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The average for the S&P500 over the past 30 years is 12%.
Not according to the data I've seen. The Compound Annual Growth Rate (Annualized Return) for the past 30 years is 8.96%. I used the calculator located here: CAGR of the Stock Market: Annualized Returns of the S&P 500
Timeframe: Jan 1, 1977 to Dec 31, 2006.
Not according to the data I've seen. The Compound Annual Growth Rate (Annualized Return) for the past 30 years is 8.96%. I used the calculator located here: CAGR of the Stock Market: Annualized Returns of the S&P 500
Timeframe: Jan 1, 1977 to Dec 31, 2006.
I would say it is not a good measure for this discussion... it does note 'These returns are just capital gains, not dividends; if you owned an S&P 500 index fund with low fees you would have made more money than this.' The current annual dividend yield is over 1.8%. Even if you go back to the 1871 start of the index you wind up with 9.2% returns. Of course no one can tell the future but the best models put future returns from a low of 5% to a high of 17%.
It is always a challenge to get a current number because both changes in dividends paid as well as stock prices alter the yield. This has a recent chart..
We paid off our mortgage years ago. Felt good then - feels good now. When we retire we'll pay off the majority of the new house with proceeds from the sale of this one. We could probably pay it all off, but we are planning on some upgrades: Metal roof, concrete/styro foundation and walls, whole house generator, third car garage stall as a full workshop, concrete "safe room" in the basement, etc.
The last new car we bought in 2003 had an interest rate so low that I stopped my wife from paying with a check like she wanted to. We were earning more from interest on our account than we were going to pay on the car loan! Made money on the deal for four years. Didn't get rich, but it ended up costing less than an on-the-spot payoff.
I've known quite a few people to have paid cash for homes. Usually it's not a first home, though. Most of the people I know that have done this have had successful careers and substantial equity in previous homes. Why wouldn't it be possible? I'm not saying it never happens, but just not very likely for a first-time-home buyer in his/her early 20s unless he/she were independently wealthy (inheritance, lottery). If this was later in life (after working for a few years in a high paying job) then yeah, buying a house in cash is probably quite a feeling of freedom.
I am one of the about to be retirees you describe. Able to pay cash for a new home and comfortable retirement income. It will be great to be retired with no mortgage and great guaranteed income. No matter how many times you crunch the numbers it comes out great and with no mortgage the margin for error down the road is minimal
I am a realtor and you would be supremely surprised to know how many people have all CASH to buy homes these days. Even very expensive ones, those people are just waiting to pounce soon on many of the good deals out there, beat 'em to it and make YOUR million!!!! It would serve them right. Besides, why would anyone do that? You could parlay the 100% cash payment to 5 homes with 20% down and rent the other 4 out until you can cash out and make another mint!
I thought about this, but my accountant and broker both advised strongly against it. They both felt that a low fixed interest rate (just above 5%), coupled with the tax write-off made more sense, since the money could be invested for greater value elsewhere. I'm not retired, so it would probably be different otherwise. But I hate paying that mortgage and commend all of you who are debt-free!
I agree with your financial people - to a point. IF you are disciplined enough to invest every cent of what you would have paid extra on your mortgage you should end up with more money in the end by carrying a mortgage. That's a mighty big IF, though, for most people.
It also fails to take in to account that we're really not trying to build up money, we're trying to build up wealth. In the abstract wealth is a tenuous concept but one way to think of it is as the things that are important to you. For some of us the sense of wellbeing that we get from being debt free adds to our "wealth" more than the marginal difference between what we'd have if we diligently invested every cent that we would have paid extra against our mortgage and continued to pay out for the life of the loan.
We're learning discipline in investing but mostly we're much more relaxed and much happier being debt-free than we would be with a mortgage over our heads. I say bully for those of you who look at it differently but don't forget that there are those of us out there who understand why it can give more money but still choose not to do it that way (with the advice and full consent of our financial advisor, no less.)
We own five houses. We leveraged the equity in the first a few years ago to cash some out (not ALL!!) and bought the first investment, a duplex. That is rented and totally pays for itself, with a tiny buffer. Then we bought the second, also a duplex and though that one actually costs us a tiny bit (we pay utilities) it is waterfront and has appreciated well above what we paid for it, even in this down market.
We then bought a quadplex - and that one provides about $1200 per month over the morgage, which more than pays for the second home's tiny deficit.
Finally we bought our 'retirement' home which is a duplex with four tiny studios on the property as well. That one is also paid for by the rent of the units, AND provides a vacation home for us as well.
If we had paid cash, we'd have one home.
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One of the fortunate ones
