Bad financial advice to ignore at the start of the new year

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I like to start each January with clear goals and a workable strategy, so one of the things I want to do before the year is out is map out a future plan for my finances.

While there is plenty of financial advice out there, I was wondering if there was anything I should remember to avoid in early 2022. So, I asked four financial advisors to share bad advice they often tell their clients to ignore.

1. Think of your house as an investment

As you approach the new year, you can start strategizing how to invest your money and take inventory of your current investments. Financial planner Justin Nabity said some advisers still tell clients to approach their home as an investment, which he believes is bad advice.

“While there are some lucky homeowners who have used their home equity to help support their retirement, this is not the case for everyone,” Nabity said.

“The biggest problem I find with advisors telling clients that their home is an investment is that it confuses them about what a real investment is,” he explained. “Assets make you money, so your house isn’t an asset unless you bought it with the intention of selling it for a profit in years to come.”

Instead, Nabity suggested that people should only think about how their home fits into their broader investment strategy.

2. Setting unrealistic financial goals

As we begin to think about resolutions for the new year, financial advisor Scott Satov said it’s best to avoid broad financial goals that can’t be realistically achieved.

“It’s also important to be specific with your goals so you have real numbers to measure your work,” Satov said.

He gave the example of “saving more” as a broad and popular goal and suggested setting such goals with practical steps.

“Open a high-interest savings account and set up automatic withdrawals from your regular account every month,” Satov said. “Once you set it up, it will do the job and you will start to see your savings account grow.”

3. Invest only in shares of large companies

If you’re thinking about making new investments next year, financial adviser Scott Hasting said he thinks investing only in big companies is a bad idea, and investors should aim for portfolio diversity instead.

“While it’s good advice to invest in stocks, it’s never advantageous to pick one or two big companies and invest all your savings there,” Hasting says.

“All stocks are affected by the global stock market, so it doesn’t really matter if the company is big or small. If it crashes, it’s going to take a hit,” Hasting explained.

4. Maintain credit card balances to build your credit score

Whether you enter 2022 with credit card debt or not, financial adviser Andrew Lokenauth said it’s a bad idea to carry credit card balances with the idea that it will build a better credit score.

“Not paying a credit balance in full each month causes that balance to accrue additional interest each month, and these charges continue to grow higher and higher due to

compound interest

Lokenauth said.

“Two of the biggest factors that influence a

credit score

are payment history and credit utilization rate, and paying off your card balance in full each month positively affects both,” he added.

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