Money Fix: Financial planning myths
When it comes to money, some axioms are myths. Something touted as wise isn't necessarily best for you. Look behind the curtain. Here are some examples:
Bond funds are not risky. As with a stock, you can lose some or all the money you invest. All investments have risk. The entity that issues it, the security market cycle and the state of the economy drive the risk-return balance, said Cathy Seeber, a financial adviser with Wescott Financial in Philadelphia.
Custodial bank accounts are for a child's future. If parents are custodians of the account, all its assets will be included in their estate for estate tax purposes.
At age 18 or 21, the child has a right to the assets, whether he or she is ready to manage them or not. A better strategy is to establish a basic living trust that benefits all your children, said Mary O'Reilly, a partner at Meltzer Lippe in Mineola.
Shorter mortgages are better. Not always. You may save interest, but at what cost? The time value of money needs to be taken into account in the mortgage decision, along with taxes, to determine which is best, said Michael Fliegelman, a financial consultant in Greenlawn.
No debt ensures a good credit score. Your FICO score is based on having debt and how you manage it, not by saving and paying cash for items, said Seeber.