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Old 05-26-2015, 05:36 PM
 
Location: SF Bay & Diamond Head
1,779 posts, read 1,420,794 times
Reputation: 1971

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But at year 30 I NO LONGER HAVE A MORTGAGE EXPENSE and my portfolio has experienced the same ups or downs as the lower portfolio so at this point I'm GOLDEN. My property has experienced the same appreciation but now my LARGER investment portfolio is killin' it.
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Old 05-26-2015, 05:38 PM
 
71,716 posts, read 71,829,507 times
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The whole best case picture is above.
The difference is your larger portfolio has been spending down at 73k a year for 30 years vs only 50k with the house paid for.

You have 2 million reduced 73k a year for 30 years vs 1.60 million reduced 50k a year for 30 years.

Both see the same 8% return on investments all though on different balances and both see the same home appreciation with the same eventual equity in the house.

As long as sequence of returns is favorable the mortgage wins.

But that lead starts to dwindle the more unfavorable the sequences become.

Last edited by mathjak107; 05-26-2015 at 06:07 PM..
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Old 05-26-2015, 06:11 PM
 
Location: SF Bay & Diamond Head
1,779 posts, read 1,420,794 times
Reputation: 1971
Quote:
Originally Posted by mathjak107 View Post
As long as sequence of returns is favorable the mortgage wins.

But that lead starts to dwindle the more unfavorable the sequences become.

And with the Mortgage you have the advantage of the larger portfolio, The diversification of NOT having all the money tied up in an illiquid asset and invested in higher earning assets , and the ability to change course in response to changing economics.

Unfavorable sequences can and should be negated by having a proper withdrawal/investing plan.

Guess what? if there are unfavorable sequences the interest rates will be impacted and you can drop your mortgage expense even lower by refiing.
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Old 05-26-2015, 06:30 PM
 
6,302 posts, read 4,746,934 times
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Quote:
Originally Posted by mathjak107 View Post
....

As long as sequence of returns is favorable the mortgage wins.

But that lead starts to dwindle the more unfavorable the sequences become.
Very nice analysis. I did not double check you numbers but they seem about right. You always need to look at the worst case with unfavorable sequences of returns. You forgot to also look at the possibility of a more favorable sequence of returns. At 2 1/2 years I am a bit early to predict an outcome but so far my sequence has been very favorable with returns of well over 8% most years except for 2014 where I seemed to finish the year weakly at 8% overall.
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Old 05-26-2015, 06:36 PM
 
12,708 posts, read 9,984,291 times
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Quote:
Originally Posted by jrkliny View Post
Very nice analysis. I did not double check you numbers but they seem about right. You always need to look at the worst case with unfavorable sequences of returns. You forgot to also look at the possibility of a more favorable sequence of returns. At 2 1/2 years I am a bit early to predict an outcome but so far my sequence has been very favorable with returns of well over 8% most years except for 2014 where I seemed to finish the year weakly at 8% overall.
Have you gotten Firecalc to work for you again?
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Old 05-26-2015, 06:51 PM
 
Location: New York Area
15,948 posts, read 6,276,213 times
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Quote:
Originally Posted by rjm1cc View Post
He might be correct not to pay off but his reason is very very bad. At least he did not try and sell you an annuity. I think you might want to reevaluate his advise and consider a new planner.
*******************
look at https://www.creditkarma.com/. It is free and safe to use. It will teach you about credit scores.
Thanks. I find the site intimidating and inaccessible. And I'm pretty good with computers and sites.
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Old 05-26-2015, 06:59 PM
 
906 posts, read 651,676 times
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Quote:
Originally Posted by key2success View Post
Yep I would do 30 years. That way you can use other money to incest and make much more then what you would be paying on your mortage monthly

other reason are if you lose your job or whatever you will still have a low mortgage you can make. Basically you control your payments. Lets stressful. You can still pay your mortgage off in no time

opps meant "invest"
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Old 05-26-2015, 07:16 PM
 
6,302 posts, read 4,746,934 times
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Quote:
Originally Posted by ncole1 View Post
Have you gotten Firecalc to work for you again?
No. I just tried it again and have the same results. I went to the spending models to set inflation to 0 but that does not work. Tried 0.1% and got the same results. Tried 5% inflation and also got the same results. I must be doing something wrong but I cannot find the error.
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Old 05-27-2015, 01:37 AM
 
71,716 posts, read 71,829,507 times
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there is a check box on the spending page to have it inflation adjust or not

Last edited by mathjak107; 05-27-2015 at 03:05 AM..
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Old 05-27-2015, 01:38 AM
 
71,716 posts, read 71,829,507 times
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Quote:
Originally Posted by honobob View Post
And with the Mortgage you have the advantage of the larger portfolio, The diversification of NOT having all the money tied up in an illiquid asset and invested in higher earning assets , and the ability to change course in response to changing economics.

Unfavorable sequences can and should be negated by having a proper withdrawal/investing plan.

Guess what? if there are unfavorable sequences the interest rates will be impacted and you can drop your mortgage expense even lower by refiing.
the numbers are what they are. a bigger portfolio with higher expenses does not always win because the declining balance creates a higher withdrawal rate which takes bigger hits in negative years.

you can throw the same numbers i used in firecalc and see the range of outcomes.

since the house , equity and appreciation is constant to both cases after 30 years we only have to see the difference in the two portfolio's.


so throwing the numbers in firecalc this is what we get.

firecalc is running 115 different 30 year actual cycles that happened already . that is every 30 year cycle since 1926 as it actually played out with no assumptions..

firecalc says the 2 million dollar portfolio with 73k in expenses ( 50k in general expenses and a 23k mortgage) will have a worst case scenario of being minus 101,047 dollars at the end of 30 years or a best case of 11,992,000. the average ending balance was 4,244,000

on the other hand it says taking that 1.60 million dollar portfolio with 50k general expenses and no mortgage would have a worst case of 690,000 left ( never ran out of money ) or best case 10,354,000 . average ending balance is 4,082,000


think about this now , looking at the average balance the difference would be 4% higher with the mortgage, a best case of 15% difference and a worst case in favor of no mortgage of being broke vs having 690k left ..

you never ran out of money not using the mortgage regardless of the sequence so the span is risking being broke before 30 years in which case you may get foreclosed on with the house as you can't make the payments either or being up 15%. that would be your span of risk.


your tax deduction if any on the interest will effect the numbers above in favor of the mortgage so that would be a plus .

but even so in the real world the differences translate out to a much lower number than our mind suggests and the mortgage carry's a risk of going broke vs just eeking out another 15% or so.

i know my life would be effected far more going broke in retirement than if i had an extra 15% more. not having any chance of having had a failed retirement at any point in our past is a no brainer for me. but you all have to make your own choice in your own situations..

i know i was shocked at how small the difference was in firecalc as well as the exposure to the possibilities of failure , i would have thought the mortgage would have been way farther a head over the best cases we had so far.,.

Last edited by mathjak107; 05-27-2015 at 03:07 AM..
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