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The flaw with this thinking is assuming you invest in the right thing and assuming you pull your money out at the right time and nothing goes wrong. .
Investing in the right thing is not that hard. Vanguard Wellington. 65% stocks, 35% bonds. Held up relatively well in 2008, lost about 22%. That was much better than the stock market as a whole, yet the fund has beaten the S&P 500 stock index over the last 20 years. It probably won't over the next 20, but the volatility is modest.
If you're a scaredy cat, there's its sibling, Vanguard Wellesley Income. About 2/3 bonds and the rest in dividend paying stocks. It lost less than 10% in 2008. Has returns over 7% over the last 15 years, near 7% returns over the last 10.
The above 2 funds are among the best for risk/reward, but there are other decent ones, too. This stuff isn't as difficult as you're making it out to be. The key is not to have an all/nothing mindset. You probably shouldn't have all your money invested in stocks. But you shouldn't have nothing, either.
...all depends on just who you're trying to impress. I don't know that either is a great status symbol but I don't pay much attention to that kind of thing.
Not everyone with a paid off home, doesn't have a lot of money to live off of/or invest.
Some of you need to expand your awareness levels.
It's not having a paid off home, it's paying off your home early to the point where your home equity makes up a significant amount of your networth. Just like I wouldn't want 50% of my NW invested in a single company stock, I also wouldn't want that much invested in my home. I could lose my job and need to move for a new one. I could decide to move in a down real estate market, my neighborhood could undergo a significant resident change to the point where I wouldn't want to live there any longer, etc., etc. 30 years is a long time. My in-laws bought homes in Orlando in the late 80s and when they moved they kept them as rentals. Now many of those homes are in very poor neighborhoods. There is no way you could have known that 30 years ago, but it happened. The value of the homes has done nothing over that time and if it was still their primary residence you better believe they wouldn't want to live there any longer.
Paid off house mortgage is the status symbol of choice rather than a BMW
In my expereince people who have the flashy car are commonly in debt and their actual finances are a mess.
I know that may sound insulting, I spent 20-years in the Navy and that is what I experienced among sailors that were sent to me for financial counseling.
I have had four mortgages in my life. Each of them were for Multi-Family-Residences. My family lived there along with tenants. We had rental income with which to make those mortgage payments rather than using my salary income.
We focused on making an extra principal-only payment every month, to buy down those mortgages faster.
I had no intention of ever making a mortgage payment using my salary income. I wanted to be debt free before I retired and it worked.
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... We have a 30 year fixed rate mortgage at 3.625% interested started in July 2015, and put 30% down. We have an emergency fund, contribute to retirement accounts every month, and pay into the kids college 529 every month, $400 each month for each of the 2 kids. (They are 3 years old and 6 months old).
You have a low interest rate and it sounds like you are very stable. My mortgages were all in the 10% to 12% range, which is very different from 2017.
Personally I like being out of debt. If disaster strikes [you lose your job or a medical crisis] that debt could turn a minor crisis into a major crisis. Both sets of my grand-parents had mortgages in the 1920s, when the banks locked their doors and froze all bank accounts, my grand-parents were not able to access their savings to pay mortgage payments. So the banks foreclosed on the mortgages and evicted them.
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... So far, I have paid 4 extra payments consisting of principal to the mortgage since 2015. What is a reasonable goal or time period to pay this down? Or in other words, how quickly should I pay down this 30 year mortgage? Is it reasonable to throw extra money at this mortgage each year?
If you decide that paying your mortgage off fast is the right path for you. I recommend that you play with the math first.
Try $100/month, $200/month, etc, and see how the numbers compare for you. That was what we did for our mortgages.
I paid off a mortgage after seven years. My wife did not have to work full-time, we traveled and had winter vacations in Hawaii and Mexico. All our friends wondered how we could afford it. Well, without a mortgage it was easy.
We then bought a second home, that we ran as a vacation rental business. No problem getting a loan, since we did not have a mortgage.
We then found the "perfect" home that we needed to make a non-contingency offer since it was going to sell off the open house showing for realtors. No problem, the bank had no issue with us owning three homes at the same time. We could cover the "new mortgage" easily.
BTW, never made a six figure income in my life. But paying off the mortgage was key to a great lifestyle. Granted, I was lucky to start seriously investing in 1982 for retirement. That was a great ride and pretty much quit adding to our retirement funds in the early 90's. Still had more than enough money for retirement 15 years later.
This is the way to pay off a mortgage. Thanks to a TV informercial by Kiplinger Money Letter when I was a kid. Boy, I remembered it and it was great.
Their point was think of the mortgage as getting one every month!!! Get a amortization table for your loan (your loan papers should have it included). Their point was look at the interest paid and principal paid for each month.
Notice at the beginning of the loan the principal payment is very,very small relative to interest. So just decide you don't want to "borrow" the money next month and pay the extra principal payment this month. There you have just reduced you loan period by one month.
Be sure to tell them to apply the loan to principal. It is NOT an extra payment!!
When I got a new mortgage I always started prepaying one or two principal payments every month. When I got to a even split between interest and principal I started cutting back on additional payments. That usually happens when you pay down half the loan.
With today's low rates it might make sense to depending what inflation does to not pay off a mortgage quickly, but with a new mortgage making additional principal payments is a no brained.
We have a 30 year fixed rate mortgage at 3.625% interested started in July 2015, and put 30% down. We have an emergency fund, contribute to retirement accounts every month, and pay into the kids college 529 every month, $400 each month for each of the 2 kids. (They are 3 years old and 6 months old).
We "try" to also save on the other big expenses like for a future car and future house expenses or break-downs.
So far, I have paid 4 extra payments consisting of principal to the mortgage since 2015. What is a reasonable goal or time period to pay this down? Or in other words, how quickly should I pay down this 30 year mortgage? Is it reasonable to throw extra money at this mortgage each year?
Adding 1 extra principal payment per year only cuts out 4 years out of a 30 year mortgage I think.
It would be great to pay off this mortgage before the kids get to college to have more money left over each month for other expenses.
when you have the mortgage paid off will you be putting up a sign on your house like "Mortgage on this house has been paid off completely!"
In my expereince people who have the flashy car are commonly in debt and their actual finances are a mess.
I know that may sound insulting, I spent 20-years in the Navy and that is what I experienced among sailors that were sent to me for financial counseling.
Can I go slightly OT and ask you a question?
Someone I know is married to a guy who, like you, did 20 years in the Navy. He is mostly a sensible man but he does not have a rational relationship with money. If he sees they have $65,000 in a liquid investment, he spends it. All of it.
He bought a new flashy foreign car for his wife that she neither wanted or needed. He has gone through all the money he can get his hands on, including funds set aside for children and grandchildren.
His explanation was that when he was in the Navy, when sailors got their pay they spent it all and now it's ingrained.
This is a portfolio construction problem masquerading as a "should I pay off my mortgage" question.
Make a pie chart of your gross worth -- not net worth. How big a slice of the pie is invested in real estate? If it is too large -- a non-diversified portfolio - then use new funds to invest in other assets (stocks, bonds, etc) so that as the pie gets larger, the slice devoted to real estate shrinks.
Once you have the slice of the pie invested in real estate set at the correct level -- but only once you have the right portfolio allocation among real estate, equities, bonds, etc, only then should you consider paying down debt or not.
One final note: the value of your home is a function of the local economy. If you live in an area dominated by one industry, and you work in that industry, you have an unbalanced risk profile -- so as you invest in equities, it may make sense NOT to invest in the industry that dominates your local economy. For example, if you live in Silicon Valley and work in a large name brand tech company, it may make sense to invest less of your assets in tech and more in other industries not related to high tech (e.g., finance, insurance, etc.)
Last edited by SportyandMisty; 10-02-2017 at 12:02 PM..
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