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Boss : I need you to fly with me tomorrow for an emergency matter on our project.
You with mortgage : Sir yes sir!
You without mortgage : Oh Heyl No!
Example Scenario 2 :
Boss : My secretary's out. I need you cover for her to copy this 200 page manual 50 times right away and set up the invites to these 50 people right away.
You with mortgage : Sir yes sir!
You without mortgage : Oh Heyl No!
Example Scenario 3 :
Boss : Our profit is not that great this year so no salary increase for our team and instead you'll be taking up workload of John who will be leaving us.
You with mortgage : Sir yes sir!
You without mortgage : Oh Heyl No!
If you borrow a few hundred thousand and invest it you can still answer those questions anyway you want. You will have cash in hand to do what you want, rather than cash in a house that might be hard to sell. BTW, I find those answers extremely sad. I always worked with my bosses to help make the organization improve. That often meant working long hours, doing menial tasks and taking on more assignments. If I could not work with my bosses and was not eventually rewarded for my efforts, then I resigned and left to work elsewhere.
remember too , if you are spending down not only do you have to beat the return of the mortgage but now you have another obstacle .
when spending down that average return has to be in the right order of gains and losses . you can have an average return that beats the mortgage but if it is in a poor sequence the mortgage wins . for every year you don't beat it the following year has to do better by that amount plus what it already needed to do .
remember too , if you are spending down not only do you have to beat the return of the mortgage but now you have another obstacle .
when spending down that average return has to be in the right order of gains and losses . you can have an average return that beats the mortgage but if it is in a poor sequence the mortgage wins
that's why instead of average returns you should focus on CAGR.
when spending down even cagr averages mean little unless spending is subtracted each year too . the same exact average depending on the order can fail 15 years sooner just by the sequence being different .
if you are living off it .
cagr is fine when not spending down but it has to be included with spending and inflation .
1987 to 2003 saw a nominal return of 13.57% and cagr was 12.12 .
if we take a 100k portfolio and leave the rate of inflation with our savings and draw everything over , depending on your order of gains and losses you have anywhere from minus 186,000 to plus 76,000 left. is that incredible ? 12.12% returns cagr and no money left . but that is what happens if the crappy times hit first . by the time the good times beef up the averages you have to little left to matter .
so the rules of the game are very different when spending down and you now have to have two favorable conditions , both returns and their sequences have to be favorable . it isn't enough to just beat the interest rate long term . you have to beat it in the correct order too ..
when spending down even cagr averages mean little unless spending is subtracted each year too . the same exact average depending on the order can fail 15 years sooner just by the sequence being different .
if you are living off it .
cagr is fine when not spending down but it has to be included with spending and inflation .
you were talking about comparing returns on a mortgage to investments. Why are you suddenly talking about spending down your portfolio?
because if you are trying to beat that interest rate and have a mortgage in to retirement it is not a simple case of just beating the mortgage rate if you are living off that portfolio .
their is another parameter introduced now that makes it more difficult . you can average better then that mortgage rate but if it isn't in the right order of gains and losses you do not come out ahead . that mortgage payment coming out increases your sequence risk effect .
that is very important to consider if you are going to be retired with that mortgage .
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