Stein

iTrader: (46)

Pull in a little more history and it doesn't look so hot.

rharris19

iTrader: (41)

That is not the only point of the arguement though. You are assuming that is the only variable. There is an advantage to having the tax break if needed, but it is really the oppotunity to be able to invest in other assets that yeild, on average, a higher return. I will give an example of a variety of returns at 6%, 8%, 10%, and 12% over the course of 30 years vs. paying off your mortgage with a double payment and then investing the the same investment after paying off your mortgage.

This is assuming a $200,000 loan at both 5% and 7%
7% interest rate paying double mortgage then investing: $1,330 payment + $1,330 to principle
You will save $215,019 and pay the loan off in 8 years and 4 months, leaving you with 21 years and 8 months left to invest the remaining double payments.
6% return $1,413,752 + $215, 019 = $1,628,771
8% return $1,846,183 + $215, 019 = $2,061,202
10% return $2,442,237 + $215, 019 = $2,657,256
12% return $3,269,402 + $215, 019 = $3,844,421

5% interest rate paying double mortgage, then investing: $1,074 payment + $1,074 to pricinple:
Yoiu save $132,877 and pay off in 9 years and 11 months
6% return $999,574 + $132,877 = $1,132,451
8% return $1,275,798 + $132,877 = $1,408,675
10% return $1,646,864 + $132,877 = $1,779,741
12% return $2,148,317 + $132,877 = $2,281,194

Now we assume you are paying the mortgage as just the payment and invest the same amount.
7% interst rate mortgage: $1,330 payment + $1,330 invested for full 30 years
6% return $1,336,005
8% return $1,982,178
10% return $3,006,449
12% return $4,648,302

5% interest rate mortgage: $1,074 payment + $1,074 invested for full 30 years
6% return $1,078,849
8% return $1,600,646
10% return $2,427,764
12% return $3,753,591


You can compare the figures for the two scenarios and see that there are times that it would make sense to pay mortgage early versus investing if you looked at it as these are the only variables. There are many other things to concider, like the tax deduction, which some people use, and liquidity of money invested. In my expirience a savy and eductaed investor can yeild 15% on average, which it not totaly derived from the stock market.

By no means am I saying that the other Robert's (rmcelwee) system is flawed. Either way, you will have strong financial independence. His system has much less risk and is simpler. For the vast majority, this is the way they should go. I personally love investing and do everything I can for that extra 0.5%, so it is worth it for me.

rmcelwee

iTrader: (1)

Gold was $850 an ounce in January 1980. Looks like it was around $850 an ounce in January 2009. So, 29 years got you ZERO percent ROI (not going to waste my time figuring out how much inflation cost you during those 29 years. In fact, from 1980 to 2000 gold had lost around 70% of its value. So, not only do you owe me a refund on my $10K but you would have owed me (assuming that I put my $300K in there) another $200K plus interest on top of it. Incredible money making scheme you got there!

Anyone else want to play? Again, I was wanting a guaranteed investment (like the guaranteed 5.75% I got when I paid off my house), not something that is happens to do good for a brief period.

If person A purchased a $300,000 house for cash in 1980 he would save $330,000 in interest in 30 years. Person B gets a $300,000 mortgage, makes regular payments and pays a total of $630,000. Assuming he used his $300K cash to buy gold he would have ended up paying $630K for the house and losing $200K on the investment. Looks like a difference of over half a million dollars to me.

Stein

iTrader: (46)

Good stuff rharris.

I guess I have only one comment and that is on your last paragraph.

Paying off early has ZERO risk and is a guaranteed return. While I agree that you SHOULD be able to do better than 8% in investments, maybe much better, I'm taking the guarantee. That said, I'm still putting more into the market via 401K, Roth, other investing (about $50K) vs accelerated mortgage (extra $25K) per year. If I really followed the hard and fast rule of conservative investing, I'd drop the investments and 401K much lower to company match limits on 401K and cap the Roth and knock the house out sooner, but another three years is considered "acceptable". I only have a $75K mortgage balance.

sixshooter

iTrader: (12)

RHarris, 2% of homeowners could figure out how to make 15% investing. I'm talking about the rest of us who are likely to make greater mortgage interest payments than we make investing due to fees, taxes and downturns. You must agree, for the vast majority of us, being debt free is far better than juggling investments. Investments take time studying to do right.

And gold - What a great investment...five years ago. I think the goal is to buy low and sell high and not the other way around. Now is a great time to sell gold. Send him his money back.

rmcelwee

iTrader: (1)

That looks good on paper but again there is NO guaranteed return. You simply cannot show me an investment (or an investor) that is guaranteed to get that 15% you are talking about. You are in the land of theory. My guaranteed 5.75% is fact.

rharris19

iTrader: (41)

I agree with you. That was the point of my last paragraph simply stating that his way of managing finances would be best for most people due to its simplicity and gaurantee. That is not saying that the majority are not nearly as smart as I am, but you have to really love investing to understand how it works and succeed at it. It just happens to be a strong interest of mine.

His way get miles above where the vast mojority of families are and to a point of financial independence. I was simply bringing another viewpoint to the discussion.

Nagase

iTrader: (6)

Paying off a debt is good policy, but it is not an investment. It does not give you extra money, you just lose less.

If you use the worst example on the chart, yes, gold would have been a bad investment in 1980. However, if we don't use the stupidest place on the chart to buy, and instead move to the smartest... a buyer would be up about 2333% since 1970.

I posted a chart because cherry picking data points proves nothing.

Gold is high now, and there's no guarentee that it will go up. Past performance is unrelated to future performance... that can be argued. However, with the current government spending, dollar alternatives are very strong, and are likely to continue that way until we stop throwing trillions of new fiat dollars at every problem we face. In that, it's a very safe bet.

rmcelwee

iTrader: (1)

If I invest $1000 that is $1000 I do not have to knock down your principal on my house. Since knocking down that principal nets me a guaranteed 5.75% and you cannot guarantee a 5.75% ROI on a stock I say it is a moot point (that it is not an investment). You and I have the same amount of money in our pocket, you pay interest and I do not. I now have more money in my pocket. That is giving me extra money.


You are proving my point for me. You did not know that was a stupid time to buy until 5 years later. Are you saying you guarantee that Gold will be up more than 5.75% over the NEXT 30 years (starting today)? Again, no one knows. No one has a crystal ball. No one can guarantee that gold will not drop to $5 a pound next week. Hell, I can get a chart of Enron and turn $5 into $12 billion if you let me choose which trading days I get to use in the calculation. However, I can get anyone's mortgage and make a payment at any time and end up with a positive return.

Anyone who says now is a good time to buy gold is a fool. Just like there were a lot of fools buying Oil at $140 (or where ever it peaked at). Today all you see on TV is commercials saying "Buy gold from us", a year ago it was "buy oil futures", a year before that it was "buy a bigger house and get a 125% loan", a year before that it was "give Bernie your money" a year before that it was....

Nagase

iTrader: (6)

I already said it was a good idea. Thank you for proving my point, again. It's still not an investment though. Being out of debt doesn't mean you're making money, it just means you're not bleeding it. What are you going to "invest" in when you're out of debt? Another house to pay off since you get the best return on investment there? All you're doing by calling paying off a debt an investment is justifying debt.

No one can guarantee that a metor won't fall on your house tomorrow, leaving you with a debt and no house. No one can guarantee anything in the way you're stating. If you're trying to convince me that no one knows the future... what's next? Convince me the sky is blue?

Why do you think I expressly said cherry picking is a bad idea the first time you did it? You're proving my point against what you previously did.

Postive, yes. It's still not an investment. I thought I wouldn't need to do this, but here's the dictionary definition of an investment:

n⋅vest⋅ment
  /ɪnˈvɛstmənt/ Show Spelled Pronunciation [in-vest-muhnt] Show IPA
Use investment in a Sentence
See web results for investment
See images of investment
–noun
1. the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.

Unless you can count on your house appreciating in value more than your net costs, which you can't, it's not an investment. You have no insight to the future with housing values either.

Oh, apparently no one has a crystal ball...except you. You know that gold will fall... how? Would you share your mystical insights with me? There will be a time when gold will go down, but neither I nor you know when that will be, as you've just repeatedly stated earlier about 10 times.

Buying gold or oil investments is not in any way equivilant to being further in debt to get a bigger house. I don't even see how you justify that line of thought. And giving someone your money equals investing? I think you really need to read the dictionary.

Cliffnotes: Getting in debt is a bad idea. Paying it off is a good idea. Making your bad idea go away is not an investment, it's just not suffering because you made a bad idea.

Stein

iTrader: (46)

Damn, I knew that a good-intentioned thread would turn into dick swinging. Unfortunately, I antagonized the situation by confronting Nagase, and for that I apologize.

THERE IS NO RIGHT OR WRONG, ONLY SHADES OF BETTER OR WORSE. Even then, only the person who's money is at stake can determine which is better or worse for them.

1) Spend less than you make, invest the extra in any investment vehicle that makes YOU comfortable.

2) Profit.

3) /thread

Nagase

iTrader: (6)

This is completely right, and the original post is really great. I even linked it to some of my friends who have nothing to do with miatas... because this advice is good for everyone.

Rmcelwee is COMPLETELY right with that. Save money, stay or get out of debt. Live within your means.... and then you too, someday can drive a Geo Metro.

(I kid, I kid.)

Stein

iTrader: (46)

lulz.

I just hope that someone, somewhere, will read this thread and decide; that's it. I'm done. I'm going to fix the crap that I got myself into. No bailouts, no handouts. Just owning up and fixing the problem.

FRT_Fun

iTrader: (19)

I read this whole thread, and learned a lot.. but I just spent $1500 on a TV and building a computer I don't need.

One day I'll learn.

NA6C-Guy

iTrader: (1)

No you won't. I've been saying that too and I haven't yet. I just like good things too much to do without them.

rmcelwee

iTrader: (1)

I was getting 72 MPG today on the drive back from the gun range <G>. BUT, the Geo has been a horrible "investment". Unless gas really goes up (I believe it will but I am only guessing) it is still cheap enough that the difference in a gas guzzler (say a 20 MPG Miata) and my Geo (I get an average of 50 MPG in the city) on fuel costs is just not that much. It was around $300 a year savings using it as a back and forth to work car the last time I checked. I honestly don't give a damn about the environment but I do enjoy a good project and it has been one.

Speaking of investment, I did buy a natural gas stock about 6 months ago. My plan was to use it as a hedge against any increases in the price of gasoline (a very good idea that I picked up from my boss). I sold it for a quick profit though and haven't checked recently to see what it did. I'll take a look now and see how much extra money I didn't make (I'm assuming it has gone up since I sold it).........

.....Well, I took a look at the numbers. I bought 1000 shares @ $1.30 on 3/11/09 for $1335 and sold it @ $3.44 on 6/21/09 for $3415 ($2100 profit). It is now $4.66 so I could have made another $1200 if I had sold it today. Looks like it was kicking *** back in October. In any event, it paid (kind of, it is in my Roth so I won't actually see the money until I am oldER and greyER) for my Geo Metro so I can't really bitch about it too much.




Still doing better than my two H1N1 stocks. I made $749 on NVAX (6/11/09 to 8/19/09):




but so far have lost $1042 on HEB (bought on 6/11/09). Needs to get back to around $2.75 to break even:



BTW, let this be a lesson to you young guys. You WILL lose money buying individual stocks. I don't care if you make money for 20 years - eventually you will lose. It is an addiction worse than gambling. Picking a few winners just means you will lose more the next time. I was flying high for about 15 years and then it all came crashing down. When I retire my plan is to take 15% of my net worth and play the market (meaning blow it all away). I'll have fun doing it but that is all I am going to touch.

Stein

iTrader: (46)

You will. I'm guessing that you are 27-30? It took me until I was about 35. New sales job, big(ger) money, just divorced, new car every year, $100 shirts and $200 shoes. It's funny. When you have no money, you buy everything so people think that you have money. When you have money, you could completely care less what other people think. You should see what I look like on the weekends when I do go to town to buy something. It's not pretty, but I pay in cash. BTW, not counting hunting boots (gotta draw the line somewhere) I don't think that I have spent $200 total on shoes in the last 2-3 years.

It's kind of like the cigar and martini bars around here. It isn't the 35+ crowd drinking $12 martinis and smoking $20 cigars. It's the 22 year old in his $500 suit and $200 shoes that doesn't have two nickels in his pocket but has a VISA card. Look at him. He's hot ****. Not.

sixshooter

iTrader: (12)

Stein is right! So true. Self confidence means you don't need for others to see you as "cool" to be happy. More money and time is uselessly wasted on looking "cool" than I can believe. No fancy car, but a reliable car; no fancy clothes, but good fitting and clean clothes; no fancy house, but a well-maintained, reasonably sized house; no fancy jewelery or watches because they have no value if you aren't worried about trendy appearances; not bodybuilding but exercising because I'm not trying to impress you; no flatscreen TV because my CRT televisions still work; shoes should be comfortable, useful, and inexpensive unless I am sponsored to wear them; no fancy M3, but a Miata; no new fancy boat, but a nice older boat; no new pickup truck, but a well maintained very high mileage one; no credit card debt, where there used to be much of it; no spending every dollar you make, but maxing out a Roth401k (yes 401Ks are available now as an after tax investment);

But most importantly not fighting with your wife about money or anything else > all.

If you owe money, somebody owns you.
If you owe money because you are trying to be "cool" then somebody
owns you and you are insecure because you know somebody owns you.

It's not your car, it's the bank's car and you are borrowing it until you can actually buy it. Same thing with the house, those clothes, that big TV and all of the useless video games and BS you spent money on when you swiped that Visa. I don't really like that feeling of being owned very much. I will be very happy when this house is paid off.

I drive a Miata because I don't need you to think I'm cool.

Loki047

iTrader: (6)

just brining this up, since no one has mentioned it. Has anyone bothered either A) improving their education B) spend less time on these forums and devote more time to being better at their job C) Give up half of "the waste of time hobbies" and find a better job?

And for the record there are about 10 guys i know who make their entire income from playing the market with their own money. Definitely not for everyone, but if you have the mind to do it.

miatamania

iTrader: (9)

I really like this post, this is one reason I'm selling my SVX...I really want to pay off my credit card BEFORE I propose to my g/f. She would say yes either way, but it would mean a lot to her (and to myself) being able to come to the table with just my massive amounts of student loans. I like the spreadsheet idea...not sure how that would work, but I kinda want to try it.