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earlyretirement
ParticipantSpot on target flu. That happened to a lot of people.
There are however some high flyers that made a LOT of money that squandered it. Many were fortunate at least they bought real estate with it but I know a few formally high flyers that pi$$ed it all away.
The tragic mistake of many that make significant amounts of money is they make the mistake of thinking they will always make that kind of money. So they spend as much as they made.
Others didn’t diversify enough. Ironically some of these guys on Wall Street that made 7 figures some years don’t have much to show for it. I know a guy that worked at Lehman Bros that pretty much lost it all as he leveraged much of his net worth during the financial collapse. He should have known better and he was in that industry but he didn’t think it would get so bad so quickly.
I lost touch with that guy but last I heard his wife left him and he lost his job and couldn’t find another. That was a few years ago but I do know that guy had several years where he was making over 7 figures each year. Hard to believe you would make that kind of money and have nothing to show for it.
Oh well.
Participant[quote=spdrun]I’ve done it (Say the $25k minimum in a pattern day trader account, plus ability to acquire properties for ca$h.)[/quote]
spdrun,
Just out of curiosity, are you saying you used a credit card cash advance check and deposited it into your margin account so you have 4 X buying power?
I was just curious. I’m just wondering how widespread this type of thing is.
Participant[quote=AN]ER, I don’t mean to say you always had the pot. I’m saying you have the pot now, so your thinking is definitely different than those who don’t and resort to these risky behavior to get rich. Do you think they’re any different than those who take their paycheck on pay day to the casino hoping to hit it rich? Sometimes, you have to take a step back and see that there are many different people with many different mindset. I won’t say one way is better than the other because I’m not smart enough to know that. I’ll just let the result speak for itself. Your way obviously worked for you. Congrats. But I don’t like to bastardize those who do things differently.
I know buying 1 year CD is different than buying stocks/forex/etc. But it’s still investment, isn’t? It’s just very safe investment vs more riskier investment. I did the risky stuff when I was 18 and starting out with $1-2k. It didn’t work out, I learned my lesson and move on. Some people need to learn it the hard way and some will never learn. But that’s their prerogative and I won’t say they’ve cross some magical limit.[/quote]
NO, I do NOT think these people are any different than people that take their paycheck to the casino on payday. That’s EXACTLY my point.
Unlike you, I WILL say that one way is better than another. I don’t think it’s a matter of saying I’m smarter than someone else. For me it just comes down to basic common sense of not gambling money that they may not be able to afford to lose. Personally, I don’t think the fundamentals of investing and common sense differ based on your net worth. That’s just me.
I’m not “bastardizing those people that do things differently”. I’m simply stating that it’s exactly as you stated. It’s like going to the casino on payday and gambling your paycheck. Whether you have a big pot or a small pot, I can’t see any way that can be justified.
I find in life the size of your “pot” is all relative. Your big pot can be lost just as fast as someone that has a small “pot” if they make foolish and risky decisions. That’s all I’m saying.
Participant[quote=bearishgurl][quote=flu]On second thoughts….Not that I would consider this personally…But I guess someone in serious financial doo-doo…
Hypothetical situation. Let’s say some person has no house to HELOC…. No chance of ownership…Let’s say the person has no savings, no IRA….And has a job that doesn’t really depend on having stellar credit.
But the person has 10 credit cards with $10000 credit line each.
Maybe works out for them is to cash out all credit cards on credit line, and put that money into the IRA….10 credit cards $3000 each say $30000 into an IRA, invested wisely…File BK.
Why? Because perhaps even after one files BK, retirement accounts are off limits.
Not that I personally would recommend this… But just saying….If someone is really desperate.
Chances are, they won’t even go to BK court, but will settle with the collector at much less than owed.[/quote]
flu, the vast majority of cc lenders today have cut down nearly EVERY cardholder’s credit limit, whether or not the account is active or the upper-limits were ever used. This is involuntary and was done to the accounts of the “rich” and “poor” alike.
The cc companies have now realized that too much credit was extended to a lot of people during the millenium boom and are trying to avoid having any more big losses resulting from the mistakes they made in the past.
A cc lender typically runs the credit report of all its cardholders periodically, even if they are current on their payments. Someone who has managed to obtain 10 cards with a $10K-each credit limit AFTER acquiring the card who is checking the credit is a BIG RED FLAG. It gives the impression that the cardholder is amassing a “war chest” so they can default and/or is trying to scam each card account they have by borrowing cash from one card to make payments on another, etc.
cc companies are now wise to the scams of yesteryear. Low FICO score applicants are now either rejected outright or have to post their own money with the cc company to get a “secured card” in order to build their credit back up.
The days of one being able to obtain several high-limit cc’s in a short period of time are over, IMHO.
Card companies like AMEX and Visa Signature (which have no upper limit) constantly review the appropriate limit for its cardholders, based upon repayment record and known regular income and assets. If one walks into any retail establishment and tries to buy something with one of these cards which is REALLY expensive (could be over $500 to over $2K, depending on type of card program and cardholder record), the establishment will have to call for approval first and the cc company may text or call the cardholder to ask them if that is actually them wanting to purchase the item/service. This is done to prevent fraud.
I just don’t see how anyone with ten cards still has a $10K+ credit limit on any of them today.[/quote]
BG,
I think that WAS the case but I think things are on an upswing again. Personally, I didn’t have any credit lines reduced. Quite the contrary. They have steadily increased them. And like you said, AMEX and Visa Signature don’t really limit you too much if you have good credit.
One thing I’ve noticed is that companies are getting more aggressive again (like before) in sending out offers. For example, I’ve been an AMEX holder since 1991 and have a few cards with them. I’ve had a Platinum card for many many years which essentially has no limit. Same thing with a Business Platinum with them.
But recently, they started targeting me with more cards with no annual fees and tons of Membership Reward points. Gold card (even though I already have a Platinum card) also with no limit. Got 50,000 points for that one. Then they targeted me with pre-approved Gold business card (even though I already have a Platinum Business card). Another 50,000 points. Again, no annual fee for the first year and NO set limit. Then they sent me a pre-approved offer for personal AMEX SPG card with $40,000 limit and 25,000 SPG points with no annual fee for first year. Now, they just sent me last week an AMEX SPG BUSINESS card pre-approved offer. You guessed it, no annual fee for first year plus 25,000 SPG points and $60,000 credit line.
I’ll just cancel the Gold cards now or before the annual fee kicks in that I got the reward points on. Same with the SPG cards.
On top of that you have to figure that I have several other credit cards all with high credit limits. They can already see that I have all of this unused available credit yet they are offering me much more! AMEX knows every card I have because if you pull your credit report, you can see AMEX checks up on it’s customers every month or every other month which I found interesting.
Also, I own a few companies. LLC’s. When I had to call in to accept the SPG Business card offer they even asked if I had any other companies I wanted to “take advantage of this offer”.
Based on this, I’d have to say AMEX and other banks are really wanting to dole out a LOT of credit to people that have solid FICO scores and low/no debt. In my case, I don’t carry revolving balances. I pay off my balances each month but I always charge everything to get miles or points. (You name it and if I can earn miles/points I’ll do it. Even property taxes, monthly HOA fees, country club dues, medical insurance premiums…. just about everything that can be charged).
The problem I’m foreseeing is that even people with solid jobs, high net worths get sucked into the trap of using this leverage and possibly using it in the stock market or possibly to buy real estate.
Forget about the people with low FICO scores and low/no credit limits. I don’t see the big risk there. What I’m forecasting and seeing the true risk will be the people like me that are getting showered with these offers. It could be a recipe for disaster if people decide to try to leverage some of it. After all, we all know people get sucked into the “keeping up with the Jones” mentality.
What I’m seeing is that banks are severely restricted now by what they can and can’t offer. Many of the products and fees they once could charge or offer to their clients has vanished with various regulations and laws. So there is increasing pressure on them to find ways to make money.
I don’t think they are being crazy and offering credit to people with bad FICO scores, which I think is wise. But what happens with the people that have great FICO scores that are getting showered with all this new credit that decide to leverage it? I guess that’s my concern.
[quote=spdrun]OK, even two cards with a $10k limit plus $5k cash of your own would suffice for $100k of investments. Get a margin account, dump $25k cash into it (prerequisite for a pattern day-trader account). You then can get up to 4x margin.[/quote]
That’s the problem. I do think there are people out there that are starting to do this. With interest rates anemic, I think people now more than ever are chasing risky and volatile investments. Before, it’s one thing like in AN’s example of using these for a guaranteed 6% safe CD. But this is an entirely different environment.
And of course, you have senior citizens and people that are retired that are the last people that should be in some of the riskier and volatile investments but they are “chasing” returns just like many others. They can’t cut it in the 1% interest environment so they are being forced to try to make a higher return in other places.
Participant[quote=flu]
And you thought leveraging your credit card is a bad thing :)……[/quote]Yeah, I guess in that scenario these people will literally make out like bandits!
[quote=flu]
Most people won’t get the 0% offers. One they go to the approval process it will end up being closer to 20%, if they have any sort of ding on their credit file.[/quote]
I’m not sure what % of people are getting these offers. Actually the ones I’m getting aren’t even anything to get “approved”. Citibank is literally always mailing me out actual checks to use up to my credit limit on this one card. And it’s 0% it says until it’s paid off. Not only that but it says that any purchases I make with the card for the next 6 months will also be at the 0% rate if I take advantage of this offer. (so obviously they are trying to push people to use these).
Fee says $5 or 3% of the amount of each check (whichever is higher).
I always just throw these away. I’ve had credit cards since I was 18 with them and always have received them but I don’t ever recall them being 0% until paid off including any purchases after the check is used.
Now I’m curious how many people use these things….
Participant[quote=flu]On second thoughts….Not that I would consider this personally…But I guess someone in serious financial doo-doo…
Hypothetical situation. Let’s say some person has no house to HELOC…. No chance of ownership…Let’s say the person has no savings, no IRA….And has a job that doesn’t really depend on having stellar credit.
But the person has 10 credit cards with $10000 credit line each.
Maybe works out for them is to cash out all credit cards on credit line, and put that money into the IRA….10 credit cards $3000 each say $30000 into an IRA, invested wisely…File BK.
Why? Because perhaps even after one files BK, retirement accounts are off limits.
Not that I personally would recommend this… But just saying….If someone is really desperate.
Chances are, they won’t even go to BK court, but will settle with the collector at much less than owed.[/quote]
Flu,
I wouldn’t be surprised to hear about people doing this! And the thing is, there isn’t anything that could be done to this person besides have bad credit for many years.
Participant[quote=spdrun]20% APR what? I pay 10% on one card and they just offered me 0% cash (OK, with a 2% transaction fee) for 13 months.[/quote]
Yeah, exactly. Back during the recession credit card companies stopped (or limited) these low or 0% balance transfer offers. But now they are starting to dole out the money again. Like you spdrun, I’m getting 0% transfer offers with a 3% transaction fee. Some of them are for 12 months but some from Citibank say it’s until the entire balance is paid off!
Granted my FICO is great and my credit limits are extremely high. But I still wouldn’t cash these in and stick it in the stock market. Although, if CD’s were paying 6% guaranteed that would be a different story I guess. 😉
If they are offering these kinds of things to spdrun and I, I imagine they are offering them to many people. What I think you will see with the real estate market going up in many areas with tight inventory, is people cashing these and using it in the real estate market, stock market (margin accounts) or other type of scenarios.
Participant[quote=flu]
It’s part of the game…Buying an asset, selling it higher…That’s all it is…Someone turns a buck by trying to buy something and tries to find someone else willing to pay more.
Kinda like a business. Build product that costs X, find someone that’s willing to pay X+Y for it…
This is all one big game… That’s all it is.
Someone wins. Someone loses…[/quote]
Sure. But I guess where I’m a bit confused is on any reasonable investment or finance blog or message board, if someone were to mention the stupidity of using credit cards to put in the stock/currency/commodities market, you’d get people agreeing and move on.
I guess this is why I’m spending more time on this board. LOL.
Participant[quote=spdrun]
But still, if I was doing something stupid or ignorant, I’d sure appreciate someone pointing it out.
I’d rather keep it to myself unless the person was a close friend or family.. More failure for stupid people = more success for me. F’em.[/quote]
That’s my point and something else I mentioned in another thread. It’s human nature for people to brag or talk about all the great investments that turned out their way.
Funny, most of my friends and clients never mention their biggest mistakes or worst investments that didn’t end up well. Those somehow conveniently get left out of the conversation.
Participant[quote=flu]
Depends if he can beat the APR.
Funny you should mention this.
About a year ago I was chatting with my former coworker at a large stable company… We were talking about the financial mess people are in and somehow we talked about returns and open enrollment on ESPP (employee stock purchase plan). He mentioned that he wishes he could participate, and I asked him why he couldn’t.
He mentioned his spouse went back to school, he has a mortgage, a new kid, and if that it would be a very tight short term cash flow issue if he were to use is post-tax dollars and contribute to the ESPP plan deferral.
I jokingly said “dude, you’re way to financially prudish…Why don’t you adopt some of the more creative american financial ingenuity and get a balance transfer from a credit card you don’t use for 1%, and use that balance transfer for your day to day bill, and meanwhile withhold more of your paycheck toward your ESPP. You work at a stable company, for which your company stock is virtually dead as a doorknob in terms of volatility regardless of what the market is doing, and you get 20% off of the FMV of the stock between the 6 months offering period…And the time it takes for the shares to vest and when they end up in your account is at most a 2 day trading period, and the shares will be granted after any planned earnings announcrment….so it’s unlikely you’ll see a -20% within that 2 days…”
Dead silence… I thought I offended the guy by going too far, so I changed the subject and that was the end of it…So I thought.6 months later, he calls me back up and says, “hey, I ended up getting my ESPP shares and just sold them for 20% minus costs…”
I was like, I thought you said you would have cashflow issues, and didn’t want to do it. What did you do, max out your CC?
He was like “No. Even better…I thought about what you said…So I went to schwab and took out a no cost Heloc @ 4%, and withdrew enough to cover my day to day bills while I contributed the maximum I could to my ESPP… 6months later, I sold the shares the day after I vested when the shares were deposited into my account for 20% on the spot gain, and immediately I paid off the small Heloc balance the next few days…And for this period I have some cash to cash flow until closer to the end of this period, and I’ll draw from my Heloc again for about 3 months and pay it back..Next year I won’t have to anymore…And you know what, I think I might even be able to report my interest charges on my Heloc as an investment interest expense…”
Lol….[/quote]
Flu,
I’m glad it worked out for your friend. But for every success story you hear about I think you’d probably admit there are hundreds of people where this sort of thing ends up bad. Right?
Of course the thing there is these people that leveraged and it didn’t turn out right for them will never brag about those scenarios. LOL.
Participant[quote=AN]flu, I totally agree. I too used credit card to “invest” in the past. around 2004-2006ish, I got about $30-50k in 0% balance transfer and stuff that in a 1 year CD that makes 6%ish at the time. So, after a year, I have $1800-3k to spend. When the balance transfer deal expire, I just return that money and keep the $1800-3k.[/quote]
But buying a GUARANTEED 6% one year CD is much different than putting this money into an investment account to actively trade stocks or currencies/commodities.
[quote=AN]
Do I think it’s a wise thing to do? No. Would I do it myself? No. But again, it’s their freedom to do whatever they want with the opportunity available. I don’t see them as any different than the millions who spend well beyond their means through credit.I think you fail to see most don’t have the kind of pot you have. [/quote]
Ok..I’m glad that you don’t think it’s wise to do this. Sure, it’s their freedom to do it but that’s not what I’m talking about. I put the people that spend beyond their means through credit in the same ignorant category and in the same class as these ignorant people that are using their credit cards and sinking it into the stock/currency markets.
Also, you talk like somehow I always had this “pot”. That is totally false. My dad and mom came to this country with a few suitcases and were poor. It wasn’t through some magical “pot” that my parents put all my brothers and sisters through private school. It was through very hard work and very long hours, lots of overtime, limited vacations, sacrifice and making prudent and intelligent financial decisions.
I had no magical “pot” either. I graduated from college with six figure student loan debt. Neither my parents nor I ever resorted to using our credit cards to sink in the stock market.
[quote=flu]
Feel free to laugh until you make your first bad choice.[/quote]
Absolutely I think we all have made some mistakes and hiccups in life and investments. I’m not disputing that. Anyone that tries to deny they haven’t made any mistakes is absolutely lying. The key is to learn from those mistakes.
But still, if I was doing something stupid or ignorant, I’d sure appreciate someone pointing it out. Which is what I think I’m doing mentioning this whole credit cards in the stock/currency markets thingy.
Participant[quote=UCGal]I read that article yesterday, also, ER. And had the same gut reaction you did.
But at least they’ll be able to BK out of it when it collapses. Unlike if they were borrowing against home equity (cash out refi’s or helocs) to get the money to wager in the market. With cram down off the table – you will have to lose your house (short sale or foreclosure) if you get your gambling money from that source… But with credit cards… BK can wipe out your “investment mistakes”.
Real investing doesn’t happen anymore. Investing is where you put down money on companies that have good long term growth potential. Now it’s all day (or week) trading… buying on the rumor, selling on the news… Hoping for short gains. It seems to be a lot closer to gambling that investing.[/quote]
Yeah, UCGal. I had a bit of dejavue with the feeling I had during the last bubble. The thing that worries me is I think the number of people doing this must be really high. I just mentioned earlier in this thread about meeting a guy and him doing this. Then I see it in the WSJ.
And this guy wasn’t some loser. He was a professional with a good stable job, a family with kids and an educated guy. A guy who should know better. If guys like him are doing it then that means many others are (also evidenced by the fact that they are trying to ban use of credit card use to invest).
If people are using their credit card cash advance checks to sink it in the stock market then I would HAVE to believe they are also going to use their HELOCS to sink it into the market as well.
Yes, I guess they can write it off in bankruptcy but it just makes me shake my head that people are doing this so quickly after the last crash. And the scary thing is these people REALLY think they are “investing”.
So true UCGal. Many people are mistaking this for “investing”. Oh well…
Participant[quote=AN]ER, the way I see it, at least these “investors” are trying to get themselves financially independent or at least increase their spending pot. I would say they’re one step better than those who just use credit card to buy junk.[/quote]
Wait. Are you actually saying you don’t find anything wrong with small time retail investors using their credit cards to fund their investment accounts and stock purchases or the speculative currency markets????
It sounds like the Commodities Futures Trading Commission is also probably going to ban credit cards so it sounds like it’s an issue there as well.
AN, do you find anything wrong with the case I listed of a guy using credit card cash advance checks depositing these into his margin trading account and using it to trade and buy/sell stocks?
Everyone in life is trying to get themselves “financially independent but most reasonable people don’t gamble like this. I mean, what limits do you have on how far is too far? I didn’t expect anyone to try to justify someone using their credit cards to sink it in the stock market so I have to admit this surprises me.
What about someone that takes out a HELOC and sinks it in the stock market? If this guy is trying to “increase his spending pot” is it ok or justified?
Participant[quote=AN]I agree with this, but this is no different than the vast majority who lives pay check to pay check and use their credit cards to finance their consumption.
[/quote]
Speaking of credit cards. I was reading my Wall Street Journal today and smirked when I read of retail investors using credit cards to “invest”.
Page C3 with the article titled, “Small Traders In Currencies Face Card Ban”.
The part I read with interest was, “The National Futures Association, the self-regulating group for the U.S. futures industry, in a January 18 letter to members, said it is concerned retail customers ‘are using credit cards as a source for borrowing funds to invest’. ”
I think years down the road we’re going to see and read about more and more people that are using credit cards and cash advance checks from credit cards to “invest” in their margin accounts. We will probably read how these people got crushed and never could pay their credit cards back. And probably will be writing these credit cards off and default.
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