Ava and her husband, who live in Charleston, South Carolina, are US$200,000 (C$275,000) in debt after he refinanced the house — and then used most of the cash-out for day trading.
“It’s all gone now,” Ava said when she called into The Ramsey Show, seeking advice on how to get out of debt while getting her husband on board to “better manage his day trading.”
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While Ava said she doesn’t really understand “all the trading stuff,” Dave Ramsey said she does, in fact, understand how “he turned $200,000 into zero.”
“Worst magic trick ever,” added cohost George Kamel.
Here’s the “radical” change Ramsey says is in order.
Mortgaging a home for more gambling funds
Around the time they got married three years ago, Ava’s husband started dabbling in day trading and “got excited about his returns.” So he refinanced the house — turning it into a 15-year mortgage with US$4,000 monthly payments — and got US$200,000 back.
He then proceeded to lose the US$200,000 while day-trading.
“So he mortgaged the house in order to gamble,” Kamel said.
“Everything was going well and then it crashed,” Ava said. But this was no ordinary “crash,” according to Ramsey.
What is day trading
Day trading is essentially buying and selling a security within the same day, as investors try to turn a profit by leveraging the fluctuations in an asset’s daily price. Decisions are made based on an investor’s insight into the stock market and current trends.
Day trading, however, has a fairly predictable track record: research shows 97% of day traders lose money (1) if they persist over time. And less than 1% are actually profitable.
The Canadian Securities Administrators (CSA), an umbrella organization for Canada’s provincial and territorial securities regulators, has issued warnings about day trading and its low success rates and high risks, emphasizing the promise of day trading making fast, easy money is misleading and extremely risky.
While it can’t provide specific investment advice, the Nova Scotia Securities Commission, a provincial regulator that’s part of the larger CSA, released an investor alert on day trading risks (2), stating:
“If you do more of your own research into these strategies, be sure you know the inherent risks in day trading. Day trading get-rich-quick schemes are often used by fraudsters and scam artists to lure amateur traders into bad situations. Do not enter into day trading lightly, and as we’ve said numerous times already, do not take on more risk than you are comfortable with, and do not invest money you cannot afford to lose.”
So if Ava’s husband’s game plan is to day trade his way out of debt, the odds are (greatly) stacked against him.
Ava says she’s tried to talk to her husband about it, but he’s still day trading “all day, every day.”
While they still owe an extra US$200,000 on their house, her husband now wants to put it on the market and buy another house — which Ramsey explicitly tells Ava not to do.
Her husband doesn’t have an income (other than “day trading”) and Ava stopped working as a cardiac nurse about six months ago when they had their second child. At this point, she doesn’t even know how they’re paying their bills.
Read more: Are you drowning in debt? Here are 3 simple strategies to help crush your balance to $0 in no time
Only one way to survive
This is a scenario that Ramsey says he can’t help with. “There is no Ramsey technique for continuing to lose $200K regularly and turning that into a wealth plan,” he said. What they need is a “reset” in their marriage.
“There’s only one way your family survives — is if this man stops doing this,” Ramsey said.
After all, a budget and debt repayment plan isn’t going to help if her husband continues to gamble their money away.
Ramsey said she should call a family meeting and tell him she’s scared, they’re broke and he needs to get a real job and start supporting his family — and that they’re not buying another house.
“You’re letting a drunk drive the car right now,” Kamel said. “He has an addiction. It’s going to bankrupt the family and you need to take over.”
An addiction worth seeking help for
While day trading and gambling differ “in that day traders use analytical skills to make informed decisions, while gamblers gamble for fun, knowing that luck, not strategy, decides the outcome,” day trading can become an addiction, according to Avenues Recovery (3), a community-based drug and alcohol rehabilitation center with locations across the U.S.
This addiction arises from the “intense and fast-paced nature” of day trading.
And these days, there are plenty of day trading platforms and mobile apps to choose from, meaning “people with little skill are taking part in day trading.”
Signs that someone might have a day trading addiction include exhibiting “a fixation, preoccupation and compulsion to engage in buying and selling assets to the extent that this process addiction detrimentally affects their daily lives,” according to Avenues Recovery.
If Ava’s husband can’t stop himself from day trading, he may need to seek out professional addiction counseling.
Whatever the case, it’s going to require some “really radical changes,” Ramsey said. And they’ll want to start making these changes before their house is in foreclosure and the sheriff’s department “starts showing up at the door.”
“He’s got to care more about his family than his gambling addiction,” Kamel said. “That’s the only hope this relationship and this future has.”
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
SSRN: Learning Fast or Slow? (1); Nova Scotia Securities Commission (2); Avenues Recovery (3)
This article originally appeared on Money.ca under the title: From $200K to zero — Couple loses big due to day trading: Dave Ramsey warns the worst is yet to come
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.