Leave the clowns at the circus
Put it this way, have you ever been to a circus? You have! Well, remember those people who made you laugh? Finance advisers can also do this. But they can also make you cry. Here’s a funny story—true as well.
We had a clown, visited us as they do for many years, charging us fees, etc. Also, fees that were not revealed to us, which we discovered later. Well, after 13 years of having him sponge off us, we realized he had F.C.ED us, big style. He said the investments were not taxable as they were a specific type of investment.
Well, we realized these were taxable when we questioned him, asking, "Why did you set these investments if they are taxable?" He ran away and left us with a tax bill of 13 years, plus interest.
People will say, "Why did you not make your own enquiries into what is taxable and what is not?" Well, the answer to that is because we were paying a professional.
Well, it cost us dearly, so make sure it doesn’t happen to you. Leave the clowns in the circus!
Related Horror Stories
Margin Calls Destroyed My Early Success
I had set aside some money to invest into stocks. So opened an account with Internaxx bank and took out a cheap subscription under a special offer with the Porter Stansberry tipping sheet.
It was around 2010 and I did remarkably well, quickly building up a nice little portfolio and collecting dividends and watching as the values increased. What could go wrong? I had a phone call from some broker in the UK who specialised in pre IPO stocks and floatations so listened and the guy explained how using CFD’s you could leverage up your position and take control of a much bigger slice of the action and make a huge amount of money…….. I think some rich guy like Warren Buffet once said if you do not fully understand what you are investing in just give it a miss. So a new account was opened and I started off making my fortune.
Well no, I ended up with a black hole which had these things called margin calls which gobbled up cash like there was no tomorrow. I quickly realised that this was not working and bailed out pretty quickly but then got into leveraged trading on gold……… It was an interesting 6 months and taught me that I was not really understanding what was going on and I would never cut it as a trader so there was something positive at least.
The Financial Planner Who Missed the Tax Benefits of Donating Appreciated Stock
A financial services guy told a lunch group that it made no difference whether people donated appreciated stock directly to a charity or sold it and donated the proceeds to charity. He claimed that, either way, “you still got the charitable deduction. ”While this is true, he completely ignored the capital gains tax that would be triggered when the person (rather than the charity) sold the appreciated stock. He could not comprehend that a direct donation of the appreciated stock to charity could save the donor from having to pay tax on that capital gain.
He was totally obsessed with the relatively minor charitable deduction on their tax return. I thought this was horrible advice and a disservice to anyone who followed his financial advice.
My financial advisor isn't listening to me
I hired my FA for one thing—to manage my retirement investments. Outside of retirement I have a plan for how I manage my cash flow that fits with my personal lifestyle choices, but I feel my FA wants me to change to fit an investment plan he has picked for me.
We have been saving for retirement about 30 years. One day he called us into his office so he could model our retirement expenses. He asked a number of questions but ignored my answers. Then he came up with a model based on a lavish lifestyle that showed my 30 years of savings would be gone in just one year if I retired early.
I should have fired him on the spot. Apart from not listening to my answers, it’s demoralizing to feel like I have worked a lifetime to support myself for just one year. I felt angry and discouraged.
His plan must have been to convince me to maximize my retirement contributions. I was not ready to do that, and I had told him why. When I was younger I had done that, but got badly burned when my finances went sour and I had no emergency funds—everything I had was locked into an untouchable retirement.
Since then I shifted my finances into six parts:
- Money I need to live today, month-to-month
- A decent rainy-day savings for major purchases or emergencies
- Aggressively paying down all debt, including mortgage debt
- Helping my three children as young adults, buying their first car, providing their college education
- Saving a little in a (matching) 401k
- Enjoying life at middle-age, spending time with family and friends
The last point in particular I am not willing to compromise on. I don’t want a lavish lifestyle but I should be able to travel and enjoy activities. I have minimized personal expenses and nearly eliminated all debt. Today we could live comfortably on $3,000 a month. I am not willing to see my children take on further student loan debt, as I consider 5% interest rates criminal for an investment in our future.
We are not maximizing our tax-deferred contributions today. We did when much younger, but accumulated debt in doing so, and became “house poor”. I’ve learned from our mistakes.And there’s no shame in paying taxes. Part of the point of increasing retirement contributions is to lower my tax burden, I get it. But unless I am also debt free I am losing the game—I would lose far more to interest payments than I would ever pay in taxes.
I need to find a financial advisor who is on board with my plan and will work to maximize the return on my retirement investments and my savings funds. I lack the time to figure this all out for myself. But I don’t need an FA who is set on changing my ideals.
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