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I am so glad that my brother is in charge of his company's portfolios. I am finally getting a settlement from the car accident that killed my back & he will invest it for me. The one time it comes in handy to be the baby girl as he will make sure he invests it wisely. Although I don't think any amount of money makes up for pain the rest of my life, it will help, especially if he can double it.
Mostly because any partial contribution to the debt would be paying for debt 30 years into the future. At low fixed interest rates I don't want to pay 2045 debt with 2015 dollars.
If you hold cash for the entire 30 years, you will be paying for 2045 debt with 2015 dollars regardless. It's not as though sitting on cash is going to turn those 2015 dollars into anything other than 2015 dollars, perhaps with some interest. So you may as well save some excess interest.
Actually last year my bond funds returned about 5%.
Eventually long term rates will have to go back up. It's great that your bonds appreciated enough to beat your mortgage; but it cannot continue forever. With hindsight, your mortgage and bonds in the past 12 months were a net gain for you. However that does not mean it will continue going forward.
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Originally Posted by jrkliny
Bonds are a part of a diversified portfolio. When the stock market drops, the money often goes to bonds and the bond funds do well. After a drop in the market, having bonds permits a rebalancing; i.e., buying stocks at a low price. As the stock market rises, rebalancing also means selling off some stocks and buying bonds.
Ok, but the amount of bonds you need to rebalance is not as high as you might think, as I explain here:
Our financial advisor replied to us when we had an excess of cash, "Pay off the mortgage? Not only yes, but hell yes!" But that was when savings and investment returns were pathetic. Ask your CFP for some rational justification for his advice.
But of course! After saving an emergency fund, paying off ANY debts (including the mortgage) is Job One. Did that long ago!
Higher interest rates reward the saver and penalize the spender. Guess we want to reward the spender?
I suppose it depends on OP's retirement income stream. If OP can qualify for a HELOC, then there is the option of paying the mortgage off in full and then opening (but not using) a HELOC. If liquidity is needed, it can be drawn. Yes, the interest rate might be higher; however the interest will only need to be paid for a short time after buying house #2 before house #1 sells. It is better to pay 7% interest for 6 months than to pay 4% interest for 5 years.
What about real estate? All I ever hear is "stocks and bonds"; what happened to the idea of real property being a sound investment? After all, you make money renting it out ("interest") while retaining the principal (property), which you can later sell, ideally for a profit. The only "risk" is crashing home values and, of course, the aggravation of dealing with the tenants...
A vacation/retirement home would be my favored investment, but I don't even dare do that in this market. Otherwise, I'll just leave my liquid on the bank.
real estate is a job , it is not passive income the same way stocks ,bond and reits are.
eventually job loss-illness or divorce gets even the best tenants and then you can have grief.
Or those furriners move in next door and there goes the neighborhood!
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...but last thing i want to do is be a landlord in retirement.
many share the same view -to much like work.
Agreed.
If you're alone in life and/or really need the extra cash and have these already...
then keep something along the lines of a legal MIL apartment or back cottage going.
But don't think of it as any sort of RE investment.
What about real estate? All I ever hear is "stocks and bonds"; what happened to the idea of real property being a sound investment? After all, you make money renting it out ("interest") while retaining the principal (property), which you can later sell, ideally for a profit. The only "risk" is crashing home values and, of course, the aggravation of dealing with the tenants...
A vacation/retirement home would be my favored investment, but I don't even dare do that in this market. Otherwise, I'll just leave my liquid on the bank.
The difference is that real estate is not divisible and liquid. You can't draw X% of it each year, and can't rebalance with it (how do you sell 26% of a house?). But if your net worth is high enough, RE can absolutely have its place in a portfolio. It just requires you to be wealthy enough that the lack of divisibility can be worked around.
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