Ask financial advisors to do the most bizarre things, without realizing that they are making huge mistakes with their money. Some of them are horrifying.
Jeffrey Silverman, the co-founder and managing director of Summit Group of Virginia said, "I muffled all my screams of terror," when a client described a horrible situation. This client discovered that his wife, the one who managed household finances, had a spending problem out of control.
The 55-year old client learned the truth as his children approached college. The 529 college saving plans were destroyed. The house he believed was paid for had a large second mortgage. He asked his adviser a simple, but important question: "Can you still retire at age 60?"
Money mistakes include spouses who spend secretly and secretly on their nest eggs. Some people bet everything on cryptocurrency. Some people invest their entire income in a high-risk business. Some people think of doing stupid, crazy and reckless things in order to become the next Warren Buffett.
Financial advisors are constantly reminded that not everyone in America is a logical thinker when it comes money. Here are some of financial advisors' most outrageous real-life requests and money mistakes. They also explain how they resolved them.
The Wife who Spent All Her Savings
What about the client whose wife wiped out all the family savings?
Silverman then analyzed the remaining items. Silverman analyzed what was left. The advisor mapped out how much money the couple would need to save to retire. It's not impossible to retire at 60, but it is unlikely. Silverman stated that "they are on track for retirement at 67." No, the spouse does not manage the finances any more.
Taxes Torture Tech Titan
One client made a large profit on a stock in the tech industry. He didn't wish to pay the large capital gains tax. He asked his advisor if the stock could be sold for less than its value to reduce taxes. The tax bill would be lower.
Tim Steffen is the director of advanced planning for investment firm Baird. He received this question.
Steffen rejected the idea. I should have said "Yes, you can name the price."
Steffen explained, however, that because tax rates are lower than 100%, you will still be able to sell your stock for more money if the price is higher. Steffen stated, "I assume (they) sold their stock at the highest possible price."
Going Crazy On Crypto
The son of a client, aged 29, advised him to invest in ethereum. He asked his advisor to transfer the money from their account. What could possibly go wrong?
Kimberlee Davies, managing director at The Bahnsen Group, and author of The Fiscal Feminist: a Financial Wake-up For Women, basically said "umm, yes."
She said, "Your son is trying to do the right thing but he's leading you in the wrong direction." As your fiduciary adviser, I must warn you against this investment. This is especially true given the fraudulent activity that has been going on in cryptocurrency with extreme volatility and fraud.
Davis said, "Thank God the client listened and did not do it." "The son was not too happy."
A Big Inheritance Can Put a Hole in Your Pocket
A client inherited a large sum of money and thought they could manage it on their own. They asked their adviser if it was okay.
"It's not very often that you get a large amount of money -- but there are many things you can do," Sophoan Prak, a Vanguard financial advisor told the client.
Prak's Advice: It can be tempting to spend all the money immediately. You should pay for the most important items first. You could, for example, put a certain amount in your retirement account. You could also pay off your entire credit card debt.
Prak added that you shouldn't assume the entire amount of money belongs to you, "considering tax payments which may occur as a result of this new transfer, among other things."
Athlete To Go All-In On Weed
A former professional athlete informed his advisor that he had done a great job of saving during his playing days. He decided to invest 90% with an ex-teammate in a marijuana business.
The advisor's only question was: "How much money can I make until this thing takes flight?" Silverman, the advisor, was able to shake off his initial dismay. What's his fix?
The budget was based on what the athlete's family could afford based on his pension and annuity provided by the league and the 10% he did not invest. Silverman stated that the family "sold its $3 million home" and reduced their lifestyle.
Silverman stated that the couple "lives close to their budget, but fingers are crossed for an increase in dispensary sales as the band-aids we've applied will only last a limited time."
Silverman stated that "in some ways, this situation seemed tragic but in other respects the couple working together in order to follow a direction they truly believe is refreshing." "Now we just need a financial happily-ever-after."