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Friday, January 27, 2012


People who have important financial titles do not always give solid advice. Be wary of the information you believe and the financial action you take. Learn from those who have gone before you. Get some stories of the worst financial advice received and what should have been done instead here!
MSN Money shares…
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.
Name: Janet Zinn
Hometown: New York
Age: 51
Profession: Psychotherapist
Worst advice:
“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.
Name: Gabrielle Lennon
Hometown: Sarasota, Fla.
Age: 46
Profession: Author
Worst advice:
“To buy an extra house, get a tenant and let the tenant’s rent pay the mortgage and all the bills. So many people and books say this, but many tenants are horrible. I’ve had great (renters), nightmare (renters) and everything in between.”
What the experts say:
“Books often promote becoming a landlord as the easy road to riches, but people have to understand that owning a rental property is just like any other business — it requires a lot of time and hard work,” says financial adviser Landon Loveall of Cumberland Wealth Planners in Thompson Station, Tenn.
Of course, if you’re prepared to put in the work, there’s no doubt that renting a property can be a promising way to build wealth, says certified financial planner Rick Kahler of Kahler Financial Group in Rapid City, S.D. “It’s important that tenants pay their rent on time, and landlords must demand that and not get big-hearted,” Kahler adds.
Morrison suggests that people consider becoming landlords only if they can set aside a “sinking fund” to cover the sum of a variety of expenses associated with managing a property.
“The proper preparation for owning a rental property is to assume that you will be turning over renters annually, incurring costs of painting, re-carpeting and repairing damage; that you will go vacant three months between renters on average; that your renters will consistently pay late without including the late fee; and that you may have to spend a couple months’ rent to evict certain tenants,” Morrison says.
Name: Ismail Humet
Hometown: Long Island, N.Y.
Age: 23
Profession: Entrepreneur
Worst advice:
“Someone told me not to invest in my own small business. My partner and I decided to ignore this advice and invested in our start-up,, anyway. It has turned into a huge success, and we are absolutely glad we did it. We’ve already earned our investment back many times over and are still continuing to earn on that investment.”
What the experts say:
Providing advice on whether entrepreneurs should invest in their own company is a bit tricky. While Humet’s business became a success, that isn’t the case for all business owners. “I tell people to be very careful with this, since the majority of businesses don’t make it,” Kahler says.
Rather than telling entrepreneurs to steer completely clear of investing in their own business, Kahler suggests that an adviser should help the business owner think through the risks in order to make an informed decision.
Certified financial planner Laura Scharr-Bykowsky of Ascend Financial Planning in Columbia, S.C., says that it’s OK to “invest prudently” in your own business to maximize growth, but she doesn’t suggest investing exclusively in your business.
“You can diversify away risk by spreading your investments out among several noncorrelated asset classes,” Scharr-Bykowsky says. “For instance, if your business depends on overseas sales, you might want to dial down that exposure in your financial investments.”
Get the entire story at MSN Money!