The economy is in a bad place and people are casting about, sometimes desperately, for ways to ease the crunch. I know this because of the contents of my e-mail inbox, which grows more outlandish all the time.
Some of the ideas I've seen this week include: How to invest in Chinese real estate; using options to increase returns in your retirement account; how to sell your lawsuit before you collect; and how to use a debit card to hit up your 401(k) account for cash.
Much of this reflects not the desperation of working people with spending and savings needs, but the desperation of folks who must sell them financial products.
Stocks are disappointing, conventional mortgages are tight, student loans are unprofitable. Why not get more arcane?
Here are some of the pitches currently being aimed at financial consumers, and why you should pass on most of them.
It can even make sense to borrow against your own 401(k) plan to cover those items: The interest you pay goes back into your own account and the home equity or degree you pick up will help support your retirement too.
But getting a plastic debit card that pulls money out of your 401(k) plan whenever you swipe it is a dangerous proposition. So much so that the Financial Industry Regulatory Authority (FINRA) recently warned consumers against it. Remember that with every swipe comes the potential to wipe out a portion of your hard-earned retirement savings, the self-regulatory group said. Using your retirement assets to pay for car repairs, vacations, the kids' soccer shoes and other consumables can cause a host of problems, including lost investment opportunities, added fees, a smaller-than-necessary nest egg when you need it most, and extra tax burdens, for example, if you do not pay it back on time. Skip the card, and if you need to make an emergency loan against your retirement plan, think it through very carefully.
As for the real estate, it's hard enough to pick a solid real estate investment in your own backyard (ask the folks in Florida and Arizona), let alone on the other side of the world. Individual investors should not really be overweighting any countries in their investment accounts other than the country in which they live, work and spend. Some Chinese stocks, in a mutual fund or in a broad portfolio that includes the rest of the world, are fine. Picking and choosing which countries to bet on, and which companies or properties in those countries to focus on? Not so much.
But here's the thing about options: You can lose all your money. When you buy a stock, you at least own the stock, and it's very rare for a company to become completely worthless. Options do become worthless, all the time. And investors who use puts and calls to accentuate the bets they are already making on individual stocks could cash in, or they could lose buckets.
Individual investors -- even really smart ones -- trying to manage their own IRAs are not the same as pension fund managers. A pension fund manager has the luxury of many workers investing together. The vast sums involved and the fact that not everyone is retiring at the same time can smooth bumps. An individual IRA or 401(k) plan has none of those buffers. A bad bet means your retirement will be skimpier. And everyone in your one-person pension plan WILL retire at the same time, not always on the schedule of their choosing.