What's next after paying off debt and mortgage?

[Lowexpectations]

Originally Posted by fumbling

See this article
https://advisor.myadvisorcenter.com/...inkle-0814.pdf
and this one
Deconstructing 30 Year Stock Market Returns

Well per your article they are not using cagr for what you are citing

In fact, if we average all 69 20-year rolling periods between 1926 and 2013 is 11% annu- alized. What does that mean in dollar terms? If we compound $100,000 by 11% per year for 20 years we get $806,231.5

That's not cagr my friend

And from your second link

So I calculated the annual returns from each of those three 30 year periods to see how they stacked up:

Also not cagr

I'm repeating the information from these articles, that for every rolling 30-year period and every rolling 20-year period since 1926, the median return is about 11% annualized (CAGR). Probably I should have added "rolling" 30-year period to make it clearer.

You google CAGR because you are using the term incorrectly

[fumbling]

Originally Posted by Lowexpectations

Well per your article they are not using cagr for what you are citing




That's not cagr my friend

And from your second link



Also not cagr




You google CAGR because you are using the term incorrectly

CAGR and annualized returns are different terms that mean the same. For example from the first article, "To put that into perspective, $100,000 compounded at 17% per year for 20 years is $2,310,560." Please let us know how is CAGR of 17% different from an annualized return of 17% my friend? Both involve compound rates of return not simple averages.

[artillery77]

Originally Posted by ShiverMeTimber

Just curious what yall think the smartest move is after completely paying off your mortgage, loans, and credit cards? Is saving $$ for the next market downturn the best option, or maybe buying a 2nd home and renting out the first to pay for the mortgage on the new one? Just curious what some of you savy folks would do. I have a plan to be debt free in less than 3 years from now. Any books to recommend?

Congrats on completely deleveraging. It's a great step in significantly reducing one of the largest expenses you'll have, in living costs.

The good news is you can do what you want, but remember the equation:

Income - Expenses = Savings

Paying a mortgage will free up cash flow for you. While the bill is annoying, it really is forced savings. As others have suggested you can keep making that payment and sock it away into a savings account while you figure out your next step.

Think of your finances like a boat. Most of us start in a ruddy rowboat, with barnacles along the bottom that slow us down and maybe half an oar that we can use to self propel ourselves forward. Getting a principle residence paid off is like getting rid of anchor. It's great and it feels good, but we still have to row ourselves anywhere we want to go.

Your Income (Replace the oar with a motor)

If wages represent 100% of your income, you'll need to keep in mind that you'll need some way of replacing most of that income if you want to retire. Interest, Dividends, Royalties, Rents, Pensions and Annuities are normally how it's done, but that's generally from an ending investment from money earned in a different way (Wages, Capital Appreciation, Sale of business or property).

How you want to do it will depend on what you are comfortable with. My wife makes just as much altering clothes as I do handling the finance at a fairly large international company. She loves what she does and will likely want to do it forever, but eventually move more and more duties to employees. I'm not so in love with what I do and will want to do something entirely different in retirement. Her future income mix will come from her store and rents. Mine will come from a mix of rents, bond interest and dividends.

If you don't know where to dump the money, just put it into an S&P 500 ETF that Morningstar rates well. The market will go up and down, but it will trend overall up. The critical item is to prevent poor spending by investing it into something.

Your Expenses (Streamline that bottom line so you waste nothing)

Paying off the home eliminates a significant variable expense. You can look at getting more efficient. Are their improvements to your home that make sense? (Solar, roof, insulation upgrade, efficient appliances/HVAC) How about your vehicles, are they efficient and reliable?

The biggest expense is a tough one to see savings on, but it's your health. Investing a bit of money to do what you need to do in order to get motivated to eat well, stay in shape and maintain a supporting lifestyle with other conscious friends and family is important. Certainly curtail any bad habits (smoking, drinking, drugs, gambling, vice etc.) that are destructive elements in your life. Make sure the family is all good.

Your Protection (Make sure your boat doesn't spring a leak)

Make sure you're paying for your major insurances for yourself and your family. (Health, Dental, Disability, Death, Auto, Casulty etc.) This saves your from acute shocks.

Try to build up cash that is available in when you need it. The size is enough to keep your bills paid and keep you comfortable enough to wait for the right replacement labor should you switch jobs.

Consider buying an ounce of gold for the family on some date each year. With any luck, this is purely wasted money, but it's like a deep savings in the most international currency.

Hope it helps!

[Pub-911]

There isn't as much truth in "The Gospels" as some preacher-men will try to tell you there is. A mortgage is simply a long-term contract for residential services, something you will need in the long-term in any case. Such a deal may be very advantageous to you, or your circumstances may be such that it will not be. Do the homework, then play it as it lies.

In general, paying off a mortgage has been not such a hot idea for most people for some years now. Yet it may have been just what the doctor ordered for some people in some circumstances. In my own case, the last thing I did before retiring was to refinance the existing 30-year fixed rate mortgage into a new one. That made a ton of sense for me at the time, but it's not what everyone should necessarily do. Figure out where you are, know what options are available, and pick the one that seems best.

Here endeth the lesson.

[Lowexpectations]

Originally Posted by fumbling

CAGR and annualized returns are different terms that mean the same. For example from the first article, "To put that into perspective, $100,000 compounded at 17% per year for 20 years is $2,310,560." Please let us know how is CAGR of 17% different from an annualized return of 17% my friend? Both involve compound rates of return not simple averages.

A 17% annualized return and a 17% cagr produce the same results however annualized and cagr aren't the same thing so the way the above happens for instance is if say over 10 years you earn 17% each and every year

By definition, Annualized Returns and Compounded Annual Growth Rate (CAGR) are not the same and represent two different views of return on investments.

The equation to calculate each is different, take a look

https://www.wealthenabler.in/knowled...turns-vs-cagr/

[fumbling]

Originally Posted by Lowexpectations

A 17% annualized return and a 17% cagr produce the same results however annualized and cagr aren't the same thing so the way the above happens for instance is if say over 10 years you earn 17% each and every year



The equation to calculate each is different, take a look

https://www.wealthenabler.in/knowled...turns-vs-cagr/

I am absolutely not using that definition of annualized return as in the above link and neither do any professional investors use annualized return that way, except for people who intend to mislead others. Professional investors call that average annual return and I definitely agree that is misleading to refer to average annual return as annualized return. I've never used annualized return to mean what the above link says.

Take a look at the below link, that is what I mean by annualized return, and that is what is meant in the two articles I cited previously about rolling 20 year and 30 year annualized returns.

Annualized Return

The annualized return, also called the compound annual growth rate (CAGR), is a measure of the performance of an investment. Compute the annualized return using the buy and sell prices and the total time you held the investment. Using the mathematical routine called a power functionwith a spreadsheet or computer program, compute the interest rate that if compounded for the holding period gives the final investment value for the initial amount invested. That interest rate is called the annualized rate of return.
Suppose you started with $1,000, and ended with $2,000 after holding the investment for 10 years. For another investment you paid $500 and sold it for $750 in two years. Which investment performed the best? For the above two investments the annualized returns are 7.18 percent and 22.47 percent respectively. Therefore, the $500 investment yielded a larger annualized return than the $1,000 investment.
Because the annualized return standardizes the holding period to one year, you can compare returns for investment with different holding periods. Most investment professionals use annualized returns to evaluate the performance of their investments.

[ukrkoz]

Save enough for 6 months GT expense.
The rest - stick into real estate.