Investment Strategies to Stay Away From

Investment Strategies to Stay Away From

I think it’s important to take some time not just to teach you valuable ways of thinking to improve your position in your portfolio, but to point out bad strategies, and bad retirement advisors at work in the financial services industry.  In this article, I want to address a particularly bad strategy that is being pushed in the market today.

The strategy some retirement advisors are pushing is to take money out from a mortgage, either by choosing not to pay it off early, or by actually taking out a loan against the value of your paid-off house, and investing that money in the market.  Here’s the thinking: don’t pay off your house, because people will use the fact that your house is paid off as a negotiating tool against you when you try to sell it.  Obviously, nobody would willingly sell their house for less than the amount of the loan they have taken out against it, right?

So you take money that should have been paying off your mortgage, say the retirement advisors, and put it in an investment that will grow tax deferred.  By the time you need that money, the house is paid off, and you’ll have an investment that contains an amount of money that’s about equal to the value of the house.  You take the money out tax free, says the strategy, and you’re home free.

So-called retirement advisors can even make big money selling books on this sort of bad approach.  This strategy, for example, was recommended in a book called Missed Fortune, by Douglas Andrew.  It’s a disastrous book – don’t bother reading it.  But even I have to admit I wondered while I read it if I had missed something in my Rules of Financial Gravity.  Here was a strategy that broke a bunch of my rules, and I actually wondered for a bit if I needed to amend my rules.

But here’s the fatal flaw with a strategy like this, and responsible retirement advisors should be able to tell you what it is.  This strategy only works if nothing in your life changes for the life of the mortgage.  It insists on total inflexibility in your financial picture.  Plus, I think it’s never a good idea to avoid paying off debt, and it’s an even worse one to take on debt in order to invest.  Don’t do it!

Beyond this, the product Andrew wants you to invest in is life insurance.  There are people out there who are running so-called mortgage companies, convincing people to take out a mortgage on their house (on which they make a commission), and putting the equity from that house in a life insurance policy (on which they make another commission).  Bad idea.

If you’ve run into retirement advisors who wants you to take on new debt so you can invest the money you borrow, don’t do it.  It’s a really, really bad strategy.  Keep looking for creative ways to invest your money, but don’t fall into the trap of doing something that looks flashy without really looking into the strategy and talking it over with someone you can trust.

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