For the next two weeks, we present "Scary Money Stories." While it can be fun to be frightened by ghosts and goblins and things that go bump in the night, the mistakes we all make financially can have long-term consequences. We thank our brave TD colleagues who were willing to share their worst tales and our team of financial experts that offer knowledge on how to avoid these mistakes.
View these Frightening Tales
BIG HOUSE EXPENSES CAN BE A NIGHTMARE
THE STORY
The Response
THE STORY
Alyson Karow, a TD Bank Product Group Manager, in Sarasota, Florida, recently had a plumbing disaster at her home that required major renovations. She was relieved to learn insurance would cover a big chunk of it. Although she has owned many homes, including rental properties, this was her first major homeowner's insurance claim. While she was prepared for a deductible and expected some expenses would not be covered, she was not prepared for the "very large amount of money" she would have to put out in advance and then to "wait months for insurance checks."
Diana Pagani, a TD Bank Customer Service Representative in New Britain, Connecticut, didn't have enough money in her savings account for emergencies. She had to take a quick loan for 35K to get two new furnaces for her two-family home and pay credit card debt off. The interest rate was 28.99%, which cost her over $10,000 in interest on that loan. This mistake has significantly impacted her financial decisions and options.
The Response
An unexpected Increase in Rent
A TD colleague in Maine is expecting an increase of nearly 30% in the next two months. This increase will likely mean she can't afford to live in the same town as rents across the board are too high. Her worries as a single mother include having to move school districts, which will be extremely difficult as she has a child with disabilities.
Rule of thumb, try to keep housing / rent costs to no more than 30% of your salary. This helps as you begin your search for housing options.
Try to discuss your situation with your landlord as early as possible. They may be willing to work with you to rent at a lower rate.
Remember, moving is not cheap – costs for movers, utility transfers, and potential appliance replacement can add up to more than the cost of the lease increase. Weigh the options.
If the increase is steep and puts you far above the 30% rule of thumb, consider finding a different solution.
Alyson Klug, Head of National Sales at TD Wealth, provided the below information for homeowner and emergency home repairs:
• If the repair is truly an emergency, you might not have time to wait for a homeowners insurance claim to be processed and paid out. It is important to understand what your homeowner's insurance policy will cover and will not cover and to review your policy with your agent.
• There is additional insurance available for appliance repair or replacement. If you have aging appliances or expect costly appliance repairs, this annual policy may be a good option as it caps out of pocket expenses and provides replacement appliances.
• A personal bank loan can be a quick way to access additional funds. Be sure to understand the interest rate and terms of the loan.
Be cautious: a loan (personal, home or credit card) is taking on debt and will involve another monthly payment.
• Home equity loan or line of credit may involve additional costs, an application and appraisal or closing costs, but if you have equity in your home, they may provide a potentially lower cost way to borrow funds
• A credit card may be a good emergency source to fund an emergency expense, but should be used as a last resort, especially if it will take time to pay off a larger expense due to the higher interest rates charged by credit cards.
Try to establish a six-month emergency fund to provide a cushion to support you when you have an unexpected home repair or expense. Also be aware of upcoming expenses and put aside funds to cover the replacement cost, e.g. older furnace, air conditioner or water heater that is coming due for replacement.
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The graphic shows monthly rolling returns of the S&P 500 Total Return Index and a blended portfolio of 60% S&P 500/40% Bloomberg US Aggregate Bond Index from January 1, 1976, to February 28, 2022.
Source: Morningstar. Monthly rolling returns of the S&P 500 Total Return Index and a blended portfolio of 60% S&P 500/40% Bloomberg US Aggregate Bond Index from January 1, 1976 to February 28, 2022. Past performance is not indicative of future results. Diversification does not guarantee a profit or protect against a loss.
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By putting all your eggs in one basket, you create a lot of concentrated risk which may come back to haunt you. A well-balanced portfolio, paired with a long-term, goals-based view, may soften the impact of short-term volatility, without letting emotions get in the way, according to Sid.
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Sid Vaidya, US Wealth Chief Investment Strategist, recommended that rather than making a few large bets, investors should instead focus on building a properly diversified portfolio. While individual winners can keep winning for some time, leadership among asset class, sector, style, market capitalization and geography, among others, may change frequently and knowing which factor will lead is impossible to predict.
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Nightmare on Market Street.
Diversification through a blended portfolio of equity and fixed income securities may increase your chance of positive returns. If Michael had built a well-diversified portfolio, instead of a few large bets, he may have increased his chances of achieving a positive return over the long term and avoided his
Michael Grullon, a TD Bank teller in Wyckoff, New Jersey, recounted the time when 90% of his stock portfolio consisted of three companies which simultaneously went deep into the red and were not able to recover. This led to a near wipe of his portfolio. He's been "slightly deterred" from investing a large amount of money back into the market. But the costly lesson did teach him the importance of a diverse portfolio and how to detect the tell-tale signs of "trend" investing.
The Response
Investment Frights
Alyson Klug says rising rents are the result of an increasing imbalance of more demand and less supply. There are several considerations that people need to factor with rent payments:
The Response
