Investment company?

[Big Fin]

Interesting to read perspectives on these topics and read what is "right" and what is "wrong."

The math and the calculations are easy to get "right." Most of the comments here have the calculations "right."

After the math, everything else is an application of those calculations to the person's; 1) risk tolerance, which will drive investment returns, 2) desires for the freedom to being mortgage-free, 3) their health situation that influences their views on longevity, and 4) many other things that a person dreams of, has as personal goals, or possibly loses sleep over.

I remember having a life goal of being debt-free by age 50. Given my parent's financial situation I had been in debt for college, first vehicle, first house, first business, and so on. To be debt-free carried a huge sense of accomplishment and motivation for me. So, the week of my age 48th birthday Mrs. Fin and I mailed a huge check to our mortgage company and never looked back. I had run the numbers and we knew the end difference between paying off a 4.5% (interest deductible) mortgage rather than investing that money in some index fund. We did what meant the most to us and paid off the mortgage, even though the numbers said otherwise (assuming we made a reasonable return during the remaining mortgage period and did not get caught in a market decline like we had just experienced in 2008/09).

I've never slept better. Other than raising a child, it was the accomplishment that added more smiles and comfort than anything we'd ever done. Debt-free goal accomplished. Others with different life experiences that formed different priorities might think we were nuts.

I've helped other clients who had mortality issues in their family. We ran similar numbers. They decided to keep the mortgage and not rathole the extra money. They wanted to do some living in the event their family health history was hereditary. The numbers said otherwise, but if you have experienced short mortality you don't buy into the common assumption in these models that every male lives to age 77 and every female lives to age 81. That's good for modeling and calcs, but that's not life.

I have lost track of how many "Social Security break-even" analysis I've done with people. Simplistically, most of the calculators assume the person is not working and not subject to the earned income limits in place until reaching age 65. The calculators also fail to account for whether or not the person plans to invest the money or if they need it for living expenses. I have run it for me, for Mrs. Fin, and the numbers are the same as when I've run the calculations for many clients. How we apply that to our personal situation is where the difference comes in. What we will do based on her age and situation is different than what we plan on doing for my situation. And our decisions are different than what most my clients decided to do, mostly because we do not intend to touch it and we will investing every penny of it rather than spend it for living expenses.

Point of those examples are to illustrate that the calculations can be "right", or "wrong," or incomplete. Yet, once you get them "right," the best answer is fully dependent upon each individual's goals, desires, and situation they find themselves in at that age.

 

[Addicting]

Can you guarantee the growth on the asset?
He can guarantee that he will have his home paid off if he follows a strict plan.

I'm not saying your approach is wrong. Statistically it will probably work out, but you can't guarantee it.
I don't like owing people money. Haven't had a mortgage or any debt for a long time.

There are almost no risk security funds that are above 3%. Some bonds are there too. Even Max checking is at 4%.

Any of those are more sense than a 2.25% mortgage. .75% interest compounded over 10 years is worth it alone.

 

[Addicting]

You are like my wife. You are compartmentalizing the mortgage. You need to net the investment account (asset) against the mortgage (debt/liability). The premise is the asset grows faster than the mortgage would be reduced. In 3 or 5 or 10 yrs if he wants to liquidate the asset and pay down the mortgage he still can and will have more money to do so.

That is the plan. Not touching it will be key. If we can do better than the 6% we could pay off the mortgage significantly faster.

I opened a Fidelity joint account because of the fees and I can see my wife’s 401k on the same screen.

 

[SAJ-99]

Point of those examples are to illustrate that the calculations can be "right", or "wrong," or incomplete. Yet, once you get them "right," the best answer is fully dependent upon each individual's goals, desires, and situation they find themselves in at that age.

My wife is one that doesn't like debt (owing people money). I get it, even if it is given an irrational amount of importance in the mental calculations. Every year I have to give her an update which is where I found it is better to add the Mortgage and the investment that would have been use to pay it off faster together into a single number. It seems to make her more comfortable with it. The odd part to me is people that hate debt seem to make decisions that avoid paying it off as fast as possible.

Another story, 3 yrs ago I walked into the car dealership to buy a new truck. I was fully willing to write the check for the entire thing...about $50,000. The guy at the dealership said they would give me 0% financing for 36 months. I said "hell yeah, sign me up". After earning 4% (risk free) I can definitely say it was the "right" decision as I estimate I made $3000 on the money over that time, I would do it again even though I had to listen to my wife complain about the debt and payments for 3 years.

 

[Lmartin5]

Vanguard. Vanguard 500 Index Fund Admiral Shares.

VFIAX-Vanguard 500 Index Fund Admiral Shares | Vanguard

investor.vanguard.com

I have this fund as part of my 401K...very pleased with the results.

 

[Nick87]

If you don’t already, I’d recommend a budgeting app. About 6 months ago I signed up for YNAB and it’s been life-changing. Our lifestyle hasn’t changed one bit, but knowing where our money goes and being responsible for every dollar spent has made a staggering difference in how much we’ve been able to save. Gone are the days of being stressed every time I open the CC statement because I already know exactly what it’ll be and they money is set aside for it.

Maybe not the advice you’re looking for, but I think it could make a significant difference in what you’ll be able to set aside for retirement.

My wife keeps track every month of what are expenses are. But yah the app woukd make it much easier. Ill check it out. The easiest way we have found to save is every payday we take 15% of my net pay and transfer it to savings. The old company i had it done automatically i just have been doing it manually. Its already done and you never see it go in there at the end of the year it really adds up. I need to get it switched where maybe half of that goes into savings and half into an ira. I like the % a lot more than a set amount because my weeks can chamlnge a lot depending on the time of year. In the winter it could be less than a hundred bucks and the summer several hundred per week. You dont feel it leaving your spending budget as badly then.

 

[Tmbrgost]

I sat down and ran the numbers yesterday.

That extra payment money gets my mortgage paid off in July 2035. I will save about 12,500 in interest from the original loan.

That same money invested gets my mortgage paid off in Oct 2035. That is in a lump sum payment from just the principal I saved. Any interest I make on that money in the market is profit. At 6% return over the same 10 years worked out to about 23k. I have to pay taxes on that 23k. A 6% return is pretty low risk investment.

23k profit vs having to pay 3 extra $1035 payments to payoff.

Makes zero sense to keep paying it on the mortgage for a low risk investment.

Agreed. It’s pretty easy to beat the market average @ just a little over 8%+ over time.

 

[Tmbrgost]

Are you guys saying that a FA is not worth the money in any instance? Thats a serious question as I have a meeting with one next week. Ive been looking at my retirement (pension and 401A) ive git 16 years until im eligible and the way those numbers are playing out theres no way its gonna be enough at least mot by my math. Which I'm pretty sure is by design. So ive got 16 years to try and make some things happen on my own. I'd really like to go at 55 and collect my pension. I'll never stop working as long as im physically able but I'd like to collect that money and do something else where I can pretty much take the fall off or whenever I want for that matter. Sorry if im derailing your thread here @Addicting I figured this was a food time to ask while we've got all the bean counters in one thread lol.

No they are not. No one will look out for your money better than you. You just have to educate yourself and decide on a long term strategy that works for you & yours. There’s nothing magical or hard about.

 

[Nick87]

No one will look out for your money better than you.

Thats a very fair point.

 

[LopeHunter]

You missed the explain it like a 16 year old with his first check post. I glad it worked out for you but I have no idea what you what you are talking about.

Fair enough. Some concepts that surround important decisions are hard to distill down to a fortune cookie.

Usually, a lot of advice and strategies is offered for persons wanting to build wealth. Reduce expenses. Increase income. The resulting increase in cash flow can be used for additional investing.

How to increase income? Ask for a raise. Change jobs which often bumps your pay. Side hustles.

What if can’t increase income? Leverage equity in home to buy a rental. Leverage equity to buy more securities.

On the expense side of the cash flow equation there are suggestions to cut out Starbucks and buy a used car, etc. All of us can tighten the belt though only so much can be done.

So, now you have a bit more cash on hand and consider buying more securities. I prefer to keep my investment holdings simple. I own publicly-traded securities thus are very liquid if I need cash in hand quickly. I own diversified holdings so the performance of a few stocks or industry sectors does not gut my overall wealth.

I echo a lot of financially-savvy people by suggesting you keep investing simple. Max out tax deferred account offerings, especially if the employer offers matching contributions.

Buy an eft which holds a diversified big bucket of 100s or 1000s of publicly-traded corporate stocks with very, very low fees. VTI and VOO are frequently suggested. Solid choices for most of us as develop an investment mix.

VTI and VOO eft stock holdings are passively managed. What is passively? The eft professional manager is not selectively picking what stocks are held in the eft. VTI and VOO “own a big chunk” of the stock market by holding virtually the entire stock set of stocks or the 500 largest companies in the market.

In most other efts and mutual funds there is a professional manager actively choosing a small subset of stocks as they attempt to be the smartest guy in the room. How do these actively managed funds perform vs. passive funds such as VTO and VOO? The actively managed funds collectively underperform VTI and VOO over decades.

That implies the active managers trying to see the future as pick a small subset of all stocks actually are gambling which the outcomes show as look backwards. A few active funds do quite well in a short span of 1 to 5 years but in most cases the strategy fails to match the passive approach of buying the entire stock market. Failing funds are shut down or renamed which helps the “winning” funds what you see if sort funds by recent returns. Lots of shenanigans at play.

So, is it a sure fire strategy to keep a mortgage so can increase cash to put into securities? Depends.

What if lose a job? Divorce? Disability develops?

Is the unpaid debt left on your home as leveraged into more securities the past few years now going to put your home ownership at risk?

What if local home values falls while the local job market crashes so you have to move to another state to obtain employment while owe more than the home’s current value? Bankruptcy? Find a tenant to put in the home and hope rent income covers home expenses?

I would suggest for anyone under $500,000 of net worth to first spend 100 hours reading forum threads at Bogelheads.org as the first prudent step to improving financial literacy. Then, if feel need a guide can surrender fees to a financial advisor which effectively harvest 1/4 of your investment returns every year to put in their pocket.

 

[westbranch]

I am with all of the others that say Fidelity, Vanguard or Schwab. I used Vanguard for years and never liked their website, they did improve it in the last few years. Starting shifting to Fidelity in the last few years due to their no fee HSA with more investment options and will likely have all of my Vanguard accounts fully transferred to Fidelity in January.

The mortgage question has a financially correct answer of not paying off early but plenty of people like the paid off mortgage. I don't see anything wrong with that if savings are covered otherwise.

If you have the time and comfort level for DIY it is a great option. Having a plan and sticking to it is key. I have talked to a lot of DIYer's that end up getting analysis by paralysis and leave things sitting in a money market and waiting for the "right time".

I am a CPA and my partners and I also own a wealth management firm. Most of our WM clients are people that have the knowledge but don't want to spend the time. Also, somewhat common for one of the spouses to DIY and starts having health issues and wants to make sure the surviving spouse is going to be covered. We also provide actual tax advice (and more) as part of the fee, most advisors provide general advice and tell you to talk to your own tax advisor. And most CPAs/tax advisors are going to provide tax advice related to investment decisions but very limited actual investment advice.

 

[Nick87]

have talked to a lot of DIYer's that end up getting analysis by paralysis and leave things sitting in a money market and waiting for the "right time".

 

[westbranch]

Are you guys saying that a FA is not worth the money in any instance? Thats a serious question as I have a meeting with one next week. Ive been looking at my retirement (pension and 401A) ive git 16 years until im eligible and the way those numbers are playing out theres no way its gonna be enough at least mot by my math. Which I'm pretty sure is by design. So ive got 16 years to try and make some things happen on my own. I'd really like to go at 55 and collect my pension. I'll never stop working as long as im physically able but I'd like to collect that money and do something else where I can pretty much take the fall off or whenever I want for that matter. Sorry if im derailing your thread here @Addicting I figured this was a food time to ask while we've got all the bean counters in one thread lol.

Do you have some idea of what sort of planning/knowledge they will be providing related to the meeting? There are advisors and CFPs that will provide an analysis and plan for a fixed fee. I think that could be worth it in your scenario to get a comfort level with decisions related to pensions and overall amounts being saved.

If you meet with them and they start telling you to transfer/roll over funds to them or their solution involves some sort of investment product like annuities or permanent/whole life insurance tell them to F off.

 

[Nick87]

Do you have some idea of what sort of planning/knowledge they will be providing related to the meeting? There are advisors and CFPs that will provide an analysis and plan for a fixed fee. I think that could be worth it in your scenario to get a comfort level with decisions related to pensions and overall amounts being saved.

If you meet with them and they start telling you to transfer/roll over funds to them or their solution involves some sort of investment product like annuities or permanent/whole life insurance tell them to F off.

No to be totally honest. It was a referral of a friend who's family has money. I stuck a good chunk into the market with him when covid hit asked what my plan was and I told him I really didnt know and we coukd resist later as this seemed like a great time to inclvest some money. Life has been throwing some curve balls with things since then and embarrassingly I never followed up with him its just been sitting in a diversified account. As im closing in on 40 im realizing im going to do some initail.investments other than my pension and 401a if I want to take early retirement at 55.

 

[Treeshark]

As im closing in on 40 im realizing im going to do some initail.investments other than my pension and 401a if I want to take early retirement at 55.

Individual brokerage account for the bridge money (55-59.5), Roth for 59.5-65. It’s not tax advantaged now, but it doesn’t show up as income later. IE, you’re “poor on paper” and health insurance is therefore way more affordable.

*This is most important if you don’t get health insurance via pension/employer post-retirement.

Also, I believe money needs to be in a Roth for 5 years before it can be withdrawn w/o penalty, so the sooner the better. This is the type of stuff a FA can help you navigate imo.

 

[Steiny77]

I remember having a life goal of being debt-free by age 50. Given my parent's financial situation I had been in debt for college, first vehicle, first house, first business, and so on. To be debt-free carried a huge sense of accomplishment and motivation for me. So, the week of my age 48th birthday Mrs. Fin and I mailed a huge check to our mortgage company and never looked back. I had run the numbers and we knew the end difference between paying off a 4.5% (interest deductible) mortgage rather than investing that money in some index fund. We did what meant the most to us and paid off the mortgage, even though the numbers said otherwise (assuming we made a reasonable return during the remaining mortgage period and did not get caught in a market decline like we had just experienced in 2008/09).

I've never slept better. Other than raising a child, it was the accomplishment that added more smiles and comfort than anything we'd ever done. Debt-free goal accomplished. Other with different life experiences that formed different priorities might think we were nuts.

My views are very similar.
Had we not gotten debt free we would not have realized what a rewarding accomplishment this is, how you sleep better at night, etc.

 

[Bulldog0156]

Threads like this always make me curious about assets/net worth of the people giving the advice and how they came about their knowledge. I have done the opposite of most of the advice given in this thread. A big reason is I don't really care to spend my time learning all of the investment strategies. Could I do better in my investments if I had learned and gone it alone? Probably, but by retirement, I don't think that difference in investments will make a bit of difference in living style. I will say that without a financial advisor, I would likely have ended up with a tax problem in retirement.

 

[recon6036]

My views are very similar.
Had we not gotten debt free we would not have realized what a rewarding accomplishment this is, how you sleep better at night, etc.

Debt free here also. Paid off the house about 6 months ago with a lump sum payment from my inheritance from my father.
It’s a great feeling for sure and sprung my soon-to-be retirement forward about 2 years.

 

[Dave N]

No real advice, my situation gave us some money when we sold our Alaska place. Against my wife's thoughts I didn't pay off credit cards and use the money towards other stuff. Something inside me said there would be nothing to keep her from racking them up again so I paid off the mortgage plus my car loan. That freed up $1000/month to pay things with. Looking back, it was the best thing that could have happened because shortly after that the shit hit the fan and you know what we went through then. That extra cash every month really came in handy when I had to retire. Pure luck, but it sure did feel good to not have those payments anymore. Someone in a different financial situation might do something different but it's all up to them.

@Addicting how does the timing of paying off the house tie in with you wanting to move? Would that affect anything if it takes longer by doing things one way or another?

 

[Addicting]

No real advice, my situation gave us some money when we sold our Alaska place. Against my wife's thoughts I didn't pay off credit cards and use the money towards other stuff. Something inside me said there would be nothing to keep her from racking them up again so I paid off the mortgage plus my car loan. That freed up $1000/month to pay things with. Looking back, it was the best thing that could have happened because shortly after that the shit hit the fan and you know what we went through then. That extra cash every month really came in handy when I had to retire. Pure luck, but it sure did feel good to not have those payments anymore. Someone in a different financial situation might do something different but it's all up to them.

@Addicting how does the timing of paying off the house tie in with you wanting to move? Would that affect anything if it takes longer by doing things one way or another?

We are on a 10 year plan unless something happens earlier. That was the line in the sand we agreed on.

So the principal is the same 64k 10y payoff timeline. By paying the mortgage we are done in July 2035.
By paying the investment fund we accumulate more debt interest that causes the payoff to stretch to Oct. with no loss of principal and if we do nothing with any interest earned. If we take the interest earned we hit the 64k mark much earlier. Hard to know how much that would cut off the 10 years. Too many variables on the market.

So there has to be no significant loss of principal with an average return of at least 5%ish to make this work. That extra compounded 2.25% should help offset any taxes we have to pay on what’s left.

I feel pretty comfortable with the S&P500 track record that is a safe bet over the next 10 years if we pay attention.