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of course everyone has a different point of view and there is no right or wrong... but since most small investors are quite poor investors and according to morningstars money flow tracking they dont even make the funds actual return BY A WIDE MARGIN they would be better served paying off their mortgage.
im not saying thats true of everyone as i surely have done well as an investor but its pretty true of the masses.
the other issue is folks just plain suck left to their own devices and investing the money and not spending it. typically money ear marked for investing gets spent unless its forced like a 401k.
its not that renters dont do better or as well as home owners when it comes to net worth at the end of the game. its that most renters dont invest the difference they saved in the early years by renting compared to buying or invest the down payment money. they end up with a better apartment, better car etc.
at least the homeowner with a paid of home has a consolation prize and for the masses thats the best deal.
Last edited by mathjak107; 09-23-2010 at 01:01 PM..
of course everyone has a different point of view and there is no right or wrong... but since most small investors are quite poor investors and according to morningstars money flow tracking they dont even make the funds actual return BY A WIDE MARGIN they would be better served paying off their mortgage.
im not saying thats true of everyone as i surely have done well as an investor but its pretty true of the masses.
the other issue is folks just plain suck left to their own devices and investing the money and not spending it. typically money ear marked for investing gets spent unless its forced like a 401k.
its not that renters dont do better or as well as home owners when it comes to net worth at the end of the game. its that most renters dont invest the difference they saved in the early years by renting compared to buying or invest the down payment money. they end up with a better apartment, better car etc.
at least the homeowner with a paid of home has a consolation prize and for the masses thats the best deal.
yes, for the masses who aren't going to do things right, it's the right thing to do. lol. doesn't make it a solid argument though about it actually being the right thing to do though!
but you're right. since most people will waste the money, most people shouldn't follow the proper financial things to do. it's too bad we can't educate the masses on financial literacy though so more of us could pull of managing our money.
financial education is a real problem.there is so little of it.
most folks know more about their cars and refrigerators then they do about financial things...
sometimes i think of some of the things i write about as bringing fire to the natives.
alot of people just hear bits and pieces of things or repeat myths they heard others say and build entire opinions,strategies and beliefs on these bits of incomplete or wrong information.
how many times have you heard it said only homeowners win at the end or markets havent gained anything in a decade or all annuities are bad ,or there is no use for life insurance once you pay off your mortgage and the kids are out etc etc etc .
the list goes on and on and its just myths repeated and repeated and folks feed off of this crap.
instead of all the useless mathamatics we all would never use or some of that science crap they ram down us in school the more important personal finance and investment planning should be taught
Last edited by mathjak107; 09-23-2010 at 05:14 PM..
yes, for the masses who aren't going to do things right, it's the right thing to do. lol. doesn't make it a solid argument though about it actually being the right thing to do though!
but you're right. since most people will waste the money, most people shouldn't follow the proper financial things to do. it's too bad we can't educate the masses on financial literacy though so more of us could pull of managing our money.
i cant tell anyone how to win the game because you all have to do whats right by you and meets your goals and risk. however i can tell you how i made it thru the first half of the game which is the accumulation stage.
i made it to the part where im ready to retire and start part ii which is keeping as much as i can out of the hands of my partner uncle sam and the spending down of the assets as they last a lifetime. thats still un-charted territory for me.
i can tell you how i invested and in what, i can tell you how i set goals along the way and never veered from those goals once i had the money . i can tell you how i tried to control the risks of doing this always trying to accumulate those gains with the lowest risk i could.
did it workout well, yep!. so ill tell you all what i did so far that worked for me over a lifetime. .. will things repeat that way for you? id say no to maybe.. there is no one way thats correct or wrong. we can only look at the results after the fact and say it worked or it didnt..
but if your going to err at least let their always be a consolation prize for you in that plan.
i cant tell anyone how to win the game because you all have to do whats right by you and meets your goals and risk. however i can tell you how i made it thru the first half of the game which is the accumulation stage.
i made it to the part where im ready to retire and start part ii which is keeping as much as i can out of the hands of my partner uncle sam and the spending down of the assets as they last a lifetime. thats still un-charted territory for me.
i can tell you how i invested and in what, i can tell you how i set goals along the way and never veered from those goals once i had the money . i can tell you how i tried to control the risks of doing this always trying to accumulate those gains with the lowest risk i could.
did it workout well, yep!. so ill tell you all what i did so far that worked for me over a lifetime. .. will things repeat that way for you? id say no to maybe.. there is no one way thats correct or wrong. we can only look at the results after the fact and say it worked or it didnt..
but if your going to err at least let their always be a consolation prize for you in that plan.
well, as a 28 year old, i'm glad to hear that i have some of the same mindset as someone who's successfully made it to retirement! i have much to learn. we should grab a beer sometime! hahaha
for what it's worth on the investment strategy angle....
YTD returns for my father's 401k, which is fairly conservative, is 4%. YTD returns for mine, which is moderately aggressive, is 7.9%.
jan - i'd have to look at your numbers, but if your rate on the mortgage is 4.5% (pre tax cost of course) i'm not sure how you come up with 8.5% as the rate needed for investment growth to beat 4.5%. you're adding an additional number in there somewhere that is not a fair comparison i think, unless i'm missing something.
I have put some screenshots of my calculations on my album. Go have a look there. The photos is the wrong way around, but you will get the idea.
The difference between the mortgage where you pay nothing extra and the one where you put $6000 extra at 4.5% over a term of 5 years gives the same return as the compounded interest at a rate of 8.5%. The explanations is at the bottom of the photos.
I have put some screenshots of my calculations on my album. Go have a look there. The photos is the wrong way around, but you will get the idea.
The difference between the mortgage where you pay nothing extra and the one where you put $6000 extra at 4.5% over a term of 5 years gives the same return as the compounded interest at a rate of 8.5%. The explanations is at the bottom of the photos.
i've since run the numbers myself and you're right, assuming a 5 year outlook. but if you compare the same scenario over the full term of the loan, your $6,000 payment saves $15,000 over 26.5 yrs (payoff early due to $6,000 payment). that works out to an effective rate of 3.5%, which would be easy to beat over 26.5 years in diversified investments.
so yeah, if you plan on holding it for 5 years only, your extra payment makes sense. but then you have to sell your house and move on, or your scenario isn't really applicable.
i've since run the numbers myself and you're right, assuming a 5 year outlook. but if you compare the same scenario over the full term of the loan, your $6,000 payment saves $15,000 over 26.5 yrs (payoff early due to $6,000 payment). that works out to an effective rate of 3.5%, which would be easy to beat over 26.5 years in diversified investments.
so yeah, if you plan on holding it for 5 years only, your extra payment makes sense. but then you have to sell your house and move on, or your scenario isn't really applicable.
Why would you want to sell after 5 years. It isn't a scenario. It is one option. After 5 years you have lots of other options.
1) Get an access mortgage and take the money out of your mortgage and invest it elsewhere
2) Leave it there for a few more years at a little less return.
3) Take the $6000 and spend it or take the total you saved
4) Pay the lower monthly payment due to the savings and use the extra money to invest elsewhere
5) Pay off more than just the minimum fron the start. Then later take all the extra money out of the mortgage and buy another house. Rent it out and get a better return.
They say there is many roads that lead to Rome. There is always a lot of different options that you can do, or you can even combine the options. So you can switch between the options as it would make sense to get the results you would want.
Why would you want to sell after 5 years. It isn't a scenario. It is one option. After 5 years you have lots of other options.
1) Get an access mortgage and take the money out of your mortgage and invest it elsewhere
2) Leave it there for a few more years at a little less return.
3) Take the $6000 and spend it or take the total you saved
4) Pay the lower monthly payment due to the savings and use the extra money to invest elsewhere
5) Pay off more than just the minimum fron the start. Then later take all the extra money out of the mortgage and buy another house. Rent it out and get a better return.
They say there is many roads that lead to Rome. There is always a lot of different options that you can do, or you can even combine the options. So you can switch between the options as it would make sense to get the results you would want.
well you said you'd have to earn 8.5% in the market over 5 years. that's only correct if your term is only 5 years. once you go beyond that, that 8.5% is no longer correct. the further you go, the smaller the 8.5% will become.
only way to get a lower monthly payment is to refinance correct?
as for paying off and buying another, real estate investing is not a fantastic idea, as has been shown to us. you could easily get into real estate investing in a diversified manner rather than buying another house nearby and depending on rental market to make your return.
all that can be debated, but as for the $6,000 extra payment, your 8.5% investment return assumption only works on a 5 year outlook. so yes, at the end of 5 years, you'd need to be out of that deal, or your 8.5% number no longer applies...
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