This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Financial Advice That Can Do Serious Damage

Stocks in this article: WFCPFG

BOSTON ( TheStreet) -- Even the most well-intentioned personal finance advice and most standard, accepted bit of conventional wisdom on money matters can be bad in the wrong situation.

Of course everyone's situation is unique and what works for some is unwise for others, and vice versa. But there's advice so common it's hard to keep that common-sense truth in mind.

Following the conventional wisdom on investing isn't always certain to fill your piggy bank.

Here are four usually savvy strategies that in the wrong situation can backfire and cause more damage in the long run:

Put as much as you can into your 401(k) or IRA.
The mantra of many retirement experts falls into two camps: "save" and "save more." Deferrals of 10% and 15% of pay are often touted as ideal.

While planning for the future, it's naive to not at least consider your current reality. If all you can legitimately kick in is 2%, so be it. At least you are doing something and setting the stage for when times are better.

Another scenario where pumped-up contributions may not make sense for everyone is when it comes to creating an emergency fund. Experts advise that having an emergency fund of at least three to 12 months of salary is important, to help in the case of disasters such as unemployment, an unexpected illness or the always poorly timed car breakdown.

On paper, your money will do better in a 401(k), especially if it can leverage an employer match, or an IRA because there will be -- in all likelihood -- a far better return on your money than the typical savings account. But if you have little or no emergency savings, that money can be costly to extract when needed -- a 10% penalty on top of additional state and federal income taxes. You also lose the future value of compounded returns.

Boost your deferral rate as high as you can.
Even if you have an above-average salary, is a bigger deferral rate necessarily better?

Choosing how much to contribute isn't always so simple.

"If you contribute too little to your 401(k), you may not get the full employer match," says Robert J. DiQuollo, president of Brinton Eaton, a New Jersey financial planning firm. "On the other hand, if you contribute too much, too fast, you can shortchange yourself."

DiQuollo uses the example of an executive making $20,000 a month who contributes 20% to a 401(k), with a 5% company match. He or she will reach the IRS' annual contribution limit of $16,500 in May and can't contribute for the rest of the year.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs