A theme of the blog and Wealthy Behavior podcast lately has been warning you off the dangers of misinformation. Our Chief Investment Officer, Bob Weisse, and I talked about investment sources we trust and those we don’t in September Market Update: A New Direction, and I shared some additional thoughts in Understand Your Messenger’s Agenda. We take it a step further in our latest podcast episode where our Director of Financial Planning, Ed Jastrem, calls out bad online financial advice he’s seeing and explains why to avoid it.
Bad Online Financial Advice
It’s worth a full listen as Ed lives this stuff and is passionate about financial education and literacy. The context he also brings to each item is extremely valuable.
- Don’t use a 401(k) (or other retirement account) because you don’t know where tax rates will be in the future and the government might take your money. While it’s true that future tax rates are unknown, you’d be giving up a definite tax break today and losing the disciplined practice of regularly contributing to a retirement account because of fears of an unknown that can be planned for with detailed planning as you approach retirement.
- Avoid saving through a 529 college savings plan because it will ruin your financial aid. There is some truth to this, but it’s wildly exaggerated. The benefits of the 529 far outweigh the potential financial aid implications (assuming you want student loans to begin with…).
- Keep a balance on your credit cards to improve your credit score. This is just plain crazy. On a related front, you don’t have to automatically pay off all debt before investing somewhere else. Think opportunity cost and how high the rate is.
- You can use a 1031 exchange to defer the capital gain on your primary residence. Not likely and much more complicated than you think it is.
- Don’t give to charity just for tax breaks
- Avoid overusing life insurance. Life insurance has a primary benefit of protecting your family in the event of premature death or in business owner buy-sell situations. Focus on those uses.
Available through link in title.