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We did neither. We saved the money and put it in 30 day T Bills. That way the money was available if we really needed it, but we were able to save for the big pay-off when the day came.
As it is, we over saved a little, so that when we paid off the mortgage we still had some cash. Then, because we had no mortgage, we were able to replenish our T Bill account very rapidly.
Our investment activity is entirely separate. We are now retired.
The thing most people don't realize is that most financial advice is biased towards financial products i.e., stocks, bonds, debt, 529s because the advisers earn their living from peddling these products.
This is the reason paying off one's mortgage is frowned upon because it does away with the interest income that the banks make. No financial adviser is going to tell you to pay off your mortgage or build a real estate portfolio because it's against their financial interest.
My math must be getting a little rusty. 10% average in the stock market minus 3.5% mortgage costs comes out to be a return of 6.5%. Of course less aggressive investing would drop that. And those are just averages and returns can be much different in the short term. With a mortgage most of us consider that to be a long term strategy. At least I do.
1. I thought the OP would invest in a balanced stocks+bonds portfolio.
2. Bonds are at < 2% for the 10Y treasury, stocks are 22x P/E. It would be supremely optimistic to expect a Siegel's constant return from an all-stocks portfolio, going forward, at these prices. Never mind a balanced portfolio.
3. The stock market resembles the Nifty Fifty days where the biggest (by market cap) companies are among the most overvalued.
So, my central expectation is 5% on a 60/40 stocks/bonds with stocks in a cap-weighted index fund for the next 30 years. YMMV.
Last edited by cfa-ish; 01-02-2020 at 03:37 PM..
Reason: added "for the next 30 years" ie long-term.
1. I thought the OP would invest in a balanced stocks+bonds portfolio.
2. Bonds are at < 2% for the 10Y treasury, stocks are 22x P/E. It would be supremely optimistic to expect a Siegel's constant return from an all-stocks portfolio, going forward, at these prices. Never mind a balanced portfolio.
3. The stock market resembles the Nifty Fifty days where the biggest (by market cap) companies are among the most overvalued.
So, my central expectation is 5% on a 60/40 stocks/bonds with stocks in a cap-weighted index fund. YMMV.
Actually Hubert thinks a cap weighted fund is actually the better investment as opposed to equal weight
The thing most people don't realize is that most financial advice is biased towards financial products i.e., stocks, bonds, debt, 529s because the advisers earn their living from peddling these products.
This is the reason paying off one's mortgage is frowned upon because it does away with the interest income that the banks make. No financial adviser is going to tell you to pay off your mortgage or build a real estate portfolio because it's against their financial interest.
Let’s say you “invest” that’s 60k a year instead of paying down your mortgage at your advisor’s guidance
60,000 aum
1% annual fee
=600.00 in gross revenue
600.00 * .45(advisor’s payout)= $260.00 in gross income to the advisor.
Yup I’m sure they are doing it for the money. Not because in some scenarios it makes sense from a numbers perspective. Fwiw I’ve seen plenty of recommendations from advisors to their clients to pay off their mortgage early or accelerate payments
Let’s say you “invest” that’s 60k a year instead of paying down your mortgage at your advisor’s guidance
60,000 aum
1% annual fee
=600.00 in gross revenue
600.00 * .45(advisor’s payout)= $260.00 in gross income to the advisor.
Yup I’m sure they are doing it for the money. Not because in some scenarios it makes sense from a numbers perspective. Fwiw I’ve seen plenty of recommendations from advisors to their clients to pay off their mortgage early or accelerate payments
How many clients does the typical advisor have that might be in a position to pay off a mortgage? Do these $260.00 contributions add up to a more significant amount?
So, my central expectation is 5% on a 60/40 stocks/bonds with stocks in a cap-weighted index fund for the next 30 years. YMMV.
We have been hearing the same story for years and years even from some of the big name financial experts. Some of the academics, such as Pfau, predicted that investment returns were going to be so low the 4% rule would need revision.
If that happens, that will be the time to consider paying down a mortgage.
How many clients does the typical advisor have that might be in a position to pay off a mortgage? Do these $260.00 contributions add up to a more significant amount?
I couldn’t answer that accurately as the variation is too wide. If you had a lot of clients and they all had any extra 60k a year with nothing else to do with it then it could add up to more. It’s a fallacy though, advisors aren’t recommending investing over debt pay down in mass to make more money
We have been hearing the same story for years and years even from some of the big name financial experts. Some of the academics, such as Pfau, predicted that investment returns were going to be so low the 4% rule would need revision.
If that happens, that will be the time to consider paying down a mortgage.
You mean pay it back after you already got caught in the drop giving back much or all of what you took the risk for in the first place , of course unless you have the ability to time it well and know the real thing from just noise .
just what someone would want to do as markets Plunged ..sell those invested assets and pay off the mortgage making things even worse.
What could possibly go wrong with this idea ?
Last edited by mathjak107; 01-02-2020 at 04:36 PM..
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