The Wall Street Journal had a very interesting and appropriate article this week about five really dumb financial moves people are currently making. You might need a subscription to read the whole article, but here’s the five specific moves and some of my thoughts on each.
1. Reaching for Yield – In today’s low interest rate environment, trying to get a higher yield through riskier bonds can carry significant risks. It’s also important to remember that low rates are creating a spike in the scam and ponzi market, so be wary of anyone promising you returns that seem too-good-to-be true.
2. Borrowing significant money for college debt – There are many ways kids can finance college, including working, going to a less expensive university, starting at a community college, etc. Don’t put your own financial future at risk to fund an lavish private university for your child.
3. Owning stock in your employer – I agree that you want to limit your exposure to the stock of the company you work for. You are already highly exposed to that company’s performance by virtue of receiving a paycheck from them. That said, if your company offers an attractive stock purchase plan, or you just really believe in the company, I think it’s prudent to limit your holdings to 10% of your total investment portfolio.
4. Taking Social Security too Early – Especially in today’s low interest rate world, delaying SS can be a great investment if you can afford it. SS payments increase 0.67% per month (8%/year) for every month you delay starting payments. 8% a year looks like a pretty attractive return in this market.
5. Buying Long-Term Bonds – with rates at historically low levels, locking in these yields for 10-30 years seems like a bad idea.
Here’s the link to the full article.
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