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I like to think of it in terms of my favorite football sports team. We have a great defense. So our coaches philosophy on offense is to take very little risk, grind the clock and play a ball control game. They don’t want turnovers to give the other team points because they know the defense won’t give up many points on its own.
But...I always think that we should do the opposite. Be aggressive on offense because the defense can bail out the offenses turnovers. We should be MORE aggressive on offense because that just makes it that much harder for the other team to score enough points to keep up. Playing it safe on offense keeps us one bad play by the defense of losing the lead.
Instead...we play it conservative...the game stays close...and one mistake blows up in our face and ends the seasons goals.
Yeah. I’m bitter.
I nearly always disagree with the low risk approach in investing. The low risk “play” locks in a bad outcome and leaves less margin for error.
right now most income model portfolio's are down for the year either more or the same as the growth models . the growth models had a bigger cushion so while they fell more many are still a head of more conservative bond heavy models which had little cushioning . .
"What do you think is the annualized return of the S&P 500 (including dividends) over the past 20 years? 8% 10%? 15%? Try 4.5%. Really. Here’s the chart."
Guaranteed 8%? No. But the rolling average looks like it is about 6 to 8 percent. And that's even with the other problems with the chart that have already been pointed out.
I am far from a money expert, but for what it's worth, I would consider first whether you think you will remain in this house long term. If you don't, I would recommend going with putting the money into investments and keep the money liquid. That said, many of us buy a house planning to remain in it, but find ourselves selling it and buying another.
If you think you'll be in the house long term, you may want to consider refinancing or restructuring, depending on what your lender will allow, for a shorter term - but that also depends on where you are with your interest rate. If your current interest rate is lower than what you'd refinance for, you may want to stay put. They say if you make the equivalent of one extra house payment a year will reduce the term of a 30 year mortgage by 7 years. For those who get paid every other week, there are two months where you get a third paycheck and if you used them toward the mortgage - or just paid 1/12 a month extra on your principal, you'd accomplish the same thing with less pain that writing a check once a year for the full extra mortgage payment.
Guaranteed 8%? No. But the rolling average looks like it is about 6 to 8 percent. And that's even with the other problems with the chart that have already been pointed out.
plus that included the lost decade. whenever anyone wants to show poor performance for stocks they just need to include that time frame .
but it back fired on them since they pulled a faulty data chart ha ha ha
Pay your house off as fast as you can. It is a good investment and you will save a ton on interest payments. Get out of debt. Once you have paid it off you can then invest a similar sum to stock market or less-risky investments.
You have to pay it off sooner or later, but you should not starve your retirement savings to do it. My wife and I paid off our home in the middle of 2008, which was a retirement goal. That allowed us to live on my wife's income and save my whole income for 5 years, which was a nice capper on the retirement savings, but we had retirement savings.
You realized most of the advantage of home ownership by buying in the first place. You locked in your housing costs the day the sale closed, and checked out of the inflation rat race. If you have 10 years left on a 30 year mortgage, you are living with 1998 housing costs. If you bought a decade later, you not only got a historically great deal on the purchase price, your mortgage is free money. The interest is covered by inflation. Milk that for what it's worth.
Guaranteed 8%? No. But the rolling average looks like it is about 6 to 8 percent. And that's even with the other problems with the chart that have already been pointed out.
This is the last one. If you understand the math you will know that it doesn't matter how fast you pay it off.
There is always the opportunity cost of the money you are NOT INVESTING. Since this money is earning a higher rate than you are paying on the loan, you are almost always better off not paying off the loan all things equal.
Lets do your example.
200k, 3.5% loan at 30 years is 898 payment
200k 3.5% loan at 10 years is 1977 payment
2 Flaws. You're making it too simple.
Flaw 1 - A 10 and 30 year loan do not charge the same interest rate. They just don't. Look at Wall Street, they're going crazy because the rate is as flat as it is right now, but for us consumers, the 15 will always be cheaper than the 30. If it isn't...most of us probably aren't buying homes.
Flaw 2 - There is value in deleveraging if it allows you to re-leverage again. Anyone can buy a share of IBM. Not everyone can buy real estate. To buy real estate you need:
1. Downpayment
2. Good Credit
3. Collateral (generally the building)
4. Debt to Income ratio
For the first home purchase usually the first 2 come into play. For multiple homes, the 4th comes into play. For myself, I need to pay a loan to get a loan to acquire another property. There's an argument that stocks do better than loan, but that's making something linear. The reality is by paying a loan off, you regain the opportunity to lever up again.
Say you have 80K. You could either buy $80K of stock that's going to appreciate 10% a year, or use it to put 20% down and obtain a $400K home that will appreciate 5% a year. Which do you choose?
After 8 periods, the stock is worth an impressive $171K, for a gain of $91K. Well done.
However that home is now worth $591K for a gain of $191K. Even better.
Now, before you get twisted and say....hey but you needed to add capital to keep paying the debt and the taxes and all that. Yes, you did. You had to manage the property. However, all of that is being paid by....the renter.
If you look at that gain and say...thank you sir may I have another, the bank may tell you no. Your rental is likely at a loss with depreciation and you think....well, if I pay off that loan early, by debt requirement goes down....and my income goes up....and then I can get another.
There's more to the decision than the simple linear equation.
i don't know about the best , but i try to verify my facts.
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lol
