Investing

I recently built a house and got a 30 year mortgage at 4.2 percent interest. I sold my old home and I am sitting on the positive equity. I was speaking with a financial guy about putting the money on my principal or putting money down and refinancing for 15 years. He suggested that I invest the money. He made some spreadsheets that showed what the money could do based on past years. He said an average of 9 percent return. I had a hard time believing it and saw another investment guy at my bank. That guy showed the same stuff. I'm still having a hard time believing this. What am I missing? Is the spreadsheet smoke and mirrors and they rape that 9 percent with fees and I only see a fraction? Are you guys seeing these returns in the market? Should I invest or be better off putting the money on my mortgage?


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You can probably earn more in investments than the interest rate on your mortgage. Can you earn 9%? Yes. More? Yes. Less? Yes.

Can the markets "correct"? Yes. My "policy" is to keep 12 months after tax cash set aside. Do that, and invest the rest.

Go over to bogleheads.org and do some reading. Don't have someone else invest it for you.

Do you have a 401k available at work? If so I would max that thing out along with a Roth until you eat up that equity.

Adower said:

Go over to bogleheads.org and do some reading. Don't have someone else invest it for you.

Do you have a 401k available at work? If so I would max that thing out along with a Roth until you eat up that equity.

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This. Except I'd hold off on the Roth until we see if the new tax plan goes through. No use in paying more taxes than needed.

Most amateur (and even many experienced) personal investors will not see 9% gains, especially repetitively, but yields should definitely be higher than your interest rate on the mortgage.

I agree with maxing out the 401K. You know you should be able to pay down principal on the 30, effectively reducing the duration of the loan. The first several years of a 30 yr loan pay off nearly no principal. Id rather do that than invest today with the market at record highs. There is not many greater feelings of comfort than going to sleep in a house you own outright. Several more questions to decide if just prepaying is comparable to a refi tho

As others have said, in today's market 9% is achievable without taking on too much risk. If you are risk-adverse you could take on lower risk and a lower return, but still more than your mortgage rate. Also, and this should have been built into the spreadsheets, paying down your mortgage may not result in the savings you would expect due to paying extra income taxes due to reduced mortgage interest deductions.

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Buy some gold and silver. These housing and investment markets can't last much longer. Especially if Republicons fail to pass tax reform. I took $100k shot in the nuts in the 08 crash. That's not going to happen again.

Come to think of it, if I were you open, I'd sit on that money until January to see if it looks like tax reform gets passed. If it doesn't pass, a big market correction is coming and you can buy in cheap and ride it back up.

Adower said:

Go over to bogleheads.org and do some reading. Don't have someone else invest it for you.

Do you have a 401k available at work? If so I would max that thing out along with a Roth until you eat up that equity.

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I have an investment retirement and I am not seeing that kind of gain, which is why I am skeptical. The only thing I know about investing is that I don’t know anything. I feel like I would have to have someone invest for me. Why should I, with no knowledge of markets, invest on my own? My brother says that his 401k is only making 4%, which is my mortgage rate.



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jaxbusa said:

I have an investment retirement and I am not seeing that kind of gain, which is why I am skeptical. The only thing I know about investing is that I don’t know anything. I feel like I would have to have someone invest for me. Why should I, with no knowledge of markets, invest on my own? My brother says that his 401k is only making 4%, which is my mortgage rate.

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My rate of return over the past year on my 401k is 17.1% and my 5 year is 10.4%. Other family and friends are seeing this performance as well with their accounts.

Most of this growth is from the last two years though and I think that the market is due for a correction. I would not jump in now.

My wife and I are very risk averse and have always paid down our mortgage rather than invest outside of our retirement accounts. It has helped us focus on saving extra money every month for two people who are both spenders.

I invest in rental properties, flip houses and land. They will always pay back and usually way in excess of the market rate of interest.

Cap out a Roth IRA now, and in January 2018 and let it sit until January 2019. Take the rest and set it aside as a cushion. If you have enough, take a chunk of that (approx. 10%) and use it to play around in the stock market. If you're serious about investing, learn the stock market. A lot of stock simulators are good learning tools, but quite a few of them miss out on key components that are extremely important to understand in making money with stocks. Get in there with an amount you feel comfortable losing and learn.

jaxbusa said:

I have an investment retirement and I am not seeing that kind of gain, which is why I am skeptical. The only thing I know about investing is that I don’t know anything. I feel like I would have to have someone invest for me. Why should I, with no knowledge of markets, invest on my own? My brother says that his 401k is only making 4%, which is my mortgage rate.



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It’s not that complex. Just take month or so to read a few books, join a few forums, and see if you can find local meet ups. You don’t need an guy to handle your contributions. If I can do it then I know you can.

Look at index funds with a low expense ratio.

jaxbusa said:

I have an investment retirement and I am not seeing that kind of gain, which is why I am skeptical. The only thing I know about investing is that I don’t know anything. I feel like I would have to have someone invest for me. Why should I, with no knowledge of markets, invest on my own? My brother says that his 401k is only making 4%, which is my mortgage rate.

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My dad was a stock broker for 35 years, and worked till he died. He handled my non-401K investments because I just never felt like I made the best investment decisions, but he's been gone 22 years. After my 401K got creamed in 2001 I said screw this and found a financial planner I trust to manage my retirement account, and that of my old mom.

He gets 1% of whatever the value of the portfolio is and is not paid per transaction like my old man was back in the old days of retail stock brokers. Even if my guy did no better than me, but kept me from having to futz with it it would be worth it to me. Opinions will vary widely on this, but that was my choice 13 years ago, and I've been happy with it, and so has my old mom.

The challenge is finding someone who is both competent and you feel like you can trust.

roth IRA, 401k, gold, land, stable stocks that have dividends

also a 15 year on your house would be a great idea IF you can get 1 point less than you have now.

Max out your 401k - at least to the % required to get the max match from your employer. Toss in more if you can. Tax free growth is the way to go. If you have more $$ to play with, find a good firm with a solid and respected investment approach, that does not charge too high of a commission. Professionals ( the good ones ) can absolutely out perform hobbyists more often than not. The pros will take your 401k options into account and diversify your overall portfolio ( not just the piece they manage for you ) so the level of risk is something you are comfortable with. They have tools and metrics that you wouldn't benefit from otherwise.

It is great being able to sleep at night and not worry if you should have sold this stock or liquidated that fund. I am fortunate in that my wife and I are close friends with the couple who manage our funds. We have known them since before they were investment managers. Probably not a typical scenario, but a great situation to be in.

Arlie said:

As others have said, in today's market 9% is achievable without taking on too much risk. If you are risk-adverse you could take on lower risk and a lower return, but still more than your mortgage rate. Also, and this should have been built into the spreadsheets, paying down your mortgage may not result in the savings you would expect due to paying extra income taxes due to reduced mortgage interest deductions.

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Where is your $ invested? My IRA is only at about 5% return on the year so far. I need to re-allocate it seems!

I'll go a different route.

I have a decent retirement plan at my job. I throw dough in it religiously every week. If I had 50-100k sitting in investment dollars, I could see both investing and principle paying down as valid.

Pay down principle, great. But if the market tanks, you lost money.
Invest in 401k, great. But if the market tanks, you lost money.

However, I see the principle as something you owe no matter what. It's a reality that you owe the money, therefore it would be wiser to pay back what you owe, and reduce the size of your nut. Especially if you lose your job, or come into some sort of hardship financially.

The same can't be said for your retirement/investment portfolio. It's not as liquid and fact of the matter is.. if you're experiencing a hardship, it's highly likely the market will as well (if its an economic downturn).

My roth year to date is like 11%. The dude charges me $105 per year to manage it and I get updates every month. The first year it was a tough pill to swallow, because I was only investing like $300 per month. Now since I have some actual money in there, his fee is worth it.

I think overall, even with his fee, I'm up like 7-8% over the life of the account.

http://www.macrotrends.net/2490/sp-500-ytd-performance
http://www.macrotrends.net/2505/dow-jones-ytd-performance

IRAs tend to be pretty conservative and incur fees, therefore have lower returns. With the proper mix of investments higher returns are possible with only moderate risk.

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