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Old 05-22-2015, 06:00 PM
 
71,584 posts, read 71,730,589 times
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it is only cherry picking a worst case scenario if you had little or no money in . otherwise it is fact and very real.

if you had money of any great amount invested 15 years ago OR EARLIER - it hit a wall and died pretty much on the vine regardless of when you put it in prior.

only new money saw decent growth.

i don't call that looking for the worst case scenario. i call it living the worst case scenario's if you had money in.

real returns the last 15 years were way below the averages .


by the same token what if 15 years from now your balance as of today gained less than a 2% real return on average , would you still call that data mining for worst case

scenario's ? i would doubt that very much , you would say what i am saying " the last 15 years sucked!" no different than me saying the 15 years prior to that we had the greatest bull market in history. but if you had little money invested the time frame really means nothing to you other than just another date in history.

in fact if you want to see what real returns on all the asset classes looked like over all different time frames , here is an excellent study.

http://www.thornburginvestments.com/pdfs/th1401.pdf

Last edited by mathjak107; 05-22-2015 at 06:20 PM..
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Old 05-22-2015, 06:12 PM
 
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Quote:
Originally Posted by jrkliny View Post
I just checked my Fidelity accounts since the accounts are clean with no additions or subtractions for a number of years. Analysis shows 65% stock, including 7% foreign. The one year performance overall performance is at 7.9%. I don't know how to get a 6 month figure and I don't think I care. I also watch the DJIA as I have for many years. Volatility has not changed and the market can go up and down by 300 points or so with no systematic correction. Averaging for fluctuations, the DJIA increased from about 16000 to 17500 in 2004. That is pretty much the same increases we have seen for the past several years. With the same trend the DJIA should end the year around 19000. At 18300 we are perfectly on track.

As always you seem to look for an find the worst case situations. With the substantial volatility it is useless to compare a couple of data points a few months apart. I remember 2003 when a bunch of idiots claimed the stock market was doing 20%. BS. It started the year with a fluctuation on the low side and ended with a fluctuation on the high side. The true averaged out return was more like 15%
checking fidelity on that new screen that shows ytd it shows



+8.17%
Rate of Return* (1-Year)
AS OF 04/30/2015

but that is a far cry from what is happening now as well as a month behind
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Old 05-22-2015, 07:18 PM
 
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What do you think is happening "now"? As I remember the DJIA hit an all time high a few days ago. So did my overall portfolio. Still I would give up looking at short term fluctuations. That is almost as bad as listening to the evening market report.

I think you should give up looking at "now". There are plenty of fluctuations of plus or minus 300-500 points or so. Trying to see some sort of trend over a period of a few months will just lead to frustrations.
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Old 05-22-2015, 07:45 PM
 
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Quote:
Originally Posted by mathjak107 View Post
...... here is an excellent study.

http://www.thornburginvestments.com/pdfs/th1401.pdf
Interesting study. Of course one of the major points illustrated is the compounding effect of inflation. This makes a low cost fixed rate mortgage even more attractive. Towards the end of the mortgage, those fixed payments will look very small. So I get the advantage of having today's money and paying for it years later with money that has been devalued due to inflation. Works for me.
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Old 05-22-2015, 08:12 PM
 
Location: Proxima Centauri
4,815 posts, read 1,987,719 times
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Quote:
Originally Posted by Emigrations View Post
I just turned 29 and am looking at buying my first home over the next year. I work in Indianapolis but don't want to live in the inner city. I'm looking at reasonably priced condos and small SFHs in the better parts of the city and suburbs and am finding quite a bit I can afford, but I can go to small towns outside of Indy and probably save considerable amounts of money. I'm currently renting a 2BR and with rent, water/sewer, and electric, I'm up to $1,000/month. It's a decently kept but very dated apartment, and it's money down the drain. There are smokers/animals beside me and I want neither, and I want something on one level, with a basement possibly for optional use. There is a possibility of me getting married but can't foresee any kids.

I have been thinking of buying with a small mortgage ($50k-$110k or so) and trying to pay it off as fast as possible (hopefully by 40-45). This would give me the ability to be completely debt free for ten to twenty years prior to retirement, and to contribute a considerable amount.

Did you pay off a mortgage early and find it helpful or that the money was better allocated elsewhere? Even if it was better allocated elsewhere, did you find the peace of mind of being debt free worth it?
Save for the mortgage on your own but not at the expense of a 401K or IRA. The tax benefits are too good to pass up and it's the early money that will allow you to make the most of the investment. If you have the self discipline, save the mortgage money in a savings account so that it is there for a catastrophe.

My father told me any fool can spend money. Making it is the hard part.
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Old 05-22-2015, 08:29 PM
 
Location: Proxima Centauri
4,815 posts, read 1,987,719 times
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Quote:
Originally Posted by jrkliny View Post
Interesting study. Of course one of the major points illustrated is the compounding effect of inflation. This makes a low cost fixed rate mortgage even more attractive. Towards the end of the mortgage, those fixed payments will look very small. So I get the advantage of having today's money and paying for it years later with money that has been devalued due to inflation. Works for me.
Yes it was an interesting study. I didn't have the opportunity to read it in depth but I did see what you could turn $100 into over 30 years.

I would like to add this: There was an investment available back in 1983 that would turn $2000 into $20,000 in 20 years. It was called a TIGR. That is an acronym for Treasury Insured Growth Receipt and held to maturity it did yield $20,000. It wasn't or couldn't be called. We may choose to inflate our way out of these deficits, and if that happens these incredible investments may be around again.
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Old 05-23-2015, 02:52 AM
 
71,584 posts, read 71,730,589 times
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Quote:
Originally Posted by jrkliny View Post
Interesting study. Of course one of the major points illustrated is the compounding effect of inflation. This makes a low cost fixed rate mortgage even more attractive. Towards the end of the mortgage, those fixed payments will look very small. So I get the advantage of having today's money and paying for it years later with money that has been devalued due to inflation. Works for me.
there is a flaw though in your logic.

the mortgage is not an inflation hedge . only what you buy with that mortgage money acts as the inflation hedge.

a mortgage is like fire insurance . it is a tool , it is protection but without an inflation rider added to grow your protection over time you have no protection . getting paid in 30 years in today's dollars if your house burns down will not rebuild your house.

you need a means of inflation protection in your policy or just having the policy is useless.

so a mortgage is the tool that allows you to buy something . it in itself does not mean you will have an easier time paying it back because of inflation .

what makes mortgage money valuable is we hope to invest it in a faster growing asset or we hope to earn more income over time making those mortgage payments a smaller percentage of our income.

but , think about the fact wages have been stagnant for decades now , in fact i earned more 15 years ago,

so that mortgage would be just as difficult to pay today or represent as much of my yearly income as it ever did despite inflation's rise.. in fact because everything else went up with inflation and wages didn't for much of america that mortgage can be a bigger burden today to pay then it was 15 years ago.

you can't look at a mortgage in general terms and what inflation means to it. you can only judge it by your own earning ability and the ability for you to increase wages making you the inflation hedge or you need it to grow assets that you buy and then they are the inflation hedge.

as long as the assets go up you win but that cuts both ways and if assets drop and cost you money then you lose.

otherwise a mortgage is only a tool that can buy an inflation hedge.
,

Last edited by mathjak107; 05-23-2015 at 04:04 AM..
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Old 05-23-2015, 05:21 AM
 
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When I first moved to NY, the cost of housing and my mortgage were an uncomfortable large portion of my income. Within a few years of inflation, that fixed mortgage cost became a much smaller portion of my income. That is one reason I never wanted to rent. A fixed mortgage really does serve as a hedge against inflation. As with any debt there are advantages to buying something today with tomorrow's money. It is the interest that hurts. Can you imagine how bad it would be if mortgage costs were adjusted for COL?

I do agree it is a somewhat strange idea to call a mortgage a hedge against inflation. We usually apply that term to income which increases with inflation. That is my biggest concern with retirement planning. Social Security is adjusted. Pensions are not. We need to look at the returns on our portfolio and consider the needs to keep up with inflation. As you have pointed out, often we are growing our portfolios but not our spending power because we are barely keeping up with inflation. My personal costs always seem way higher than the official numbers for inflation. Supposedly we have very low inflation but a decent steak has grown to be $10-15/#. I took my truck in for service and had a 20% increase over what I paid a few years ago. Except for gasoline/diesel I am hard pressed to find anything that went down in price. With lower fuel prices, LIPA still plans to raise electric rates. My propane delivery cost more now than in the Fall. And on it goes.
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Old 05-23-2015, 06:46 AM
 
71,584 posts, read 71,730,589 times
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Quote:
Originally Posted by jrkliny View Post
When I first moved to NY, the cost of housing and my mortgage were an uncomfortable large portion of my income. Within a few years of inflation, that fixed mortgage cost became a much smaller portion of my income.
inflation had nothing to do with making it tht mortgage a smaller part of your income . you increased your income -period .. if you were unemployed or passive income failed to grow nothing would have changed as far as the weight of that mortgage on your budget.

we had lots of inflation the last 15 years but we had little to no wage growth so nothing changed for many . inflation changes nothing if income does not grow and income does not grow just because we have things around us going up in price.. many of us will tell you the same story . inflation pushed up costs of other things but income has barely kept pace and that mortgage is still as much a burden as it always was to so many workers..

as far as housing costs not increasing as much as renting , that is a benefit that you get from ownership , the mortgage is only a vehicle to obtaining ownership. if you had no mortgage at all you would have the same lower cost benefit of ownership .

in fact no mortgage would have dropped costs even lower assuming you were like the typical small investor who really stinks at investing.

Last edited by mathjak107; 05-23-2015 at 07:23 AM..
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Old 05-23-2015, 07:11 AM
 
Location: RVA
2,165 posts, read 1,266,382 times
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But for many, salary HAS changed substantially. For professionals, raises have been typically 2.5- 3.5% over the last 6 years, and inflation less than that. These are by far my best earning years (low 50s until retirement), with regards to dollar amounts exceeding my requirements, and as I've mentioned before, percentages don't tell the whole story, AMOUNTS do. My ENTIRE salary is increased with raises, yet every cost I have (like a mortgage) does not. Deciding on whether a mortgage is right or not depends on too many factors for there to be a definitive right or wrong answer.
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