Kroze
Diamond Member
- Apr 9, 2001
- 4,052
- 1
- 0
You're right and i'm wrong, you do what is right for you and I'll do what I've been doing.
Right now I'm on track to pay off my mortgage in 9 years and that's if I don't get a single pay raise in 9 years. After that, I'll be completely debt free.
I just can't imagine what i'll do with $90k a year with no debt/mortgage.
Right now I'm on track to pay off my mortgage in 9 years and that's if I don't get a single pay raise in 9 years. After that, I'll be completely debt free.
I just can't imagine what i'll do with $90k a year with no debt/mortgage.
You won't be making more than your mortgage payment in investments. But hey, if that's the way you wanna roll, good for you. I'll just have more money in retirement.
But I assure you, not one person with any financial education or significant experience will agree with you.
WTF? No one ever suggested borrowing against your home to come up with the investment money.
It's a simple scenario: you have an extra $X per month to invest. Do you:
1. Pay extra toward your mortgage, effectively earning a rate of return equal to the post-tax interest rate of your mortgage
OR
2. Use that extra money and invest it in low-expense index funds
The length of time to be considered is the length of time it would take to pay off your mortgage early by choosing option 1. We are claiming that you will come out ahead in the long run by choosing option 2.
Your posts are all over the place and aren't addressing the topic.
Well, with car loans being relatively expensive and not being able to deduct the tax, that seems like a good decision.
You think it'd actually matter? I could try and teach it on here until I am blue in the face, yet people like above still won't get it.
dullard
Elite Member
- May 21, 2001
- 26,047
- 4,691
- 126
Hey now, don't go that far LegendKiller. You know that last line is false.
Yes, right at the moment, if you have excellent credit then your mortgage interest isn't very high. And, in an ideal world, you can get a higher return by investing elsewhere. But that isn't always true. Not everyone qualifies for the low rates we've had recently and the rates aren't always low. Are you really telling me that people with 15% (or higher) mortgages in 1984 should not have considered paying it off? Getting 15% return out of any investment is difficult. Yes, it is possible to beat 15% but it isn't easy.
Right now, many people have ~6.5% mortgages. Right now, people are lucky to get 6.5% returns with any investment. Most stocks aren't returning that now. Bonds certainly aren't. As part of a diversified portfolio (ie a subset part of your bonds), a small guaranteed investment at 6.5% is certainly prudent. Yes, you can possibly get a slightly better return investing it all in stocks, but the drastically higher risk often isn't worth the slight bit more return.
You shouldn't go about and invest ALL of your money into your house. To keep risk low, you really only need 10%-20% of your money in cash/bonds (and your mortgage is equivalent to cash/bonds). And if you put approximately half of that into your house, you will be doing just fine. For example, 90% stocks, 5% bonds, 5% house is a good mix assuming the stocks are diverse.
A little invested in real estate is a good thing. People with financial education and experience will almost ALL tell you that.
Wow. You still don't get it. By paying down your house you're throwing money away. If you would just invest the money that you were paying down the home on you'd wind up with more money over the long run, retire earlier and still be debt free over time. So effectively you're going to be working longer and have less.
You're losing the time aspect of the market and the compounding that would occur.
HardcoreRobot
Lifer
- Nov 7, 2000
- 16,403
- 3
- 81
i dont understand while people are so enamored with writing off mortgage insurance on their income taxes... yeah it makes your tax bill a bit cheaper but ultimately you are still spending more in interest over the course of the mortgage, right?
dullard
Elite Member
- May 21, 2001
- 26,047
- 4,691
- 126
Wow, you are really exaggerating. Have you actually done the math?
[*]Lets say you invest $1000/month (inflation adjusted monthly at a 3.5% annual rate).
[*]Lets say you can invest it and get a guaranteed 10% return in stocks.
[*]Lets say you can invest it into your mortgage and get a guaranteed 6.5% return.
[*]Lets do this over a 30 year period.
[*]Lets do this in post-tax retirement accounts to make the math easy, although it really doesn't matter much.
All stocks: After 30 years, you have $3.16M. You can safely withdraw $10,548/month. After adjusting to inflation that is $3,758/month in today's dollars that you have in retirement.
Diverse 90% stock, 10% mortgage mix: After 30 years, you have $2.96M. You can safely withdraw $9,859/month. After adjusting to inflation that is $3,512/month in today's dollars that you have in retirement.
So the difference between a highly risky all stock mix and a conservative 90% stock/10% other mix is a measly $246/month in retirement. You'd hardly tell the difference. And that is if your riskier move actually paned out well. The stocks may very well do worse than that, making the difference even more negligible.
I don't think you should be comparing it over a 30 year period. If you "invested" the money in the mortgage, you would pay it off in less than 30 years. That should be the time period used for the comparison.
dullard
Elite Member
- May 21, 2001
- 26,047
- 4,691
- 126
I thought about that, but then the difference would be even smaller than $246. It just proves my point that much more. But then, $100/month (inflation adjusted) won't change your mortgage time THAT much either. It'll shave a few years off. But lets just suppose you put it into a 6.5% returning bond at that point.
Yes, mathmatically investing in all stocks is THE BEST way to go. But, it often isn't worth the risk. The loss of a very small amount in retirement is often well worth the comfort you get during your life from being more conservative.
I agree that investing the difference really only makes sense if your mortgage rate is low and you have a decent chunk of disposable income each month.
However, 100% stocks have been shown to produce noticeably greater returns over the long run. If an investor is only concerned with long term performance, then I don't see any reason to not be 100% in stocks when one is young.
Why do you say this? I'm not disagreeing, I have read before that expecting 10% from here onward might be too optimistic.
Also, do you personally expect to perform >10% in the long run from here on out?
I think an issue should be investing it in stocks during a (possible) recession.
Sure, things will be on the up, but arguably isn't the market quite volatile right now?
Sure, if he gets a good return on the invested money he's set, but that can't really be guaranteed, can it? And in an uncertain climate surely it's even less certain.
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