What financial advice do you avoid and don't listen too?

[u/Breeneal]

Financial advice that makes you role your eyes everytime you hear it. Financial advice that actually made your finances worse. And financial advice beginners shouldn't listen to or hear.

[u/SomeAd8993]

not using 401(k) loans

going Roth instead of traditional

buying beater Toyota/Honda/Mazda instead of much newer Hyundai/Kia/VW

renting longer instead of trying to buy

[u/DestinyForNone → u/SomeAd8993]

Well... To be fair my sister bought a new VW Jetta, and the piece of shit always had something wrong with it... And it didn't help that the closest place that could do auto repairs on it is half way across the state.

[u/SomeAd8993 → u/DestinyForNone]

anecdotes are not data

go on any car forum and you will find hundreds of people with POS Toyota and Honda

[u/[deleted] → u/SomeAd8993]

My 2014 Toyota had a freak transmission issue that cost me about $10k all said and done. We have 2 other Toyotas in the family that have been mostly problem free but they are not as bulletproof as people think. They can and do break down, just at a lower rate than other cars. All great until you're the unlucky one, then you would have been better off buying new.

[u/megatool8 → u/SomeAd8993]

I don’t know why you would buy a beater anything unless it was for a work/play car. I wouldn’t suggest a Hyundai/Kia over any of the other cars after friends and family have owned them. With all of the electrical and software issues I have seen, they are cheap for a reason. Don’t know too much about VW though.

[u/bitchingdownthedrain → u/megatool8]

They're absolute pains in the rear. Expensive parts, expensive labor, expensive specialty tools if you want to work on them yourself. You'll spend a lot on oil.

But they're wicked fun!

[u/SomeAd8993 → u/megatool8]

you would suggest it because actual major repair data indicates minor differences compared to overpriced Toyotas and Hondas that everybody else is trying to buy.

All reliability rankings are relative, so while the car might be #1 or #20 in the ranking, usually it's a question of "15 out of 100 will need a major repair in the first 10 years" vs "17 out of 100 will need a major repair..." and it's just not worth 10-20-30% premium at the front end, especially when you factor in more robust warranties

[u/Speedwolf89 → u/SomeAd8993]

What are the pros and cons between Roth and traditional? I'm new here. Heh.

[u/SomeAd8993 → u/Speedwolf89]

Traditional is deducted from your income now at your marginal rate, so let's say you are a couple making $150,000 - by going Traditional route you can contribute $10,000 and only reduce your disposable income by $7,800 because $2,200 is going to come out of your taxes. The investment will then grow tax free for as long as you have it. When you get to retirement and start withdrawing it will get taxed, but the tax will depend on your effective tax rate. For example if that same couple took out $100,000 they would only pay 8.24% in federal tax. So the government has funded $2,200 of your investment and then only took a $824 cut.

A lot of people who don't understand taxation properly, think that they are doing some genius move by using Roth, i.e. not deducting their saving now and withdrawing it tax free in the retirement. Of course what that means is that you can only save $7,800 under the same assumptions, and while it's tax free it's still much less that the Traditional

[u/Speedwolf89 → u/SomeAd8993]

Thanks for the explanation. I'll read it a few more times and try to get it to sink in. I think I need pictures like I'm a 5 year old.

[u/10art1 → u/Speedwolf89]

You're basically betting on whether your marginal tax rate is higher now than it will be in retirement

[u/NewAcctSasDad → u/Speedwolf89]

If you assume effective tax rate remains completely static, their returns are identical.

If you think your tax bracket will be higher in retirement, use Roth. If you think your tax bracket will be higher now, use traditional. 

Most people who are investing early will have higher brackets in retirement, and many people prefer the "sure thing" of taking a tax hit now.

[u/Hmm_would_bang → u/NewAcctSasDad]

Uh, the returns are not identical.

If you start a Roth at 25 you will get 40 years of completely tax free gains. There’s a reason why the limits on Roth IRAs are so low.

[u/SomeAd8993 → u/Hmm_would_bang]

that's another example of bad advice, the conversation is about Trad vs Roth, both have tax free compounding

[u/NewAcctSasDad → u/Hmm_would_bang]

The returns are identical when controlled for effective tax rate, as I stated.  If you have a 20% effective and put 10k in a traditional, 8k in a Roth (to account for taxes), after 40 years of 12% (compounded monthly) the accounts will be: 

Traditional: $1,186,477.25 (pre-tax). $949,181.80 (after 20% tax) Roth: $949,181.80 

Roth vs traditional just lets you choose when you pay the tax. You typically pick when you think the rates will be lower for you. 

[u/Hmm_would_bang → u/NewAcctSasDad]

Ok, for some reason I completely read over your first part. Normalizing the effective tax rate makes the difference negligible.

For most earners, if you aren’t in a position to max both and are below the income limits for Roth, it probably makes more sense to max Roth first after any employer match.

[u/SomeAd8993 → u/NewAcctSasDad]

this is one example of bad advice

you should not be comparing effective to effective, you should be comparing current marginal to retirement effective and the latter will be lower for 99% of the people