Horrible financial decisions

[Bandito440]

Hello folks. In part because of recent retirement talks here, I've revisited my plans, and I'm pleased with the way the numbers are working out.

I'm no financial wizard; most of my savings are in index funds. I have about 10% in a Roth IRA at Vanguard that I play with occasionally. I made a little money from Russia's collapse and small recovery. Cool. That money's back in an index fund until I find something else I like.

I won't ever make specific investment advice; I just don't have the knowledge or confidence. However, I'll have the occasional co-worker come to me seeking guidance. Usually anything I have to say is ignored, but I try making general suggestions.

One friend contributes to a retirement account of some sort where they charge 3% of every bi-weekly deposit. Madness. I tried to steer him towards a Vanguard account and index funds, but his financial guy (the one who profits from his deposits) told him that I'm wrong. That's where it ended.

Another co-worker took an early withdrawal from his 401k this year, which I think cost him an extra 10% in penalties. He used it to pay off $50k in credit card debt and to buy a timeshare! Ouch. That's his third timeshare. He just can't say no. Didn't we determine that timeshares are a horrible investment for all but the building owners decades ago?

And finally, one guy set his W-2 exemptions to 99 for 2014; he didn't pay any income tax, thinking that would be a good way to get his credit cards paid off. So, now he owes the IRS and state ~$15,000 and I have no idea how he's going to take care of that.

Venting over. Thanks for reading.

 

[Donald]

Worse than timeshares are "vacation clubs" in which the company promises you a discount on your vacations for the rest of your life. They are not cheap, $20K to $50K. And you own a piece of what? And the company is incorporated where?

 

[tezzzas]

As a college student with crippling student loan debt and a getting a degree in Criminal Justice. I think those are terrible decisions.

 

[Pop_Rivit]

Originally Posted By: Bandito440
One friend contributes to a retirement account of some sort where they charge 3% of every bi-weekly deposit. Madness. I tried to steer him towards a Vanguard account and index funds, but his financial guy (the one who profits from his deposits) told him that I'm wrong. That's where it ended.


Depends. If the financial advisor is able to steer your friend to investments, advice and strategies that net a significantly higher rate of return and lowered tax burden, the load may well be worth it. If your friend is only seeing average returns that he/she could do on his own then he/she is wasting investment money.

 

[morepwr]

Ouch. I don't know of anybody who had a timeshare and was happy with that purchase.

 

[Bandito440]

Originally Posted By: Pop_Rivit
Originally Posted By: Bandito440
One friend contributes to a retirement account of some sort where they charge 3% of every bi-weekly deposit. Madness. I tried to steer him towards a Vanguard account and index funds, but his financial guy (the one who profits from his deposits) told him that I'm wrong. That's where it ended.


Depends. If the financial advisor is able to steer your friend to investments, advice and strategies that net a significantly higher rate of return and lowered tax burden, the load may well be worth it. If your friend is only seeing average returns that he/she could do on his own then he/she is wasting investment money.

I'm sorry, I should have provided additional details. His money goes into a small-cap mutual fund that has performed worse than the market over all time periods, and their maintenance fees are an additional 1%.

 

[OneEyeJack]

Worry not. The government plans to convert 401K's into government bonds and will soon institute a government mandated retirement plan for everyone that will capture the 3 trillion dollars in those 401K's and the 17 trillion dollars in annuities and other retirement schemes. The bill is in work right now. Our president has been explaining it for at least 5 years. This bill like others including healthcare will come to the floor for a vote at midnight on a Sunday where it will receive the attention (obfuscation) it deserves.

Link

With a federal budget out of control and all that cash in retirement accounts it's just too much of a temptation. Balancing the current budget is political suicide and on top of that there's not enough financial brain power in politics to manage a lemonade stand without a grant, a tax exemption and a bailout including wage and price controls.

Already your bank account limits how much you can deposit or withdraw without federal scrutiny. And your federally insured deposits, investment and saving accounts can be converted into bank securities at any time without notice.

 

[Mr Nice]

Of course the government will put their hands in our cookie jar.

 

[surfstar]

Originally Posted By: OneEyeJack
Worry not. The government plans to convert 401K's into government bonds and will soon institute a government mandated retirement plan for everyone that will capture the 3 trillion dollars in those 401K's and the 17 trillion dollars in annuities and other retirement schemes. The bill is in work right now. Our president has been explaining it for at least 5 years. This bill like others including healthcare will come to the floor for a vote at midnight on a Sunday where it will receive the attention (obfuscation) it deserves.

Link

With a federal budget out of control and all that cash in retirement accounts it's just too much of a temptation. Balancing the current budget is political suicide and on top of that there's not enough financial brain power in politics to manage a lemonade stand without a grant, a tax exemption and a bailout including wage and price controls.

Already your bank account limits how much you can deposit or withdraw without federal scrutiny. And your federally insured deposits, investment and saving accounts can be converted into bank securities at any time without notice.



So...
I'm guessing you don't contribute to or have a 401k or IRA, then?
How's that gold buried in your backyard doing?

 

[CT8]

Time share ! might as well take the cash and burn it.

 

[surfstar]

Originally Posted By: Pop_Rivit
Originally Posted By: Bandito440
One friend contributes to a retirement account of some sort where they charge 3% of every bi-weekly deposit. Madness. I tried to steer him towards a Vanguard account and index funds, but his financial guy (the one who profits from his deposits) told him that I'm wrong. That's where it ended.


Depends. If the financial advisor is able to steer your friend to investments, advice and strategies that net a significantly higher rate of return and lowered tax burden, the load may well be worth it. If your friend is only seeing average returns that he/she could do on his own then he/she is wasting investment money.



No. Just no.

https://www.google.com/?gws_rd=ssl#q=vanguard+study+active+management

We first compare the records of actively managed funds with those of various unmanaged
benchmarks. We demonstrate that after costs: (1) the average actively managed fund has
underperformed various benchmarks; (2) reported performance statistics can deteriorate
markedly once “survivorship bias” is accounted for (that is, once the results of funds that
were removed from the public record are included); and (3) persistence of performance
among past winners is no more predictable than a flip of a coin.

No one consistently outperforms the market. Some fund manager had a great year, then everyone piles into his fund(s), then it doesn't happen again. You can't predict who will outperform and that's the issue.

 

[JustinH]

One of the good things I did when I was 18 was buy a duplex house in New York.

We lived in the lower apartment for free for seven years, then rented both units out for 4-5 more years.

I then sold the property for twice what I paid for it.

All the mean time, I was working and putting about 10 percent into my blend fund 401k.

Now I work for a city government and have 16 years left until a full pension.

 

[Hokiefyd]

Originally Posted By: Pop_Rivit
Depends. If the financial advisor is able to steer your friend to investments, advice and strategies that net a significantly higher rate of return and lowered tax burden, the load may well be worth it. If your friend is only seeing average returns that he/she could do on his own then he/she is wasting investment money.


If I could find a financial advisor whose portfolios consistently outperform the market, then I'd sign up, too. I don't think that exists, though. There's really no "formula" to outperform the market.

And that makes sense, really. If there was a way to consistently beat the market, that formula would find its way to common use...it would then become the new market norm...and nobody'd come out ahead anymore.

The market has a funny way of finding its own equilibrium.

OP: you're doing it right. Long term, index funds are a very good way to build wealth. Ironically, it's one of the EASIEST ways and one of the most PROVEN ways. History demonstrates that, long term, if you can just make the market, you'll be far ahead of those who actively manage their own stuff.

 

[Astro14]

Originally Posted By: surfstar
Originally Posted By: OneEyeJack
Worry not. The government plans to convert 401K's into government bonds and will soon institute a government mandated retirement plan for everyone that will capture the 3 trillion dollars in those 401K's and the 17 trillion dollars in annuities and other retirement schemes. The bill is in work right now. Our president has been explaining it for at least 5 years. This bill like others including healthcare will come to the floor for a vote at midnight on a Sunday where it will receive the attention (obfuscation) it deserves.

Link

With a federal budget out of control and all that cash in retirement accounts it's just too much of a temptation. Balancing the current budget is political suicide and on top of that there's not enough financial brain power in politics to manage a lemonade stand without a grant, a tax exemption and a bailout including wage and price controls.

Already your bank account limits how much you can deposit or withdraw without federal scrutiny. And your federally insured deposits, investment and saving accounts can be converted into bank securities at any time without notice.



So...
I'm guessing you don't contribute to or have a 401k or IRA, then?
How's that gold buried in your backyard doing?


The only folks who have reason to be worried are those who have been diligently saving for their adult lives and taken responsibility for their financial future.

Those who haven't been prudent, who haven't been diligent, can sleep easily, knowing that their needs will be met by the government taking money from other people.

That's how it works.

So, sleep easy Surfstar. You're going to be covered by your elected friends in Washington. They'll create divisive labels, and stir up public opinion with sound-bite-deep thoughtfulness, to get public opinion behind confiscation of private property.

In the name of the public good, of course.

 

[OneEyeJack]

Originally Posted By: surfstar

So...
I'm guessing you don't contribute to or have a 401k or IRA, then?
How's that gold buried in your backyard doing?



I did contribute. I followed all the rules and advice. It was all with Lehman Brothers, the 3rd largest bank in the world and it went up in smoke. But don't worry. The institutional investors like Goldman Sachs were protected as were the Lehman Brothers executives that faced no criminal charges and often transferred into government jobs including one Cabinet level position. The politicians told us they were too big to fail so ordinary citizens absorbed the loss. Imagine that.

Tell me, what are the fees applied to your 401K? Ask. See if you get an answer. Does the judgment in the United States Court of Appeals for the Eighth Circuit in St. Louis interest you? I had to do with fees and it took years to sort through all the fees that are charged in 401K plans.

 

[Lolvoguy]

$50G'S in credit card debt?!?!? that's absurd!

 

[PhillyJoe]

Some 401k plans allow you to borrow from yourself without penalty.
I borrowed $15,000 to pay off credit card debt, nominal interest which went to my account, payback over 4 or 5 years through a weekly payroll deduction.

 

[surfstar]

Originally Posted By: OneEyeJack
Originally Posted By: surfstar

So...
I'm guessing you don't contribute to or have a 401k or IRA, then?
How's that gold buried in your backyard doing?



I did contribute. I followed all the rules and advice. It was all with Lehman Brothers, the 3rd largest bank in the world and it went up in smoke. But don't worry. The institutional investors like Goldman Sachs were protected as were the Lehman Brothers executives that faced no criminal charges and often transferred into government jobs including one Cabinet level position. The politicians told us they were too big to fail so ordinary citizens absorbed the loss. Imagine that.

Tell me, what are the fees applied to your 401K? Ask. See if you get an answer. Does the judgment in the United States Court of Appeals for the Eighth Circuit in St. Louis interest you? I had to do with fees and it took years to sort through all the fees that are charged in 401K plans.


I'm sorry that you got sold such [censored] investments.

I know all of the fees associated with my 457 plan. And they're a bit high. 0.95 total ER is our cheapest index fund. MassMutual adds 45 basis points for "administering" our plan.
My Roth at Vanguard has funds with less than 10 bps.
The pre-tax investment advantage means that if my 457 fees are less than 2%, I'm better off investing there before a taxable brokerage account (I max both the 457 and Roth currently).

I also know that this is my money, invested where I direct it and will not be magically disappeared by the government.

Again, although I know it does not help, I am sorry that you were one of the people that those Wall Street [censored] (some call them bankers) took advantage of.

 

[jimbrewer]

Originally Posted By: Pop_Rivit
Originally Posted By: Bandito440
One friend contributes to a retirement account of some sort where they charge 3% of every bi-weekly deposit. Madness. I tried to steer him towards a Vanguard account and index funds, but his financial guy (the one who profits from his deposits) told him that I'm wrong. That's where it ended.


Depends. If the financial advisor is able to steer your friend to investments, advice and strategies that net a significantly higher rate of return and lowered tax burden, the load may well be worth it. If your friend is only seeing average returns that he/she could do on his own then he/she is wasting investment money.



Absolutely not. Fee-only financial planner, period. Not all of them are crooks. Most of them actually aren't. But there is a huge conflict of interest that can't be surmounted.

 

[javacontour]

You didn't answer my question in the other thread. Unless the money you lost was in LB stocks and bonds, how did you lose? Did they not have SIPC protection and simply raided your account to cover their shortfalls?

If they did so, SIPC protection should have kicked in. It doesn't cover stock losses, but does cover the investment bank raiding your account for their survival or other purposes.

Originally Posted By: OneEyeJack
Originally Posted By: surfstar

So...
I'm guessing you don't contribute to or have a 401k or IRA, then?
How's that gold buried in your backyard doing?



I did contribute. I followed all the rules and advice. It was all with Lehman Brothers, the 3rd largest bank in the world and it went up in smoke. But don't worry. The institutional investors like Goldman Sachs were protected as were the Lehman Brothers executives that faced no criminal charges and often transferred into government jobs including one Cabinet level position. The politicians told us they were too big to fail so ordinary citizens absorbed the loss. Imagine that.

Tell me, what are the fees applied to your 401K? Ask. See if you get an answer. Does the judgment in the United States Court of Appeals for the Eighth Circuit in St. Louis interest you? I had to do with fees and it took years to sort through all the fees that are charged in 401K plans.