Comments on: The Worst Financial Products and How to Avoid Them

By: Dave Charnot

Dave Charnot — Fri, 17 Jul 2009 18:42:38 +0000

I would agree, it would be wrong to label some products as generally “bad.” But some products are BAD 100% of the time to large groups of the population. And there are times when certain actions should be employed. Here is a small list of generalizations I make when serving my clients.

Whole Life insurance is bad for anyone that does not have over $1,000,000 of inheritable assets, or for someone that uses it for any reason other than estate planning. It is definitely not a competent option for Income Protection (for better than 80% of our population)… Because it does not allow for income replacement at affordable costs.

Interest-Only mortgages are really only for real estate investors that have large amounts of liquid cash reserves, not for the “homeowner” with less than 50% downpayment and “no cash”.

Credit cards are only for people who qualify for low rates and have their cash earning “higher-than-those” rates in other accounts that leverage the bank and/or make more money investing their cash somewhere else altogether(maybe business ownership & expansion).

The Roth IRA should immediately be employed once a person reaches their maximum matching allowance in their Qualified Plan at work.

Dollar-Cost-Averaging in mutual funds is the only way to invest in mutual funds, and proper diversification based on intended-withdrawal periods is the key, not their age.

Stocks & Bonds need to be actively traded based on intelligent information not emotions or rumors. They should not be bought and held without any monitoring…which means, until a person can afford a competent broker, they should not play that game.

Cycling dividends from money markets & municipals into growth funds is a great way to protect prinicipal & save on taxes while reinvesting those dividends at NAV into growth funds… with a buy low, sell high strategy.

Paying ourselves the monthly premiums on all insurances into a money market, earning the interest, and paying annual premiums (which are much lower than monthly totals) to the insurance company is a way to create a cash storage for higher deductibles to further lower the rates we pay by intelligently increasing our risk levels with the insurance companies and saving us $$$.

Unless someone needs the insurance beneftis, a Variable Annuity should not be used by anyone with a low-mid income, unless they win the lottery or recieve a large sum of money they want to save till 59 1/2 and get some long-term tax sheltering.

Those are just some common generalities that I think should be used in “most” peoples’ lives.

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By: find a financial advisor

find a financial advisor — Tue, 28 Apr 2009 12:34:23 +0000

Your post brings up a good point, how do you judge? The stock market has a negative return for the past 10 years, so should stocks be included as a “bad” financial product? Most whole life insurance has beaten stocks for the past 20 years now. The truth is that no one can predict the future, even over very long periods, which is why it is important to diversify among many different buckets – not just stocks and bonds – and dollar cost average. My firm matches investors to financial advisors, and we’ve seen clients gravitate toward lower-risk solutions like bonds and whole life insurance from highly-rated companies.

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Thu, 23 Apr 2009 02:47:27 +0000

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By: Mrs. PT

Mrs. PT — Mon, 20 Apr 2009 03:21:39 +0000

Happy two years, Babe! I am so proud of what you have accomplished and what you stand for. Keep up the bloggy-blog work!

By: MoneyEnergy

MoneyEnergy — Fri, 17 Apr 2009 18:25:04 +0000

I haven’t used those ones, thankfully. But I would add a couple of DANGEROUS products (dangerous in the hands of non-experts):

-options of all kinds (sorry Derek Foster)
-futures
-trading on margin (borrowing to trade)

By: Jon

Jon — Fri, 17 Apr 2009 18:12:15 +0000

Congratulations on 2 years! This will almost be my 1 year anniversary of reading what you have to say about money matters.

I do agree generalizing a particular financial product as “bad” can be close-minded. My opinion is that these generalizations are generally passed on to help simplify the vastness of the financial products available. If one can quickly form an overall opinion as good or bad then they can categorize and move on to something else.

I did this (looked at negatively) with the stock market before learning what a mutual fund was and seeing funds as crucial for retirement via a Roth IRA. Good point here PT!