Paying The Mortgage Early or Investing In Stock Market

[Clyde]

Interesting article on the subject of paying off the mortgage early and/or investing in the market.

 

Why Keeping A Mortgage And A Portfolio May Not Be Worth The Risk

[LIPTON BASH]

I don't like articles like this because it tries to create a one sizes fits all scenario .

 

1. I see barley any mention of the affect of compounded earnings. He is looking a annual premium return and not compounding. Which is one of the most important parts of long term investing.

 

2. Scenarios like these also are based off a utopian society where people are able to follow everything without any unexpected changes. To wait to save will cost more in the long run unless you pay that mortgage off quickly and can max out contributions

 

3. Now if this isn't talking about retirement savings and just a genral investing account , now we are talking a different scenario. You should have 6 months of fixed expenses in a emergency fund. Everything beyond that should be invested or used to pay down debt.

 

4. I also unless I missed didn't see any mention of the tax deduction for mortgage interest. Any reliable calculation when discussing investing or paying mortgage takes this into account for current cash flow.

 

 

5. In genreal I just always get disturbed with any debt paying off plan , that ignores savings. The best plan includes both. If the person giving you advice doesn't use Time Value of money calculations with compounding earnings then they aren't doing their job.

[Randy Parker]

I am a fan of not owing anyone anything, so regardless of the math, I'm paying off the mortgage.

[LIPTON BASH]

I am a fan of not owing anyone anything, so regardless of the math, I'm paying off the mortgage.

 

In a world without pensions if you don't invest at a young age you will never retire.

 

That's why I felt the article was missing some info. Is he including 401k/403b , if so why not factor in employer match into the premium calculation ?

[75center]

All I know is that keeping a mortgage and investing the extra funds has worked out fantastic in our house. After tax cost of the mortgage is about 1.75% and our returns have dwarfed that.

[TheDeuce]

In a world without pensions if you don't invest at a young age you will never retire.

 

That's why I felt the article was missing some info. Is he including 401k/403b , if so why not factor in employer match into the premium calculation ?

 

I've had a 401k for almost six years, started when I was 24, company matches 100% up to 5% contribution. So hopefully I have a little something saved up when I "retire."

[75center]

I am a fan of not owing anyone anything, so regardless of the math, I'm paying off the mortgage.

 

I found out at a young age that leverage is your friend. You do have to be able to accept the risk though.

[75center]

I've had a 401k for almost six years, started when I was 24, company matches 100% up to 5% contribution. So hopefully I have a little something saved up when I "retire."

 

That's a nice match.

[mexitucky]

I found out at a young age that leverage is your friend. You do have to be able to accept the risk though.

 

I'll tell you how much of a friend it is in about 12 months. Taking on a sizeable risk. I believe the reward is worth it.

[UKMustangFan]

I'm going with the market every time.

[John Anthony]

I've had a 401k for almost six years' date=' started when I was 24, company matches 100% up to 5% contribution. So hopefully I have a little something saved up when I "retire."[/quote']

 

Should be around 30k, at your age you're on a solid pace.

[75center]

I'll tell you how much of a friend it is in about 12 months. Taking on a sizeable risk. I believe the reward is worth it.

 

Think longer term and you should be fine. Lots of good and bad things can happen in only 12 months.

 

I agree that the reward is worth it over time. At least for us it has been. Of course we probably took higher risks than we should have but that's because my wife is in the tech field and had a good sense of what people might go for. We never played with the rent money though, only the extra funds when available.

[Clyde]

I don't like articles like this because it tries to create a one sizes fits all scenario .

 

1. I see barley any mention of the affect of compounded earnings. He is looking a annual premium return and not compounding. Which is one of the most important parts of long term investing.

 

2. Scenarios like these also are based off a utopian society where people are able to follow everything without any unexpected changes. To wait to save will cost more in the long run unless you pay that mortgage off quickly and can max out contributions

 

3. Now if this isn't talking about retirement savings and just a genral investing account , now we are talking a different scenario. You should have 6 months of fixed expenses in a emergency fund. Everything beyond that should be invested or used to pay down debt.

 

4. I also unless I missed didn't see any mention of the tax deduction for mortgage interest. Any reliable calculation when discussing investing or paying mortgage takes this into account for current cash flow.

 

 

5. In genreal I just always get disturbed with any debt paying off plan , that ignores savings. The best plan includes both. If the person giving you advice doesn't use Time Value of money calculations with compounding earnings then they aren't doing their job.

 

All of your points are valid.

 

However, I think the point of the article is to get someone to look at it in a risk/reward fashion. It's not just enough to say equities earn than the interest you're paying. It's a matter of how much more we we need it to be over the interest rate in order for us to assume the risk of a non-guaranteed return.

 

Secondly, it's not just a math equation. I always fell into that trap when talking about the investment guy Dave Ramsey and his philosophy on how to eliminate debt. He says you take your lowest debt balance and pay that off first REGARDLESS of the interest rate. Mathematically, that is illogical. PSYCHOLOGICALLY, it has power to some who need some sort of discipline.

 

So we can't ignore the peace of mind aspect that some strive for. It's a big deal to @Randy Parker and his bride. It is not as big of a deal to me as I like the returns I'm getting in the equity market.

 

If, however, the market was not doing well THEN I think it's something every person with a mortgage should sit down to contemplate.

[LIPTON BASH]

All of your points are valid.

 

However, I think the point of the article is to get someone to look at it in a risk/reward fashion. It's not just enough to say equities earn than the interest you're paying. It's a matter of how much more we we need it to be over the interest rate in order for us to assume the risk of a non-guaranteed return.

 

Secondly, it's not just a math equation. I always fell into that trap when talking about the investment guy Dave Ramsey and his philosophy on how to eliminate debt. He says you take your lowest debt balance and pay that off first REGARDLESS of the interest rate. Mathematically, that is illogical. PSYCHOLOGICALLY, it has power to some who need some sort of discipline.

 

So we can't ignore the peace of mind aspect that some strive for. It's a big deal to @Randy Parker and his bride. It is not as big of a deal to me as I like the returns I'm getting in the equity market.

 

If, however, the market was not doing well THEN I think it's something every person with a mortgage should sit down to contemplate.

 

I get what you mean on peace of mind . But not having retirement savings can't help someone sleep

 

Also the use of bonds in his article didn't really mention the interest rate market we are in. Bond funds saw great return in a decreasing interest rate market , we are now in the exact opposite market.

 

I just believe in balance. It's not either/or. Both sides are important.

[TAC]

I met with my broker last week. We reviewed my 401K balances through work along with the stuff on mine he has. He runs a nice "what if" report and it allows you to change retirement age, dollars you want to retire on and takes into account odds of the market changing. Pretty cool to see where I stand versus where I wanted to be. Got a late start in my retirement plan but made the most of it. We listed my assets and did not plan to use them to help fund the retirement. Always a back up to do so.

 

But the key thing I took away from the meeting. He noted I was still rather conservative on where I put my funds. Said I'm still younger than I think I am. If I retire in 8-10 more years I will still see another market correction. so the DOW at 18,500 should dip and come back up in that time frame. I changed a few of my fixed and bonds into higher risk avenues.