Bad Financial Advice You Should Ignore at the Start of the New Year - Business Insider
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- I like to set clear financial goals every new year, which involves both creating plans and avoiding pitfalls.
- So, I asked a few financial advisors if they have any money advice they tell clients to avoid.
- Setting unrealistic goals, not diversifying your stocks, and holding onto credit card debt were mentioned.
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I like to enter every January with clear goals and an actionable strategy, so one of the things I want to do before the year ends is map out a future plan for my finances.
While there's a lot of financial advice out there, I wondered if there was anything that I should remember to avoid at the start of 2022. So, I asked four financial advisors to share bad advice they often tell their clients to ignore.
1. Thinking of your home as an investment
When you approach the new year, you might start strategizing how to invest your money and take inventory of your current investments. Financial planner Justin Nabity said that some advisors still tell clients to approach their home as an investment, which he thinks is bad advice.
"While there are some fortunate homeowners who have used the equity in their home to help support their retirement, this is not the case for everyone," said Nabity.
"The biggest issue I find with advisors telling clients that their home is an investment is that it causes them to become confused about what a true investment is," he explained. "Assets make you money, thus your house isn't an asset unless you bought it with the intention of selling it for a profit in the next several years."
Instead, Nabity suggested that people should just think about how their house fits into their broader investing strategy.
2. Setting unrealistic financial goals
As we begin to brainstorm resolutions for the new year, financial advisor Scott Satov said that it's best to avoid broad financial goals that cannot be realistically accomplished.
"It's also important to be specific with your goals so that you have actual figures to measure your work against," Satov said.
He gave the example of "saving more" as a popular, broad goal and suggested setting these kinds of goals with actionable steps.
"Open a high-interest savings account and set up automatic withdrawals from your regular account each month," Satov said. "Once you set it, it will do the work and you'll begin to see the savings account grow."
3. Investing only in the stocks of big companies
If you're thinking about making new investments next year, financial advisor Scott Hasting said that he thinks investing only in big companies is a bad idea, and that investors should aim for portfolio diversity instead.
"Though it is good advice to invest in stocks, it is never advantageous to just choose one or two big companies and invest all of your savings there," says Hasting.
"All stocks are affected by the world stock market so it really doesn't matter whether the company is big or small. If it crashes, you will take a hit," explained Hasting.
4. Keeping credit card balances in order to build your credit score
Whether you're entering 2022 with credit card debt or not, financial advisor Andrew Lokenauth said that it's a bad idea to keep credit card balances with the idea you'll build a better credit score.
"Not paying a credit balance in full each month leaves that balance to accrue additional interest each month, and these charges continue to grow larger and larger due to compound interest ," said Lokenauth.
"Two of the biggest factors that influence a credit score are payment history and credit utilization rate, and paying down your card balance in full every month affects both of these factors in a positive way," he added.
Jen Glantz is the founder of the viral business Bridesmaid for Hire, the creator of the project Finally the Bride, the voice of the podcast "You're Not Getting Any Younger," and the author of the Amazon-bestselling books "All My Friends are Engaged" and "Always a Bridesmaid for Hire," published by Simon and Schuster.
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