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Old 04-18-2015, 03:44 PM
 
29,784 posts, read 34,880,403 times
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Quote:
Originally Posted by ncole1 View Post
But why would you need $200K in cash for emergencies if you do have health insurance?
Cash is part of your asset allocation. Now I agree the OP wouldn't want to put all if their money in cash . However consider the following. Bonds are paying little now (depending on the type of bond)now but in two years? Three etc. Tie money up in the house and those higher interest rates might not be an opportunity. They did not get this money over time so their management skills are still developing.
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Old 04-18-2015, 03:47 PM
 
12,708 posts, read 9,981,349 times
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Quote:
Originally Posted by TuborgP View Post
Cash is part of your asset allocation. Now I agree the OP wouldn't want to put all if their money in cash . However consider the following. Bonds are paying little now (depending on the type of bond)now but in two years? Three etc. Tie money up in the house and those higher interest rates might not be an opportunity. They did not get this money over time so their management skills are still developing.
Realistically, how fast do you expect rates to rise? Would 2% rise over say 3 or 5 years be enough to make up for the fact that for the first 3 years you essentially borrowed at 4% to invest at 1%?

I think not.
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Old 04-18-2015, 03:54 PM
 
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Bonds (being fixed-income instruments) are great when there's deflation or negligible inflation. So is cash. They are safe! Both get killed when inflation roars though.

Stocks protect against inflation to an extent (as does real estate) but stocks are at an all-time high right now which doesn't strike me as the ideal time to dive in.

If you can predict inflation, go get a job on Wall Street. You'll be handsomely rewarded.
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Old 04-18-2015, 04:00 PM
 
29,784 posts, read 34,880,403 times
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Quote:
Originally Posted by ncole1 View Post
Realistically, how fast do you expect rates to rise? Would 2% rise over say 3 or 5 years be enough to make up for the fact that for the first 3 years you essentially borrowed at 4% to invest at 1%?

I think not.
The reality is the OP now has a portfolio or nest egg and needs to decide how to deploy. Lots of good possibilities and they need to learn themselves. We are discussing this in a void of other information. Perhaps I missed it but prior to this inheritance how much in liquid assets did they have?
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Old 04-18-2015, 04:25 PM
 
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Quote:
Originally Posted by honobob View Post
I'd rather have $200,000 handy and a $926 a month payment vs no cash and no payment.
Why are those the only options? Why not some of the debt and some of the cash?
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Old 04-18-2015, 04:32 PM
 
12,708 posts, read 9,981,349 times
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Quote:
Originally Posted by TuborgP View Post
The reality is the OP now has a portfolio or nest egg and needs to decide how to deploy. Lots of good possibilities and they need to learn themselves. We are discussing this in a void of other information. Perhaps I missed it but prior to this inheritance how much in liquid assets did they have?
We don't know, and yes, a liquid cushion IS important, but $200k worth?
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Old 04-18-2015, 04:33 PM
 
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Quote:
Originally Posted by ncole1 View Post
You have STILL yet to explain HOW it is anything but a waste of money to hold a mortgage and have BONDS at the same time, which pay a lower rate than the interest on your mortgage.
Actually last year my bond funds returned about 5%. Bonds are a part of a diversified portfolio. When the stock market drops, the money often goes to bonds and the bond funds do well. After a drop in the market, having bonds permits a rebalancing; i.e., buying stocks at a low price. As the stock market rises, rebalancing also means selling off some stocks and buying bonds.
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Old 04-18-2015, 06:06 PM
 
Location: SF Bay & Diamond Head
1,779 posts, read 1,420,368 times
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Quote:
Originally Posted by ncole1 View Post
Why are those the only options? Why not some of the debt and some of the cash?
Mostly because any partial contribution to the debt would be paying for debt 30 years into the future. At low fixed interest rates I don't want to pay 2045 debt with 2015 dollars.
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Old 04-18-2015, 06:46 PM
 
Location: Great State of Texas
86,093 posts, read 72,534,315 times
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Quote:
Originally Posted by honobob View Post
Mostly because any partial contribution to the debt would be paying for debt 30 years into the future. At low fixed interest rates I don't want to pay 2045 debt with 2015 dollars.
But the OP isn't paying a mortgage for the next 30 years.
They are retiring in 4-5 years and selling their home.
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Old 04-18-2015, 06:52 PM
 
71,700 posts, read 71,801,099 times
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Quote:
Originally Posted by jrkliny View Post
Actually last year my bond funds returned about 5%. Bonds are a part of a diversified portfolio. When the stock market drops, the money often goes to bonds and the bond funds do well. After a drop in the market, having bonds permits a rebalancing; i.e., buying stocks at a low price. As the stock market rises, rebalancing also means selling off some stocks and buying bonds.
the problem with bond funds and bonds is you either reap the capital appreciation or you get the income. you can't get to have both.


you can sell the bonds but then what ? you have to reinvest them in cash or bonds at lower rates if you made a profit .

it is no different than getting the rent from a property or taking your gains , you can't have both and if you take the gains the income stream ends.
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