“Rising fuel and food prices, declines in the housing market, volatility in the
financial markets, an ever-tightening credit crunch... they’re all creating
unexpected financial challenges for many Americans, But tough
financial times don’t necessarily justify resorting to risky ways to make ends
Mary Schapiro CEO Financial Industry Regulatory Authority ("FINRA")
Weathering Tough Financial Times-The Long Term Costs of Quick Cash was published by FINRA on June 26, 2008 as part of its series of investor alerts. Take some time to read it so that you understand the nature of the concern and that concerns have escalated to the regulatory level.
FINRA is the largest non-governmental regulator for all securities firms doing business in the United States.
Some key points and comments
- Among the trends which FINRA identifies as troubling include investors "leveraging or prematurely depleting their retirement savings (through loans and 401K debit cards), trading in their insurance policies in transactions known as "life settlements," and tapping their home equity through reverse mortgages". FINRA states that "the hitch is that these early retirement strategies sometimes assume unrealistically high rates of return on the recommended investments and require imprudent rates of withdrawal each year".
- One could easily add the transfer or sale of structured settlement payment rights to the list, particularly if the impetus for the sale is sleazy advertising practice, or the transfer or sale of structured settlement payment rights is being sold by the promoter to buy a depreciating asset or as part of a "early retirement strategy".
FINRA's conclusion is that weathering rough economic times can prove challenging for many investors. But staying the course nearly always pays off in the long run—and that means taking a long-term approach to investing and making sure you maintain a diversified portfolio that spreads your risk of losses. If strapped for cash, be sure to carefully consider the long-term consequences of quick cash, especially the tax implications of your decisions and the potential for losing a significant asset.