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I don't think that is true. We are over 10 years from the last recession and most people are still very cautious. No one forgot the impact, especially those who lost jobs and housing. I got hit as I was planning for and about to reach retirement. I did not forget.
Nor did I forget about compounding. Inflation compounds and gets you if you do nothing. On the other side, investing give compounding a chance to seriously grow assets, like the proverbial snowball running down hill.
We had almost 400k in gains this year ..so we are growing assets very nicely with only a moderate amount of volatility, and are way higher then the day we retired ...but that does not mean at these rates I would borrow money to buy in to a balanced portfolio. I don’t find there is enough of a risk premium to borrow money for ...
If I did buy I would not take a mortgage at this stage after thinking very carefully about it
I think it does. Where is the money to pay off the mortgage come from? If they are still working, they can put the extra payment to the stock market.
- A person may already have enough in their portfolio to pay off a mortgage.
- A person may be generating significant divs and gains from their portfolio, in which they could choose to pay off or at least escalate mortgage payments if they chose to do so.
- A person may earn some income from some part-time or consulting gig they do on the side.
- A person no longer working at all, probably covers the monthly mortgage as part of their living expenses, counted in that 4% safe withdrawal rate.
- Money continues to come in from investments in the market. Even if a person decides not to put that money towards their mortgage over and above their normal payment schedule, the money comes in from a variety of stocks, bonds and other investments. Take a look at your year-end cumulative divs and gains for 2019 to see.
This is the Personal Finance forum. The OP did not mention being even close to retirement.
In my case, I had been retired a few years and was 67 when I took out a 30 year mortgage in order to keep the mortgage amount invested. My stock allocation was also over 70%. If you are going to plan for a 30 year retirement, you better be taking some risks with stocks even when you are retired. If you are not invested at least in the range of 30% or above, the odds of maintaining a 4% withdrawal rate are greatly decreased. It is too risky NOT to invest.
I have about 25% in stocks, however my return has beaten the 60/40 portfolio and I have yet to take money from my retirement account. It’s fat fire budget for me. I just did an annual spending summary so that’s why I know. After next year, my budget is going to go down by design, my husband and I will no longer do long term traveling, just traveling. I had plan for 5 years and it’s exactly 5 years of high spending. I’m not sure I will take 4%WR after next year. Then I will take SS at 70. I don’t need this money.
I’m struggling with the reason why I want high equity in the first place, I already will leave a large portfolio to both of my kids. They also save for their retirement.
But I’m reading your post and think seriously about that. In hindsight, I would have bigger portfolio if I was 100% in stocks. So that’s kind of leaving money on the table.
- A person may already have enough in their portfolio to pay off a mortgage.
- A person may be generating significant divs and gains from their portfolio, in which they could choose to pay off or at least escalate mortgage payments if they chose to do so.
- A person may earn some income from some part-time or consulting gig they do on the side.
- A person no longer working at all, probably covers the monthly mortgage as part of their living expenses, counted in that 4% safe withdrawal rate.
- Money continues to come in from investments in the market. Even if a person decides not to put that money towards their mortgage over and above their normal payment schedule, the money comes in from a variety of stocks, bonds and other investments. Take a look at your year-end cumulative divs and gains for 2019 to see.
I’m referring to OP, she states she will add $1k extra per month to pay off the mortgage.
Each one of has our line in the sand where we balance volatility, growth , needs and allocation..otherwise if it was our goal to die with the biggest pile we would just be 100% equities , close our eyes and hang on for the ride.
Even if you were 100% equities, then you got to think well why not margin then , I am leaving money on the table
I’m referring to OP, she states she will add $1k extra per month to pay off the mortgage.
If she's thinking of paying it, it means she has the money to do it. Money comes from any variety of sources (job, investments, robbing a bank...etc etc).
Most of us would like to have additional money to spend even when we have retired with enough to sustain a planned for standard of living. I marvel at NewbieHere and Mathjak who appear content, do not see the need for additional money and only see anything extra as more inheritance they will leave behind.
Anyway that is definitely not my situation. I retired with less than I really wanted because I was worn out with the stress and just plain ready. Since then my assets have doubled a couple of times over...or at least close to it. Even so I would like more. Last year we increased our monthly spending by about $1500. This year we adding another $1500/mo to the $1500/mo from last year. We still have a modest lifestyle. We canceled our one major trip because it was topping out at over $20K. We don't have a boat, or fancy new cars and we certainly don't try to keep up with the neighbors.
If you do not care about making additional money then any advice you give to the OP or others trying to get ahead might not make a lot of sense.
I am/was in the same boat as you and I'm now 1 year away from paying off my mortgage balance within 5 yrs although I didn't start until 1 year after because I paid off all other debts first (car note, rental property).
For the last 100K, on a 2.625% mortgage, the total interest is less than 30K if I don't pay off my mortgage as opposed to the first 100K paid off where the interest would have been over 60K. Anyway, I'm still going to pay it off after which I can start investing in 2021. So far I'm putting away the max for retirement but not saving for kids college (we have paid off rental properties instead). Between my wife and I we could probably scrap another 100K from our savings and we have no car notes, student debt, credit card debt, etc etc
Quote:
Originally Posted by Vana360
We cannot simply decide if we should pay the mortgage down faster or invest our extra monthly income. Our mortgage balance is around $400k, with close to $1k going to interest monthly (we just got the mortgage over 30 years). To me, it seems wiser to (aggressively) pay the mortgage down the next few years as the interest is high in the beginning instance of the loan. Over the course of a year, about $10k-12k will go to interest on the mortgage. I am having a hard time believing that we would make $10-12k return in the market, or through real estate investments (and good luck finding a decent deal now). I ballpark (worst case scenario) we can put about $60k extra each year to the mortgage amount. Over 4 years that going to be about or in a range of $230-240k in extra payments, and somewhere around $60-80k in regular payments, which would nicely put us at about $120-140k or so left to pay. We have a $60k fully-funded emergency fund (I know overkill likely), and my salary is likely to increase in the next few years. We live in an LCOL area and our jobs do appear to be very stable.
So far the OP and now 1ondoner both expressed opinions about the first part of a mortgage costing a lot in interest. Somehow the last years of a mortgage seem to be better because instead of just paying mostly interest you are quite rapidly paying down the principal.
So in the last years of a mortgage you have paid most of it off but are still paying the same amount as when you owed the full mortgage amount. How does that seem better?
I find the feelings people have about debt to be very bizarre. I would rather deal with facts, logic and real numbers. Anyone who went full bore into paying off a low cost mortgage really lost out big time on money they could have made by with that same money invested regardless of whether they would have picked a full aggressive allocation or a much more conservative allocation. I find it hard to understand how someone could be so averse to debt that they screwed up big time and still do not see it.
So, I am confused. Io thinks it makes sense to pay extra money towards paying off a mortgage at 2.6%. Last year that same money would have earned about 20% invested in stocks. Other assets also did quite well so even a much more conservative allocation would have done well, possibly even the same or better. How can anyone take pride in making such a very poor choice with such a very a poor outcome?
Last edited by jrkliny; 01-01-2020 at 10:15 PM..
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