THIS Bad Financial Advice Is Silently Costing You Millions

After more than 30 years working with high income professionals and retirees, I'm tired of seeing good people get raked over the coals with bad advice. Some of the most common financial advice you've been given is quietly destroying your wealth. Just because it sounds smart or looks responsible on paper, doesn't mean it's right for you.

Today, I'm exposing the worst pieces of advice that I hear all the time. You'll learn how to spot the guidance that's costing you control, flexibility, and years you can't get back.

So, point number one, always pay off your mortgage early. Imagine yourself, you got this great interest rate of say 3%. And if you just think back a few years when we were going through the pandemic, everybody was getting money at almost free rates. We were down to 2.5% in some cases. And a lot of you are probably still holding a mortgage at 3%.

I have a question for you. Why would you pay that off if you have someone yelling at you through the screen, a big time influencer named Dave Ramsey who says you can easily get 12% on the four mutual funds that he selects, that he picks every year, that are great. I'm not going to necessarily agree that it's easy to get 12%, but you get my point. Why would you give up 12% to pay off something that only cost you, say, 2.5 or 3%? I don't know that you can give me a really good answer.

There's other reasons why you shouldn't pay off that mortgage early. Now, one of those is, what if you've done pretty well, you've accumulated quite a bit of money in your brokerage account, and you've got great stocks, and they're all showing great gains. And if you've been in the market since the pandemic, they are showing great gains because no matter what you picked, chances are you've got great returns.

Now, take that for a minute. You've got to sell those securities to pay off the debt. That's going to create capital gain tax. You've just created one more cost that was earning you this supposed 12%, and you're going to take that money, pay tax, and then pay off a mortgage that was only costing you 2.5 or 3%. I don't think that's a really smart move.

And I think before you jump into that and listen to these influencers telling you to pay off your mortgage, you need to understand why you're doing it. Think about what that's going to really do for you. That home isn't going to produce any income. You can't use it in your cash flow, and so you've just restricted your cash flow by paying something off that wasn't costing you very much in the way of interest over the long run.

Now, let me say this. There is a time when it does make sense to try to pay off that home early, and that's when your mortgage rate starts to grow and it gets outsized. So, if you're in a mortgage rate today that's, say, 7%, 8%, or more, and they did get to that rate, they reached that peak just a few years ago. If you're in that situation, then we need to have a different conversation. I might tell you to start paying off that mortgage.

For those of you that are business owners, be careful here because if you start using all of your cash flow because business is going really well, the minute that you swipe all that money from your business to pay off the mortgage, and especially a low interest rate mortgage, you're giving up great assets at your disposal to pay off that mortgage. That might not be a good idea because during the early stages of your business, you might need those dollars to supplement your cash flow.

All right, second piece of bad advice. It's always maxing out your 401k plan. I've been working with people in the wealth management space for 33 years, and so I generally agree with this, but it should not be a foregone conclusion that you just automatically do it no matter what. There are reasons why you might not want to max your 401k.

What if your employer doesn't give you a match? Does it still make sense to put a lot of money in your 401k plan? If your employer gives you a match, and a lot of them give a dollar for dollar match, that's a 100% return. No-brainer. Max that sucker until you get everything that employer gives. But if they don't give you a match, you might rethink whether or not it makes sense for you to max the plan.

The other thing that you need to keep in mind is your earnings. And something that everyone talks about today is Roth IRAs or Roth 401ks. To get money in those accounts, it's better if you are in a lower tax rate. That makes them a lot more attractive. If all you're doing is maxing out the pre-tax side of your 401k plan, you could be missing an opportunity, and here's why.

If you're already in a low tax bracket, probably doesn't make sense to max your 401k plan on the traditional side. You're already paying a low amount of tax, and down the road, all the distribution from that traditional 401k is going to be fully income taxable. So, if you could get that money into a tax-free environment, that makes all the sense in the world, and it's best to do that when you're in that lower tax rate, which tends to happen when you're in your younger earning years.

Here's one more thing that you need to consider. 401k plans tend to represent the largest asset that most Americans will ever own. It can turn into millions of dollars. And when you pass, and you leave that to the next generation, to your children, or whoever, they're going to pay full ordinary income tax. This isn't capital gain. Keep that in mind. This is ordinary income tax, the worst kind. And your children inherit that in their greatest earning years, they could be paying up to 50% in income tax.

And speaking of IRAs, the third piece of really bad advice, Roth IRAs are always better than traditional. You have to understand your tax rate today because every dollar that you put in a Roth is coming with after-tax dollars. There's no other way to get the money in. And so, if you're in some of your best earning years, if you're making lots of money, and you're not mitigating that tax risk with good tax planning, you're going to be spending a lot of money on top of the contribution to the Roth.

You look down the road a little bit, and you begin to forecast what your distribution rate might be. In other words, what is your future tax rate? If it's lower than your tax rate today, meaning it's lower than what it's costing you to get money into that Roth, stay away from the Roth. If someone's not helping you with that, and you need help, reach out to us. We have tax analysis technology that can help you make those decisions, and we can give you answers that'll put you on the right track, and you don't have to guess.

All right, so that brings us to our fourth piece of bad advice. And that is that you have to live and die by all these indicators. What does that really mean? There's so many indicators out there. We're going to focus in on one called the Buffett indicator.

We'll get right back to today's show, but first, I'd like to ask you a quick favor. If you're enjoying this episode, hit that like button, and make sure that you're subscribed to our channel so you don't miss what's coming next. And hey, if something in today's episode has you wondering about your own financial plan, why not get a second opinion? Visit omnistarfinancial.com to schedule a consultation with one of our team members. It's quick, it's easy, and it could make a huge difference in your financial future. Now, let's get back to the show.

It's a very simple indicator that Warren Buffett started using many, many years ago. And basically, you take the market capitalization in its totality, and you divide that by GDP, and that gives you a nice little graph that tells you if the market is overvalued, or if it's trading in a good range, maybe it's undervalued. And in theory, this sounds easy. You know when to buy and sell. The fact that Warren Buffett doesn't use it anymore, that should tell you something.

But here's what happened in a recent situation with one of our clients who's been with us for years. They raised the question about the Buffett indicator, and we began to talk about it. Some of this question I could just tell was coming from an existing advisor or a financial advisor. It felt that way, and when I asked, sure enough, someone that they work with had given them this advice. And they said, this Buffett indicator is telling us that the market is way overextended. We're in the midst of a correction. Any day, this thing is bad.

And so, when I listened to this, all I could think about was, what is that advisor doing? Are they fully invested? Are they in out of the market? Are they in the market? I asked the client, are they telling you about this Buffett advisor to create fear, or they actually using it? Are they disciplined enough to do something with it?

The fact of the matter is, they were fully invested. They weren't telling him to get out of the market at all. What they were telling them is that we should be following that Buffett indicator, and we should be making adjustments because if we didn't, we're going to be taking too much risk. That, my friends, is fear-mongering. That's telling you to follow something, yet they don't have the discipline to actually take action with it.

Here's what I'm going to tell you. There's no indicator out there that tells you when to sell, when to buy. There's plenty of indicators that tells you when the market is overpriced or underpriced, but you can't use them myopically or one at a time. They have to be used in the context of lots of indicators, and sometimes other things outside of these technical type indicators.

And the fact of the matter is, you probably don't want to be selling just because the Buffett indicator says that we're overbought right now. It can live in that condition for years. In fact, it's been overbought for years. Had you sold when the Buffett indicator went to overbought, you would have lost lots and lots of opportunity. You would be out of the market when the market has been performing at its all-time best for the last 3 years.

And so, here we are at the fifth piece of bad advice. That's buying term and investing the difference. I'm not a huge fan of whole life insurance because it's so expensive, but it does have a place. Here's what you need to know. Buying term and investing the difference, it sounds great.

When you have a temporary problem, you need a temporary solution. When you have a permanent problem, you might need a permanent solution. Temporary, term insurance. Permanent, whole life or some type of whole life or universal life insurance can get the job done. Depending on your situation, you have to be able to choose one or the other. Sometimes it's a hybrid.

Let's say that you're in your 20s or 30s, you've bought a house, you got married, you've got some kids. Life's going along well. You need some insurance because if something happens to you and you prematurely pass, your family needs something to sustain them. And what they were depending on was your income. So, when that happens, the term insurance would be the perfect fit because we know at some point your home's paid for. We know at some point you've saved enough to become self-sustaining. You're wealthy at that point. And so, you don't need the life insurance beyond that.

Now, let's flip that to a permanent situation. Let's say that you've reached your 50s and you're wealthy. Maybe you're 60. And you've ended up with 15 or 20 or 30 million dollars. Maybe you're above the limit for estate tax. Now, all of a sudden, we're into a permanent situation. Let's say that you buy a 20-year term and you say, "I'll just take the chance. Term's cheaper." But you live 21 years. You've got a real problem.

Buying term and investing the difference, I think it's a great general recommendation. If you understand it and if you're disciplined to do both parts, buy the term, cheap, invest the difference, helps you build wealth. And then, don't be like Dave Ramsey who rails against permanent insurance and says there's no place for it. I disagree with him. I don't love permanent insurance. I don't love whole life insurance, but it does have a place. It has a built-in discipline that allows you to buy insurance and it forces you to save.

Not at the same great rate that you can get investing the difference. Remember, Dave Ramsey said you can get 12% on those four mutual funds. So, why would you do anything except buy term and invest the difference? You can get greater appreciation. This is really more of you understanding what you need and what is the right program or product or strategy to help you get the job done. Buy term and invest the difference? Not always bad advice, but you have to know the difference and you have to know what fits your situation.

If you enjoyed this video, click or tap and watch this video that we did where we debunked some of the biggest financial lies told by Dave Ramsey and Suze Orman.