Let's Just Call Him Dick

I was listening to a financial advisor on the radio over the weekend.  I hesitate to use his real name, so let's just call him Dick Forthefun.  Dick was noting how interest rates continue to be at lows of a lifetime and everyone should take advantage of it and buy a house or a bigger house or refinance if they can.  Dick even gave an example of a couple with an existing 30 year mortgage with only 10 years left to pay and said they should refinance into a new 30 year mortgage at 4% and lower their monthly payments.  This was thrown out there without any facts of said hypothetical couple other than what I just gave.  Nothing on their age, current rate, retirement plans, monetary situation or anything else.  Just hey, rates are low and you are an idiot not to take advantage.

Well I agree that it makes sense to take advantage of the low rates in certain circumstances, but in my book you have to look at each individual's circumstances.  If you are retiring in 10 years or have a kid going to school then, perhaps having NO mortgage in 10 years instead of lower payments for 30 years makes sense.  Or maybe, if you can refinance with no or minimal closing costs or points, you can do a 10 year mortgage at 3.75%.  Monthly payments should still go down, just not as much, and you are still done in 10 years.

I've refinanced three times in the past seven years.  The first two times I refinanced into new 30 year mortgages and while my payments did go down as I went from the original 7% to 5.5% to 4.5% and did no cost refinancing, I nonetheless realized at the end of the day that here I was 10 years into my home ownership and still had 28 years of mortgage payments and largely the same loan balance as when I started (since very little goes to equity in the first years of a 30 year mortgage). Those financially intelligent moves just seemed to make less sense in this context.  So the last time I refinance three years ago I did a 15 year mortgage, which I was able to get for a fixed 3%.  Yes, my payments went up some but my house will be paid for now in 12 years when I am ready to retire.  I can stay in it then with no mortgage at all or sell it and have full use of the proceeds.  No risk of housing slumping and going under water.  My preference is very much to go into retirement debt free.  Certainly takes some strain off the golden years.

So Dick, stop throwing around out of context stupid advice.  And maybe your announced belief that interest rates are going up, which formed the context of the entire show you did that day, is full of it as well.  There was no rate increase in September and presently the vast majority of economists say none this year.  For once, I agree with the majority of economists on their forecast.  Indeed, I think we will see NIRP before any increase and our dear friend Janet has hinted it is not out of the question.

And Dick, I also heard you the other day touting how wonderful you are in having discovered ETFs long before most financial planners and how you have been steering your clients to these instead of mutual funds for years.  So far, so good as there are some benefits to these while the market is rising.  Let's just see how that works out now that the market is heading south and the whole liquidity thingy is raising its ugly head.  You failed to mention there may be situation where ETFs cannot fund redemptions.  Ooops, I guess you didn't consider that one.

http://www.zerohedge.com/news/2015-09-09/mom-and-pop-will-probably-get-trampled-alliance-bernstein-warns-bond-etf-Armageddon

It would seem that none other than Carl Ichan agrees that ETFs are a dangerous place for the average investor:

http://www.zerohedge.com/news/2015-07-16/icahn-vs-fink-wall-street-legends-clash-over-dangerous-etfs

I don't hear you telling your listeners or clients about the ETF flash crashes this month or how many of them have been hastily trying to line up lines of credit to deal with liquidity issues, which must be reassuring..

So Dick, thanks but no thanks for the advice.