In a recent CNN Money piece, they give advice on how to SPEND $50,000. It is all horribly bad advice. People actually listen to this nonsense? The biggest problem with this advice, is that much of it is about CONSUMING and SPENDING. The part about investing or saving is pretty lackluster and lame.
Their tag line is "Given the uncertain economic picture, you probably have a chunk of change squirreled away. Here's how to best use that cash."
Um, right. Given the uncertain economic picture, maybe you should HANG ON to that cash, perhaps?
Here is there list of 9 things to do with 50 grand:
1. Buy a Condo in Miami: Great advice if you live in Miami and are looking for a home. And no, 50 grand won't buy you a condo on South Beach with an ocean view as shown in the photo. Condo fees can easily exceed mortgage costs. And the total can easily exceed the cost of renting said same Condo. Just because something sounds cheap doesn't its free - or a good bargain.
2. Add a bedroom in your attic: This is idiotic, as the piece even notes that if you do this, you will recover only 70-80 cents on the dollar. So you "invest" $50,000 in a spare bedroom and get back $40,000. Sounds like a good way to squander $10,000. Need additional space for a new baby? Then maybe think about remodeling - or better yet, take that $10,000 lost in remodeling and move to a larger home that will be worth more. But just adding a bedroom to your house when there is no real need for one, is just squandering money.
3. Buy a Used BMW 7-Series: for "Only" 50 grand, you can buy a 7-series nearly out of warranty. Or you could buy two brand new Camrys. Your choice. The problem with BMWs is that once they get out of warranty, they get expensive to fix - fast. And ask me how I know this, owning four BMWs. And BMWs have some of the shortest warranties in the business - only 4 years. So-called "Luxury" cars are not a good value - you are better off buying a roomy Toyota Avalon - 2008 or 2009 model, for about 25 grand. It will last longer and be more reliable and have just as much room - if not more. No, you won't impress the people at the country club, but you will have 25 grand more in the bank!
4. & 5. Stock Picking: We all know how that works out. If a stock is touted on a financial channel or network, chances are, it is too late to buy it. At least they are talking investment here. But by the time you get your order in this morning, millions of others have made the same order - based on this article, and you will be buying the stock at a much higher price. Picking stocks based on the television usually means you will pay higher prices.
6. Buy a Mutual Fund: Not bad advice, either, but once you tout a particular fund on a national network, expect the fund price to surge as more people jump in. At least this option is pushing savings, though.
7. Cash-In Refi: Paying down debt is a good idea. The way CNN suggests it is not so good. They suggest your refinance your home and pay in cash, to reduce the monthly payment. The only problem with this scenario is that you are spending at least $2000 to $5000 in refinancing expenses, effectively dropping your "investment" by 10% or so. Paying down your mortgage by $50,000 is probably a better approach, as it all goes toward principal and also reduces interest payments. If you are "stressed" by your mortgage payment, you don't have 50 grand laying around anyway, do you? And if you are "stressed" by your mortgage payment, maybe it is time to think about selling the monster house and downsizing?
8. Buy an Annuity: They suggest contributing $50,000 a year "for several years" to buy an Annuity. If you can cough up 50 grand a year of disposable income for several years, then chances are, you don't need CNN Money's advice - or anyone's, for that matter. Annuities are not horrible investments, but like life insurance, an adjunct to a portfolio and a way of ameliorating risk. I would not invest a significant chunk of money in one.
9. Buy Municipal Bonds: As they note, these are defaulting like mad, so they say to buy "quality" municipal bonds. Oh really? Which ones? Um, thought so. The 3.9 % rate of return might sound nice, but paying down your mortgage debt would yield a larger effective rate of return, and be a lot less risky, as I noted in an earlier post.
CNN likes to do these "LIST" articles nearly every day. Oftentimes they are ludicrous. This one veers all over the place, from spending on luxury items to investing in various stocks, bonds, and annuities.
It really is not helpful. What to do with $50,000? I suppose you could spend it or save it, .. gee, talk about stating the obvious!
The only thing they didn't mention was paying down debt. The money-in refi comes close, but note how they couched it toward reducing monthly payments, not toward increasing overall wealth. Getting out of the "monthly payment" mentality is the key to real wealth. Doing a re-fi isn't creating wealth, just extending the term of your mortgage at the expense of a number of fees.
CNN Money perhaps was designed to be a humor magazine? I am not sure.....