12 Things Not to Do With Your Money Now
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Recession Moves Not to Make
Daniel R. Solin, personal finance expert and author of 'The Smartest Investment Book You'll Ever Read,' takes a look at 12 money moves that you may be tempted to make in tough economic times. But beware, these seemingly "smart" moves are actually ... not!
From snapping up falling stocks to trading in your gas guzzler for a new hybrid, click through our gallery to get the straight scoop on a dozen money moves you should avoid right now -- and why.
First Up: Dumb Money Move No. 1 -
Dumb Money Move No. 1:
Trusting Your Friendly Neighborhood Bank With Your Life's Savings
Dan Explains: These days, bank failures are almost daily news. We have seen three banks go under in the past few weeks. So is your money still safe? The answer is: maybe. You should check to determine if your bank is insured with the FDIC. You can do this by using the FDIC's Bank Find service or by calling the FDIC at 1-877-275-3342. In addition, it may be prudent not to stash your cash in just one bank, even if your deposits are fully insured by the FDIC.
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Next: Dumb Money Move No. 2 -
Dumb Money Move No. 2:
Selling Your Stocks and Staying on the Sidelines Until the Market Bottoms
Dan Explains: Investors who have a time horizon ranging from five to twelve years should determine their asset allocation and invest in a globally diversified portfolio of low cost index funds. These investors should not be spooked by short term market volatility. We have eighty years of stock market history that tells us that investors who stay the course will be rewarded for their discipline and patience.
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Next: Dumb Money Move No. 3 -
Dumb Money Move No. 3:
Moving Your 401(k) Investments Into More Conservative Options
Dan Explains: Participants in 401(k) plans dread opening their statements and seeing their declining account balances. Is this the right time to move your 401(k) funds into more conservative investments? The answer is a resounding "no"! By switching into a portfolio that is too conservative, you are compounding the problems inherent in a system that is already rigged against you. Most 401(k) plans charge excessive, fees and have poor investment options.
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Next: Dumb Money Move No. 4 -
Dumb Money Move No. 4:
Using Your 401(k) or 403(b) as a Source of Emergency Funds
Dan Explains: Even in good times, the number of employees who cash out of their retirement plans is alarming. More than 45% of departing employees cash out of their 401(k) plans. The consequences of doing so are draconian. Avoid cashing out of your 401(k) or 403(b) plan if you possibly can. It can be a very expensive way to get cash.
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Next: Dumb Money Move No. 5 -
Dumb Money Move No. 5:
Buying Some Stocks That Have Fallen Dramatically in Price
Dan Explains: When financial stocks were tanking, the pundits told us to dump them. Now they are telling us to buy them because this is a "buying opportunity." Don't take the bait. What drives stock prices is not yesterday's or even today's news. This is the secret the media does not want you to know. Stock prices are affected by tomorrow's news. Since that is unknowable, opinions about "buying opportunities" are no more reliable than a roll of the dice.
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Next: Dumb Money Move No. 6 -
Dumb Money Move No. 6:
Refinancing Your Mortgage With a Variable Interest Rate Loan
Dan Explains: Your fixed rate mortgage payment is a stretch and you have mounting credit card bills at a high rate of interest. A "debt counselor" suggests that you refinance your mortgage at a variable rate. Your initial payments will be less than your fixed mortgage and you will be able to pay off some of those credit card debts. Plus, your mortgage payments are deductible, but your credit card interest is not. Everyone's a winner. Right? Not exactly. Here's why ...
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Next: Dumb Money Move No. 7 -
Dumb Money Move No. 7:
Not Sending in Your Return Because You Can't Pay Your Taxes
Dan Explains: If you fail to file your tax return because you owe more than you can pay, you are digging a deep hole for yourself. It will not be easy to climb out of it. The IRS treats failure to file a tax return as a far more serious offense than filing a tax return and not paying the full amount of the taxes due. And the IRS may even prepare and file a tax return for you -- without including your exemptions and deductions. A far better option is ...
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Next: Dumb Money Move No. 8 -
General Motors
Dumb Money Move No. 8:
Selling Your Gas Guzzler and Buying a New Hybrid
Dan Explains: Even if hybrids do save you money on gas, it still may not make economic sense to buy one. You need to consider the higher cost of hybrids and the rate at which they depreciate. By some estimates, many hybrids will depreciate by 2%-3% more in value over five years than comparable non-hybrids. Given these factors, the more prudent course might be to consider replacing your gas guzzler with a non-hybrid that has greater fuel efficiency.
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Next: Dumb Money Move No. 9 -
Dumb Money Move No. 9:
Declaring Bankruptcy So You Can Start Fresh With a Clean Slate
Dan Explains: Should you consider filing for bankruptcy and starting fresh with a clean slate? This is the issue confronting many Americans. According to the Consumer Federation of America, the size of the problem is staggering. There are over one billion cards in circulation. Most people pay only a portion of their credit card debt monthly, leaving an average balance of more than $10,000. However, filing for bankruptcy is no panacea. Here's why ...
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Next: Dumb Money Move No. 10 -
Dumb Money Move No. 10:
Buying a Home in Foreclosure
Dan Explains: The basic problem with buying a home at auction is that you have no right to inspect the home and you have to pay the full purchase price by cash or bank check on the spot. Also, while not common, the homeowner may refuse to vacate the house. If so, you may be confronted with delay and significant legal fees to evict him. A safer option is to buy a home owned by the bank. It will permit you to inspect the home and to ensure that there are no problems with the title to the home.
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Next: Dumb Money Move No. 11 -
Dumb Money Move No. 11:
Taking Extra Risk With Your Invesments to Make Up for Recent Losses
Dan Explains: Almost everyone has taken a big hit in this bear market. Many investors are tempted to take more risk with their portfolios to make up for their losses. This is a bad idea. The fact that you may have lost money in the current markets does not mean that you are able to take more risk. In fact, it may mean the opposite: Your ability to withstand market losses has diminished. Remember ...
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Next: Dumb Money Move No. 12 -
Dumb Money Move No. 12:
Taking Out a Reverse Mortgage to Generate Extra Cash
Dan Explains: In these tough economic times the allure of the reverse mortgage salesman to senior citizens (over 62) is hard to resist. While these mortgages can be a valuable source of cash for seniors, there are a number of problems with them. To start with, the fees are very high. Typical fees for a reverse mortgage on a $250,000 home can exceed $25,000. In addition, interest charges are added every year the loan remains outstanding. Before committing to one ...
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Next: More on Daniel Solin -
Dan Solin
More on the Author
Daniel Solin is a leading securities arbitration lawyer and a Senior Vice President of Index Funds Advisors, Registered Investment Advisors. Solin has appeared on 'The O'Reilly Factor,' MSNBC's 'Weekend Economic Review,' CNN's 'Money,' and Bloomberg Television, and is a frequent speaker on investment-related topics. His latest book, 'The Smartest 401(k) Book You'll Ever Read,' was recently on the New York Times bestseller list.
· More on Dan Solin
· Buy 'The Smartest Investment Book'
· Buy 'The Smartest 401(k) Book'
More: Toughest Retirement Questions -
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Now that you've seen Dan's take on money moves NOT to make during tough economic times, check out his straightforward and easy-to-understand answers to 10 of the toughest -- and most common -- retirement questions.
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