6 Myths About Personal Finance

Myths are inherently dangerous because they can lead people astray. In the world of personal finance, it’s always wise to find out the truth about subjects like retirement accounts, homeownership, how to sell an insurance policy, the stock market, and the wisdom of investing in gold. Here are details about the most common financial myths.

All IRAs are the Same

It’s safe to say that no two IRAs are alike, and that Roth and traditional versions are completely different from each other. While there are multiple variations, most IRAs fall into one of two major categories: one type uses pre-tax income, and the other uses after-tax contributions. The Roth version lets taxpayers contribute after-tax money now and receive totally tax-free distributions after retirement. Traditional IRAs are funded with pre-tax money and give users an immediate deduction from income. However, when they pull funds out after reaching retirement age, they must pay tax at whatever their current rate is.

It’s Hard to Sell an Unneeded Insurance Policy

Companies like Policy Bank purchase policies from people who no longer need or want coverage. Whether you wish to sell an unneeded insurance policy or want to generate cash from an unwanted one, there are many ways to get the job done. Every day, insured people convert coverage into real money. However, it’s imperative to review a helpful guide that shows how to sell a policy correctly. There are several options, so people over 65, particularly those whose coverage face value exceeds $100,000, need to follow the right steps to get the best deals. Contrary to the myth, it is not difficult to sell policies. Anyone can do it with the right guidance and information.

Those With Weak Credit Can’t Buy Homes

Just about anyone can purchase a house, but those who have less than good credit scores pay higher interest rates. Unless your scores are in the lowest numerical range possible, it’s likely you can still purchase a home if you’re willing to pay a high rate of interest and carry mortgage insurance. Those who have less than perfect, average, and somewhat below average scores can purchase homes. Many mortgage brokers and banks specialize in helping low-income consumers with poor credit purchase their first home. In many cases, the cost of the loan is much higher than it would be for someone with good or excellent credit. But the old myth about bad scores locking people out of the housing market is untrue.

It’s Best to Have No Credit Cards

Plastic serves a purpose if people know how to control spending. While the price of credit card debt tends to be quite high, cards serve a purpose for those who rely on them in emergencies, while traveling, and for making online purchases from vendors who accept no other form of payment. Having no cards and no debt might seem like a worthwhile goal. But the truth is somewhere in between. Living a zero-debt lifestyle can still include holding one or two major cards if you pay off all balances at the end of each month. Savvy consumers aim to have at most two or three cards and keep their interest-bearing balances as low as possible.

The Stock Market is Dangerously Risky

In general, investing in a broad-based portfolio of stocks is not excessively risky. While the equities markets do go through long and short periods of instability and price volatility, they tend to perform quite well over the decades. Even considering several large downturns in the 1980s and early 2000s, the major exchanges have delivered solid growth for investors across all sectors. Even during the recent COVID pandemic, when the entire world’s economic situation was looking grim, there were several niches of the stock market that performed admirably, especially healthcare and energy-based shares.

Gold is Always a Good Investment

Gold has its purpose but is not suitable for every portfolio. There’s a massive amount of misinformation in the media about gold and other precious metals. While the yellow metal, which is the most popular of the category, offers investors a good way to balance a typical portfolio, it’s easy to buy too much gold. Note that in times of stock market upheaval and declining share prices, gold can soar in value. However, when the markets are doing well, gold’s price per ounce tends to slide downward. The historical record offers solid lessons about ownership of the prized metal. It’s instructive to remember that over the long haul, gold does well. But in some short-term periods, its worth declines considerably.