5 cats and a Weimaraner................Joey

Paying off a house is a good idea, there is a interest 'tax savings' but that's only savings off interest, so you only save off the loss you are paying to borrow the money.

IF you have a house paid off, you still pay for taxes and utilities and upkeep (you pay those things either way if the house is paid off or not) but the money you normally would be paying towards a mortgage is now (instead) able to be paid to yourself into your savings.

Also, paying off a mortgage is a gauranteed savings, investing in stocks or bonds is not guaranteed, in other words if you pay off a 3% mortgage, you are saving 3% while if you invest in the stock market You could lose money, in fact one out of three years on average stock values go down. Don't mistake this bull market of the past 7 years as the normal market.

You can and will be caught in the lower sides of this chart from time to time.

I count 24 years where the stock market made 0% or lost money.

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This is where I am at. And I am totally debt free.

So lets say the stock market takes a dump again. Which it very well may. Where will you get the money to pay off that second and third mortgage on your house after you lose your job due to corporate downsizing?

i'm a huge fan of paying off mortgages but property values aren't any more guaranteed than stock values. granted it's unlikely your home's value will go down to zero, but the odds of your property going up or down in value are not inherently different from your chances in the stock market.

Ok,

I'm not saying property value is garanteed, I'm saying the interest you pay or don't pay (save) is a sure thing.

If you were to pay $200k in interest but paid off your loan early and only pay $100k you saved $100k that's guaranteed.

Also, if the house goes up or down doesn't matter because you pay the same mortgage either way. Once you buy the house it really doesn't matter what it's worth until you sell it.

I'd rather live in a house than a portfolio.

I do think that some of the folks on here have expectations far outside of reality.

Saving is all well and good, but many of us so called privleged few graduate college with what?
A car we have shoe stringed to keep running for 4 - 6 years.
40-80k worth of student loans
0 in the bank

It is all well and dandy to save, pay this off, save for this. What about, living? I could have my loans paid off in 2 years, if I drove that shoe string car, never went out, live in the tiniest apt available, etc etc. Is it worth it? No.

absolutely. i'm just saying there is some math to be done, and reasonable people could go either way depending on the situation. say you have a $100k mortgage at 4%. you can take 100 grand and pay it off, or you can invest that 100 grand in stocks. if your stock investments return 8% over the term of your mortgage, you're way ahead investing it rather than paying off your mortgage. it's certainly the riskier play, but anyone that did that 8 years ago when the Dow was at like 4,500 is rich now (obviously not the norm).

certainly the more conservative play is to go debt-free, but in doing that, you consume any capital you could have otherwise used to invest, which is severely limiting in terms of opportunity.

i do think 30-year mortgages are not as good an investment as people generally believe, though, and am a huge fan of paying them off early or just going with a 15-year fixed instead.

Hmm - paid 100k in 1992 now valued over 400k
- paid 220k in 1999 now valued over 700k
- paid 275k in 2008 now valued over 500k

Even if property prices drop by 50% I've still doubled my money, with less risk than shares. Plus weekly rent to buy more pins

hmm, looking at that chart reinforces the idea that investing in stocks is better than paying off a mortgage. who cares if you are caught on the wrong side of the chart one year out of four? don't cash out during those particular years. we are talking about long-term investments here, right? not using the money to live day to day. the median return on stocks according to that chart is 10%-20%, and it doesn't even include the bull market of the last 7 years.

if you'd invested the same amount in index funds in 1992, 1999, and 2008 you'd have similar if not greater returns.

Believe me, he wishes he were part of the den.

Awesome. Just as long as you have a retirement AND that house paid for.

I can't wait for that day too. Retirement savings first though

if you're having trouble understanding the chart or my post, i can explain them to you.

Once you are out of debt, you can then begin to save and buy things with cash and not be paying additional fees for your fun. Not sure your age, however, at some point you look around and realize buying more widgets (pinball machines in case of this forum) actually don't provide an equal amount of happiness/joy than saving that money and realizing that each time you do this, you are saving for your future.

“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese Proverb

Replace "plant a tree" with invest and it has the same excellent point to it. The absolute most important thing for the majority of investors is simply time in market.

But I'm sure I would have grey hair by now. Your proberly right. There are many ways to invest and make a profit. Each to their own. My mate who has heaps in shares is constantly stressing over their value, granted he has made good money...but is the stress worth it...not for me.

I took 100% loans on all so I would have had to borrow to invest in index funds. Houses all paid off now, it was the only way I could do it.

I understand completely.

second-great-depression.jpg

i dunno, posting jpgs of the great depression imply you don't. i mean i'm sure you're just being snarky, but running the numbers, stock indexes outperform property values long-term over as arbitrarily long a period as you could choose to measure. similar to housing prices, some years they go up, some years they go down. is there more volatility? yes, but volatility is irrelevant if we're talking about long term investments -- all that matters is the average return rate over many years. the folks who lost their asses in the '29 crash were get-rich-quick types buying on margin, and trying to make a living off their gains. that's a terrible strategy regardless of era.

sometimes companies go out of business and their stock loses all its value. but who in their right mind puts all their money in one company? it's not really relevant to the conversation of investing in stocks versus paying off a mortgage, unless you're just plain doing it wrong.

being afraid to invest because of the potential of a stock market crash is like refusing to ever ride in a car because you're afraid of getting into an accident. sure, it happens, and you can post as many jpgs of gruesome accidents as you want, but over the long term it's still worth the risk.

just my opinion of course, and i do tend to enjoy a certain amount of calculated risk in my life. although for the record my mortgage will be paid off in about 2-3 years.

Stocks and bonds go together like peanut butter and Jelly.

Here is the annual return for Treasury Bonds:
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S&P500

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i thought the return rates of bonds and stock were inverse -- when stock returns are up, bond returns are down, and vice versa.

Na,

Bonds always pay interest, it just matters what the interest rate they were issued at.

If a bond was issued at 10% interest and a year later, interest rates drop to 5% for example, the 10% note is worth a lot more, because it's paying twice as much interest.

I am mainly speaking of treasury bonds, they are not callable. Some corporate bonds are callable, so if the interest rate drops, the company can buy back the high interest bonds and issue new ones.

Also, bond funds are a bit more complex.

Bonds may tend to rise when stocks look bleak, but they are not related directly. Unless, you think a recession lowers stocks, also lowers interest rates (thus the earlier issued bonds with higher rate go up in value).

Stocks tend to whipsaw up and down, Bonds (plus the compounded interest) always (should go up) but do they keep pace of inflation or a bit ahead that is the key, typically they do keep slightly ahead of inflation.

I view Bonds as a money keeping tool, I view Stocks as a money making tool. But Stocks are not a sure thing, the great depression stocks lost 90% of their value.

It's worth More disposable income. Instead of Paying interest, you are now paying $ for items! You have far more $ to go around. Paying off debt is liberating, interest & debt is the shit that keeps you up @ night. I know because of lived both life's & I'll never be burdened by debt & interest again.

my stocks are currently working so +1 for that

Portfolio is 90x higher than my pins! I'm old so that's not unexpected!

Don O in MD

And if you bought stocks the following months and held them, you would be worth millions

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Adjusted for inflation over the lifetime of the S&P 500, the average annualized return is between 6% - 7%. This tells me that I can end up with more money if I take my $500k in cash and put it in the market while I finance my house at a rate that is closer to 3% - 4%.

Now if I personally had $500k in cash I would probably split the difference and buy a moderate home with cash and then invest the rest. I'm still looking for that elusive $500k in cash though...

Obviously the housing bubble in Australia has yet to pop? A quick Google search seems to indicate it could be coming though.

What is the math if my house went up in value 2.5 times what it was when I bought it in 1997?
I have also put in about 40 to 50% of the original value into upgrades since I bought it.

The biggest thing with buying a home is that even if it becomes worthless, you still can live there. You cant live in an Enron Stock certificate. Its a good idea to own a home (or two or three) as well as have other investments. Owning a home also is a way to hedge against inflation, Rent will go up over time...your mortgage should stay the same.

Well, you can live in it unless there is some tragedy like a nuclear disaster, a sinkhole or earthquake that is not insured.
Insert Debbie Downer here.

Heck ya! I am still getting 4% as we speak. I'm glad I kept them.

in case of nuclear disaster, whether i would have been better off in the stock market or buying property is probably going to be several rungs down the worry ladder from, say, dying of radiation poisoning.

Yes, neither is going to be worth anything much in case of nuclear war. If there was a local nuclear disaster such as almost happened in three-mile island, that would affect the houses in that region much more than the stock market. Although the stock market assuredly would go down a bunch.

Yes, that's why in my example I personally would take a middle ground. As it seems with many things in life, being somewhere in the middle on things is the safe path. SDTM drains notwithstanding of course

Which would you rather have? More disposable income in your 30's or the ability to make more use of your 20's? Sure, in ten years I could buy more pins. Have a bigger house. Buy a nice german luxury sedan.

Don't care. Already own the car I want. The desire for pins is finite. A house is on the list, but need to settle first anyways. What I can't buy is youth. These knees are only going to get worse and when they do it won't matter how much disposable income is there.

The key is to find a balance between living for the now and living for the future.

Putting numbers to it as an example (they don't change the percentages), but if you had a $100k house in 1997 that is now worth $350k in 2015 then you are talking roughly a 7.2% annualized rate of return. If you put in $50k more to get to the $350k value than I guess we are talking closer to 6.2%.

Possibly, or maybe you did actually lose money. Smart ones had money to buy after the crash.

If you were still holding those stocks, you may of made lots more money, as stocks have had one of the biggest runs in recent history in the last 6-7 years.

Pinball machines can lose value also - people with original MM's have lost value, most people would not pay those prices for an original now that the remake is available.

Hey, if it's not for you that's fine. Some people need to believe what they want to justify their actions.
I am not nuts, I know we are in for a decent drop, most likely this year, but that's why i have sold some positions and have cash on the sideline waiting for bargains. I have years ahead of me so i can make it through another crash - which in reality is just a huge buying opportunity.

Plenty of middle class americans amassed retirement accounts in excess of 1 million - it's possible but you need to be a saver and not a spender.

It really comes down to separating out wants vs. needs - and doing with just enough wants to keep you happy.

Mind you that 6.2% is best case scenario where the $50k improvements where made recently. Tough to get an exact calculation without exact investment dates, but the real figure is going to probably be somewhere between 5% and 6%.

If you apply the $50k improvements evenly to all years you get roughly 5.6%....and I'm a nerd.

Are we counting unvested RSU's? I pretty much sell as soon as the ESPP or RSU's drop.

No I lost nothing. If I had listened to my gut and dumped as soon as Dow hit 14,000, then maybe when it bottomed out I would have got back in.

But I decided I don't want to keep track of these kinds of things and getting rich has never been a priority of mine. I have always gotten by, and keeping things as simple in life as possible is what keeps me happy and healthy.

Of the 24 years you speak of, I was only an adult for 5 of them. 1990, 2000, 2001 , 2002, 2008. So 20 of the 25 years The market was up for me, or 80% of the time.

There is so much cash on the sidelines right now, versus any of the 24 years you show in your graph. Add onto that, there is no place to put money and make money besides the stock market. In the 1970's people were getting 16% in their saving accounts! What does your saving account get you now? 1/2 of 1 percent?

No economist worth anything is using this single historical data point to determine the go forward market. In fact there are so many variables that economists are at best directionally accurate. I trust my weatherman more than most economists. . My personal best advice to anyone who is in the market, is to watch Yelin and how she moves interest rates. If she does it to fast to quickly, the market will take a dive.

In my example at 2.5 times, 100k would now be 250k. I also had a mortgage so interest has been paid throughout which should factor into the cost of the house, and since I did not have the whole amount invested up front that changes the investment perspective quite a bit as well in my favor. The initial interest rate was around 6% but fortunately rates went down and refinancing was done twice to my advantage to save interest costs and pay off the house faster.

To me the biggest benefit of house ownership is having a stable place to live where you control the quality of the fixtures/furnishings and usually can get at least the money you put into it back when you sell it, unlike renting where a landlord can let things get worn out and not do anything about it and you don't get any of your money back when you leave.

Ah, I assumed the 2.5 times meant the value increased 250%, not 150%. So your value actually increased 1.5 times over the inital investment

Yes, 1.5 times over, or in other words 2.5 times the original worth.

100k plus 1.5 X 100k equals 250k; or
100k x 2.5 equals 250k

What ever makes you comfortable.