxury. After your emergency fund. Buy the safe with this money. Either way, 20% of your investing in silver and gold. I suggest that you buy the silver and gold on a weekly basis. At the most, on a monthly basis. DOLLAR COST AVERAGING. Don't buy thousands of dollars worth at a time. Also, don't wait 3-6 months and buy a lump sum. You CAN'T TIME THE PRICE!!!
d) The last 10% of your investment money needs to be in versions of CASH. SOME actual cash at home. (In that safe). At least 1 months of expenses. Look at your check book or online bank account. Add up everything you SPENT last month. Mortgage, car payment, food, gasoline, clothing, going out to dinner, etc. ALL OF IT. Add this up for a month. $1,000 - $1,500 - $2,000 - etc. Whatever it is, have THAT MUCH CASH in your safe at home. You can definitely have MORE, but as a rule of thumb, that's a good MINIMUM amount. After that, let the rest of the 10% investments each month go into regular savings type accounts. Now, if you've already taken out SAVINGS prior to figuring out how much to invest each month, then that's fine. Just work backwards in determining how much to invest total. Other cash investments can be CD's, (Yes, there are a couple not too bad), I-Bonds, etc.
The key to all of this is that you can't invest everything in one place. You DON'T go into debt to try and invest. Your best investment is to be debt free. Follow this basic advice that your parents and grandparents learned to live by, and you'll be fine. Don't live outside your means. And definitely enjoy life. Don't save every single penny and never spend anything. What good is life if you can't enjoy it.
CYA: SE:
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