Created: November 1, 2019
Modified: December 14, 2022

Financial Trick or Treat

What You’ll Learn:
In the spirit of Halloween, let’s do our own trick-or-treating around the financial industry. Come with us as we take a look at five different products that investors commonly use and decide whether they are tricks or treats. We’ll also dive into the Halloween (mail)bag to answer three great questions on emergency funds, life insurance, and inheritance.

As we all prepare for those neighborhood children to come by our house and ask for candy, let’s take a little time for ourselves and go trick-or-treating around the world of finance.

On this episode of Money Wisdom, Joel Johnson will be given five different products that you’ve likely considered at some point and tell us whether he’d label them tricks or treats for our retirement plan. Of course this varies from person to person, but let’s explain why they could be a benefit or a detriment to your overall strategy.

Home equity line of credit – Trick or Treat? When you use it correctly, Joel believes it can be a treat for most people. Many people take money out of a retirement account before considering this option but that’s not always the best route. And remember that you don’t have to draw against the line of credit once it’s established.

Variable annuity – Trick or Treat? For the most part, these will be tricks but there are four different types of annuities. The variable annuity is usually the one that brings hidden fees and lacks liquidity. Would Joel buy a variable annuity today? Hear why he would not.

No-load mutual fund – Trick or Treat? It depends on where you buy the mutual fund because our office offers institutionally priced funds. The question is whether you should buy these from a Fidelity or Schwab. The biggest challenge investors face is not fees but rather their behavior in times of stress. Most people can’t handle it when values are going down.

No closing cost mortgages – Trick or Treat? Be very careful with these because many times those costs get rolled into the mortgage and you end up paying a higher interest rate.

Life insurance with an accelerated death benefit – Trick or Treat? Joel feels this can be a big treat because many people are using these to pay for long-term care.

We also take a few mailbag questions on this episode. We start with a question about emergency funds versus maxing out 401(k) contributions. Joel gives his opinion on which is more important as you get close to retirement and advises listeners on how much should be in an emergency fund. He also identifies cars as a poor investment and explains that in more detail.

The second question asks whether a listener should cancel an expensive whole life policy in exchange for a cheaper term policy. Joel explains what you need to do before you cancel the policy because you are never sure if a new policy will be approved.

The final question comes from someone who just got a large inheritance from her grandmother and she wants to get advice on what to do with that money as to not waste it. Joel gives her a few different options to consider.

That’s all on this episode of the Money Wisdom podcast plus a little more so let’s get started. Here’s the list of main topics we cover (Just click on the timestamp to jump to the specific clip):

0:45 – To acknowledge Halloween, we’ll be talking financial tricks or treats.

1:05 – It’s the 88th anniversary of Al Capone’s sentencing for income tax invasion.

2:05 – In the news: 3 employees at an assisted living facility arrested for running a fight club with elderly residents with dementia.

3:35 – Let’s go trick or treating now.

3:50 – Trick or Treat? Home equity line of credit

5:35 – Trick or Treat? Variable annuity

7:30 – Trick or Treat? The no-load mutual fund

10:01 – Trick or Treat? The no closing cost mortgage

11:08 – Trick or Treat? Life insurance with an accelerated death benefit

12:57 – People need a second opinion when determining whether things are tricks or treats.  

14:50 – Mailbag question: I’m told I don’t have enough of an emergency fund in the bank. What’s more important, building that up or maxing out my 401k.

19:29 – Mailbag question: I’m thinking about canceling my expensive whole-life policy and getting a much cheaper term policy. Is there any reason I shouldn’t terminate the policy and use the cash on something else?

20:57 – Mailbag question: My grandmother died recently and left me a lot of money. It’s more than I’ve ever had before so I don’t want to be an idiot with it. What should I do to make sure I’m not mad at myself in 40 years when I want to retire?

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