I remember reading somewhere that paying off your house is a bad idea. A 10 year mutual fund would more than cover the intrest incurred on your house right? After you write off the interest on taxes?
Exchange it to the Chinese Yuan. It is guaranteed to appreciate at least 10-15%. Then exchange it back to the USD.
Just remember, it is easier to accept gains you could have had that you didn't get because you felt they were too risky, vs. losing actual money because of rash and ill and uninformed decisions in investments that were much more risky than you were aware.
High interest checking is high yield junk bond investments (maybe they are loaning money overnight to European Banks that might be insolvent) until proven otherwise.
There was some money market that "broke the buck" during 2008 Lehman Brothers induced financial panic (http://latimesblogs.latimes.com/money_co/2008/09/the-credit-cris.html) but I think Fed or someone else stepped in to make up difference. Don't know if there is central body in Europe that will do the same if Europe's financial system tumbles in panic and 17 different countries have to approve any action.
As I said above, assume any unusually high yielding checking, savings, money market, or CD is dabbling in very risky short-term investments (e. g. overnight lending to European Banks in need of U. S. dollars) until proven otherwise. Invest at your own risk...
FDIC is for savings and checking accounts ($100K), I think, SIPC is insurance for investments ($250K).
High interest checking is high yield junk bond investments (maybe they are loaning money overnight to European Banks that might be insolvent) until proven otherwise.
There was some money market that "broke the buck" during 2008 Lehman Brothers induced financial panic (http://latimesblogs.latimes.com/money_co/2008/09/the-credit-cris.html) but I think Fed or someone else stepped in to make up difference. Don't know if there is central body in Europe that will do the same if Europe's financial system tumbles in panic and 17 different countries have to approve any action.
As I said above, assume any unusually high yielding checking, savings, money market, or CD is dabbling in very risky short-term investments (e. g. overnight lending to European Banks in need of U. S. dollars) until proven otherwise. Invest at your own risk...
FDIC is for savings and checking accounts ($100K), I think, SIPC is insurance for investments ($250K).
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Engineer
Elite Member
- Oct 9, 1999
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As pointed out earlier, FDIC is $250k until 2014. Also, NCUA is for credit unions.
Edit: I thought it was FCUA, it's actually NCUA.
- Jul 11, 2004
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I'm renting a house at the moment, so it doesn't matter. I don't want to get tied down to a house/location at this point in my life.
There are a few things to consider here.
First, writing off interest on your taxes is only useful if your itemized deductions are greater than your standard deduction. And then it's only useful above your standard deduction. Second, there is no guarantee about the stock market, 10 years in general is long enough to see decent returns, but 1998 to 2008 would have netted you basically nothing or worse.
Because I have nothing to do this evening I'll do a quick case study.
Let's take a household income of $60,000, a family filing their taxes jointly, and a house worth $200,000 and a balance of $180,000 at 5% for 30 years (which would be a $966.28 payment). That means that in the first year they will pay about $9000 in interest. Let's say they are also good Christian folks who tithe 10% of their gross income, so $6000. So they have $9000+$6000=$15000 in itemizable tax deductions.
The standard deduction for married filling jointly is $11,400, so since $15,000 is greater they would want to itemize. So by going the itemized route they reduced they taxable income by $3600 (the difference between the itemized amount and the standard deduction). And at the marginal tax rate of 15% they saved .15*3600=$540 that year in taxes. $324 from mortgage interest, $216 from their charitable donations.
Now lets say that that they had an extra $100 a month that they could either invest in the stock market, or use to pay down their house.
So for the sake of simplicity let's say that their income stays the same, and tax rates and whatnot stay the same for 10 years.
Over those 10 years they would have saved a grand total of $2856.80 off of their taxes due to itemizing their mortgage interest (that number only is the mortgage portion, not the charitable donation portion). For the sake of simplicity we'll assume that the yearly tax savings were added equally to each $100/month investments. That comes out to $126/month the first year, $125/month the second year, down to $114/month the 10 year. So if they put that money each month into the stock market they will have $x after 10 years (we'll compute x for various scenarios later). The remaining balance on the house is $146,415.72 and they paid a total of $82369.19 in interest.
So let's say that instead of using that $100 to invest in the stock market, they put that as an extra payment to the house each month. Furthermore their yearly tax savings due to itemizing will be put towards an additional lump payment to the mortgage each year. At the end of 10 years the balance on the home would be $128,231.22 and they paid a total of $78164.55 in interest. And of course they would have $0 in their stock market investment because they put that money towards the mortgage instead.
So back to the stock market scenario. Again for simplicity (and it's getting late and I don't feel like finding monthly data) I'll use this to calculate various 10 year period's returns.
2001-2010: 1.31% yearly
1999-2008: -1.47% yearly
1995-2004: 12.12% yearly
1991-2000: 17.59% yearly
So using those numbers you would the following balance in your account.
2001-2010: $15,573.97
1999-2008: $13,331.79
1995-2004: $28,937.04
1991-2000: $39,792.56
Recall that the stock market route has a mortgage balance of $146,415.72 and the other route has a balance of $128,231.22. A difference of $18,184.50. So in the 2001-2010 and the 1999-2008 you would be further ahead paying down your mortgage. In the 1995-2004 and 1991-200 you'd be further ahead doing the stock market.
However there's more to it than that. Let's say at the end of 10 years you were laid off and your income went to $0, but thankfully you found a great job offer in the state over, but you need to move. Now if home value stayed at your original $200k or went up you'd be fine selling and moving. But let's say the housing market tanked, and your home is now worth $130k. So you are underwater by $16415 in the first scenario, ahead by $1769 in the second.
If this all happened in the 2001-2010 or 1999-2008 period your stock market account would not be enough to cover the difference in your house and would have to scrounge up the difference (personal loan, short sale, or something) to get out from under your house. In the other scenario you would be able to leave with $1770 in your pocket.
In the 1995-2004 or 1991-2000 years you'd be just fine.
The point is there is risk associated with your mortgage (ie, what happens if I lose my ability to pay it? What happens if the value goes down?) and there is risk associated with the stock market (will I have a positive return over this time period?). The risk associated with your mortgage is greatly reduced by paying it down (lower likelihood of being stuck underwater) and you are guaranteed a rate of return roughly equal to your mortgage interest rate (5% in this case) on that extra $100/month.
Furthermore, there are plenty of scenarios where there is no tax advantage to itemizing your mortgage interest (ie, when your itemized deductions are lower than your standard deduction). In that case paying down your mortgage is an even better idea.
So anyway, sorry about this wall of text. I had nothing better to do. Oh, and I'm sure I fudged some numbers somewhere, so I apologize in advance.
edit:
tl:dr, see Engineer's post below mine
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Engineer
Elite Member
- Oct 9, 1999
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Assumptions that the 10 year mutual fund actually grows and that you have enough deductions to actually deduct the interest (i.e. is the entire amount of interest over and above your standard deduction?).
Considering that I have a Roth IRA that I started in 1999 and funded through 2008 and it's still about 5% underwater, I would say that it's "luck of the draw" as to which one is better. My decision to pay off my mortage 23 years early (7% APR when I paid it off about 5.5 years ago), I'm well ahead right now. YMMV.
Stock market has been essentially flat for the better part of 1.25 decades.
Edit: I did not see blinblue's post until after I posted this. Much better numbers and explanation that I gave although I gave "my" real world example and how I came out far ahead as of right now. YMMV again.
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paperfist
Diamond Member
So HTF do Wall Street investors pocket millions when no one here can come up with anything more then a 5% payout? Those protestors are on to something 
Engineer
Elite Member
- Oct 9, 1999
- 39,230
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So HTF do Wall Street investors pocket millions when no one here can come up with anything more then a 5% payout? Those protestors are on to something
High speed computer trading! :twisted::awe::ninja:
with all the damn ammunition you can afford too. Your gold and other material investments won't mean squat, if you can't defend them. :hmm:
Modelworks
Lifer
- Feb 22, 2007
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http://www.kickstarter.com
Some great things on there and some have the possibility for huge returns. Others have the benefit of making you feel good for helping someone with a good idea get started that may never have the chance otherwise.
Some great things on there and some have the possibility for huge returns. Others have the benefit of making you feel good for helping someone with a good idea get started that may never have the chance otherwise.
1) Pay off credit card debt
2) Pay off any other high interest rate loans you have
3) Buy a house while they're still cheap
2) Pay off any other high interest rate loans you have
3) Buy a house while they're still cheap
sleep
Senior member
- Aug 23, 2010
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you would have to learn and use them wisely.
besides those weapons are nothing but choas. i perfer one on one tactics.
highland145
Lifer
- Oct 12, 2009
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So HTF do Wall Street investors pocket millions when no one here can come up with anything more then a 5% payout? Those protestors are on to something
2 words:
pon zi.
highland145
Lifer
- Oct 12, 2009
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overst33r
Diamond Member
- Oct 3, 2004
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So HTF do Wall Street investors pocket millions when no one here can come up with anything more then a 5% payout? Those protestors are on to something
Ever notice that the people on the NYSE floor cheer regardless if the market did better or worse? They get paid whether the stock market is down or up because people are still trading.
Good evaluation, but you didn't covered another obvious situation.
Person loses their job and can't find a new one. By paying down mortgage, he did save money on interest charges and what-not, but it's rigid and inflexible. Putting money into the market will provide some level of flexibility. Rule of thumb is 6 months expenses in savings, but it's not impossible to be out of work for more than 6 months, in which case, having the money in the market will allow the person to continue having a house to live in.
I'm all for paying down the mortgage early (I am doing it now), but it has drawbacks as well. Really, the only way to know what is best is to know what happens in the coming years. Both have their upsides, both have their downsides.
What I would do with an extra $50k would be to
1) Ensure 6mo+ of bills - I like 8 or 9 months in emergency savings
2) Pay off any debts with a interest rate above 5%
3) Index funds up to a specific amount, which is age dependent (if I was 23 and had $100k set up for retirement, I wouldn't worry too much. If I were 40 with $100k in retirement, I would)
4) Pay any other debt - top to bottom in terms of effective interest rate (interest rate after any tax deductions resulting from that debt)
5) Hookers and blow
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