The Investment Thread

[nate82]

Just doing a simple annuity for a 30-year mortgage where you paid $500 extra a month would come out to about $400,000 assuming you got a 5% rate.

 

It all depends on how comfortable you are with having debt versus having it paid off. Personally I invest everything instead of paying down the mortgage. Even at just $200 a month it would come out to about $160,000. All figures are assuming a $0 initial starting point.

 

At $200 a month that would be equal to a house at $200,000 assuming an interest rate of 4.5% where your total interest payments are about the same as investing at $200 a month in an annuity at 5%. That is where your break even point would be with a $200k home. At $600k you would want to do $600 a month at a minimum which would get you to your total interest payments. If you were paying something like $800 a month to your principal it probably would be a better idea to split it in half. Take $400 towards your principal and $400 towards an annuity. Lets say that $400 subtracts 5-years from your 30-year loan under that same time span your other $400 a month would have grown to about $230k. Which would probably be about what you would have paid on interest over the 30-year loan period for a $400k home.

 

Again depends on what you value more not being in debt or having more savings. I can see the appeal of both but I would prefer having more in savings.

[GAME05]

I debated the same thing with my student loans and personal vehicle, but I paid them down instead of investing the extra. Sure I'd have made a little more investing, but I considered if something bad happened there's a bigger benefit to being debt free than still making monthly payments on stuff.

[PlayerHader]

I debated the same thing with my student loans and personal vehicle, but I paid them down instead of investing the extra. Sure I'd have made a little more investing, but I considered if something bad happened there's a bigger benefit to being debt free than still making monthly payments on stuff.

 

What kind of rate did you have on your loans? I'd always pay down the car loan asap as a depreciating asset. I'd have more flexibility with the student loans depending on the rate.

[OldSchoolSnapper]

I'd still always pay down a student loan. Mine were a great source of stress for me in way that a house just isn't. I can't sell my degree if I enter hardship. But I can buy a cheaper house and customize it to my needs, and sell it at retirement if I feel like it. A mortgage is really the only kind of debt I don't stress over. I try to pay off cars within 12 months if I can't pay cash in full up front.

[PlayerHader]

I'd still always pay down a student loan. Mine were a great source of stress for me in way that a house just isn't. I can't sell my degree if I enter hardship. But I can buy a cheaper house and customize it to my needs, and sell it at retirement if I feel like it. A mortgage is really the only kind of debt I don't stress over. I try to pay off cars within 12 months if I can't pay cash in full up front.

 

I'd agree. I was fortunate enough to pay off my student loans when we sold our first home. Still whittling away at my wife's final few thousand dollars (and I just found out she hasn't been making regular payments while the interest was frozen...AAAHHHHHHHH). We are down to our mortgage and recently financed a vehicle after a few fender benders took both of ours out. I'm not loving it, but we were able to get a good deal and privately secured a 0% interest loan. Times are so strange that our new (to us) ride is actually worth a few thousand more now than we paid for it back in September.

[LouisEly]

Agree w/Nate above. If you buy a $500K house, put 20% down, and finance $400K at 4.5%, over 30 years you'll pay almost ~$330K in interest over the life of the loan. If you invest $400/mo over 360 months and earn 5% interest, you'll be sitting on a little over $330K, so about break even.

 

However, if your mortgage is at 3.25% you'll only pay ~$230K in interest, but if you invest that $400/mo and earn 7% interest you'll be sitting on almost $500K. At 8% return, almost $600K.

 

If you really, really want to pay down your mortgage there is a better way than making extra payments - get a HELOC, use the HELOC to buy down your mortgage principal, and then make your extra payments towards your HELOC, rinse and repeat. Replace compound interest with simple interest that is still tax deductible. There's software that will calculate it for you:

 

The Shred Method

[superfly]

Agree w/Nate above. If you buy a $500K house, put 20% down, and finance $400K at 4.5%, over 30 years you'll pay almost ~$330K in interest over the life of the loan. If you invest $400/mo over 360 months and earn 5% interest, you'll be sitting on a little over $330K, so about break even.

 

However, if your mortgage is at 3.25% you'll only pay ~$230K in interest, but if you invest that $400/mo and earn 7% interest you'll be sitting on almost $500K. At 8% return, almost $600K.

 

If you really, really want to pay down your mortgage there is a better way than making extra payments - get a HELOC, use the HELOC to buy down your mortgage principal, and then make your extra payments towards your HELOC, rinse and repeat. Replace compound interest with simple interest that is still tax deductible. There's software that will calculate it for you:

 

The Shred Method

 

 

Ehh...I’d be careful with that HELOC stuff. Not many are financially knowledgeable or disciplined enough to do that.

[zurch1818]

I don't understand that method. Aren't mortgages calculated with simple interest based on the principal balance? The difference between that and the minimum payment is what goes to principal. Maybe it's about leveraging your equity? If that is the case, if your house is worth $300k, does it make sense to leverage a million dollar mortgage/2nd mortgage (HELOC) off it?

 

My risk-averse self said no despite the possible gain. This is why when I ran the numbers, on my mortgage with minimum payments the 30 year mortgage had almost 2.75x the interest. When you look at a 15 year mortgage, the interest number doesn't make you want to cry. For me renting and getting a big down payment was the safer and faster way to home ownership and wealth.

 

I also rented a cheap apartment ($9.6k a year) and was able to save and aggressively invest the down payment. I figured what ever money I was "losing" to rent, I was gaining in taxes saved. For the record, my property tax bill in Madison is about $8k (yikes!) and my homeowners is $1.1k, so basically a wash. Plus my down payment fund was growing at a higher return rate that what houses typically appreciate in value each year and I had no yard to mow. https://www.investopedia.com/ask/answers/052015/which-has-performed-better-historically-stock-market-or-real-estate.asp

 

Obviously if you borrow more money, you have the potential to leverage greater returns, but that is a risk I didn't want to take with my family and highly variable income. I have maxed out my Roth 401k the last 4 years first. Any extra bonus/other income I received went straight to the house (or down payment fund prior to closing). In the years before, I was the only saving enough for retirement to get the company match and growing my down payment fund more aggressively.

[PlayerHader]

One thing is certain…we have some financial mutants here.

 

When I read about the average American family’s financial situation I feel like my family is doing very well for our future. Then I jump in these conversations on here or Reddit or elsewhere, and I’m often blown away by what others are doing and begin questioning just how well we actually are doing. I think, ultimately, it’s a signal of the importance of being aware of the future and involved in investing in it. It’s actually pretty simple to build wealth, but that doesn’t mean it’s easy. People not doing it aren’t likely talking about the process online.

 

Thanks to all sharing ideas and experiences in here. I really love learning more and more about this.

[MrTPlush]

I opted not to try and powersave a big down payment. When I bought my house a little over a year ago I figured 2-3 years wasn't really going to gain me anything. Interest rates were so low I figured a bump of 1.5%+ wasn't out of the question 2-3 years from then. Also figured housing prices would just continue going up, thus making it cost more in general. I also considered the fact that my salary really wasn't likely to drastically go up any time soon, so many houses I could afford then I wouldn't be able to afford in three years. Of course I have good credit so my PMI payment is really low. Different story if I would have had some $350 PMI payment.

 

Many young people are balking at the housing market these days, they all just want to wait 3-5 years. They imagine this massive housing crash like 10+ years ago and I think they are sadly mistaken. I also don't think a lot of people truly understand the impact interest rates have on the cost in the long run. 3% compared to 5% just doesn't seem like a big deal to the average person. Even on a modest $250k loan that is nearly $100k over 30 years.

[OldSchoolSnapper]

One thing is certain…we have some financial mutants here.

 

When I read about the average American family’s financial situation I feel like my family is doing very well for our future. Then I jump in these conversations on here or Reddit or elsewhere, and I’m often blown away by what others are doing and begin questioning just how well we actually are doing. I think, ultimately, it’s a signal of the importance of being aware of the future and involved in investing in it. It’s actually pretty simple to build wealth, but that doesn’t mean it’s easy. People not doing it aren’t likely talking about the process online.

 

Thanks to all sharing ideas and experiences in here. I really love learning more and more about this.

 

The majority of people sharing info are going to be those doing well and/or those with an interest who've taken the time to learn best practices. It'd be like going on a running forum and coming away with the idea that the country is super healthy.

[PlayerHader]

One thing is certain…we have some financial mutants here.

 

When I read about the average American family’s financial situation I feel like my family is doing very well for our future. Then I jump in these conversations on here or Reddit or elsewhere, and I’m often blown away by what others are doing and begin questioning just how well we actually are doing. I think, ultimately, it’s a signal of the importance of being aware of the future and involved in investing in it. It’s actually pretty simple to build wealth, but that doesn’t mean it’s easy. People not doing it aren’t likely talking about the process online.

 

Thanks to all sharing ideas and experiences in here. I really love learning more and more about this.

 

The majority of people sharing info are going to be those doing well and/or those with an interest who've taken the time to learn best practices. It'd be like going on a running forum and coming away with the idea that the country is super healthy.

 

Great analogy. I've spent zero seconds on a running forum in my life, and my "shape" would suggest that!!!!

[nodakfan17]

One thing is certain…we have some financial mutants here.

For sure. In speaking with others, I sometimes feel like I’m in the 20th-percentile in terms of retirement preparedness. But in actuality, I’m probably closer to the 90th-percentile for people my age.

 

And yes, big thanks to the BF community for their willingness to speak openly on these subjects.

[homer]

I'd still always pay down a student loan. Mine were a great source of stress for me in way that a house just isn't. I can't sell my degree if I enter hardship. But I can buy a cheaper house and customize it to my needs, and sell it at retirement if I feel like it. A mortgage is really the only kind of debt I don't stress over. I try to pay off cars within 12 months if I can't pay cash in full up front.

 

Typically yeah because the interest can be like 6%. I refinanced my grad school loans and got mine down to 3.15% so I'm fine just paying the minimum. Speaking of, refinancing student loans can save you a boatload. I cut my interest by over 50%. 17 months to go!

 

When I owned a condo, my interest was over 6% so I wanted to try and pay extra on it.

[igor67]

It's probably also worth pointing out that the BF crowd is also a lot more analytical in general which is makes a difference. Crunching stats and interest rates looking for advantages is all pretty similar.

[GAME05]

I'm actually quite far behind when it comes to retirement savings. Making little money in my 20s and being out of work for much of my 30s did the trick. Grad school was a waste of time and money, too.

 

But now debt-free, credit cards at $0 and basically no rent for the house. I'll be pushing pretty hard to save over the next 15 years.

[zurch1818]

Congrats GAME05. I bet that is a great feeling to finally be debt free.

 

I think all the readers of this thread are officially unicorns as we Brewer fans reading about investments on a Brewer fan forum. It's like going to a fish fry and ordering the chicken. I'm happy to share my experiences for anyone that wants to hear me on my soapbox. Although I am super conservative when it comes to money, I really enjoy hearing the prospective from all the other unicorns reading this thread.

[PlayerHader]

I'm actually quite far behind when it comes to retirement savings. Making little money in my 20s and being out of work for much of my 30s did the trick. Grad school was a waste of time and money, too.

 

But now debt-free, credit cards at $0 and basically no rent for the house. I'll be pushing pretty hard to save over the next 15 years.

 

I'm curious to hear more. How old and where are you currently at with retirement money?

 

Debt freedom is SO liberating. We had a stretch where we were entirely debt free (minus a few thousand on my wife's student loans), with $400 monthly rent (brother in law's trailer on land that we'd eventually build on). It was AMAZING how quickly we were able to build up $50-60k for our building plans. We just broke the $100k gross income last year as a household, so it wasn't due top end incomes, either.

 

Back to a mortgage and now an auto loan, so not quite like it was, but being so far removed from the days of CC balances and other consumer debt feels great. It's simply not an option to carry CC balances at this point.

[PlayerHader]

To add...this past summer we took a family trip to see friends in North Carolina and then spent a few days on Myrtle Beach. We returned from a family trip to Disney on New Years Eve. My wife and I will be going to some beautiful Caribbean island for our 10 year anniversary in June.

 

We aren't in a position where we can afford 3 trips like this in a 12 month plan going forward, but pulling off one of these trips a few years ago would have been tight (and probably would have required CC debt). I think a lot of people would be surprised by how much money that could have if they weren't using it all to pay for previous decisions they made.

[umphrey]

Congrats GAME05. I bet that is a great feeling to finally be debt free.

 

I think all the readers of this thread are officially unicorns as we Brewer fans reading about investments on a Brewer fan forum. It's like going to a fish fry and ordering the chicken. I'm happy to share my experiences for anyone that wants to hear me on my soapbox. Although I am super conservative when it comes to money, I really enjoy hearing the prospective from all the other unicorns reading this thread.

It's more useful than you might think. I check in on a few other internet sources on these topics but they often hit wildly different demographics. Like I don't care about your San Francisco housing budget or how an 18 year old should invest a big inheritance. Tell me about some regular guy from Milwaukee, haha.

Edited January 11, 2022 by umphrey

[Dean Machine]

^^^

That’s terrific. Congrats!

 

I feel an underrated aspect of the aggressive mortgage pay down strategy is the elimination of a fairly large re-occurring liability. Just from a mental accounting standpoint, it’d be nice to not have that huge outlay there every month. It frees you up to be more opportunistic (or generous),

 

I’ve sort of split the difference by paying off an extra ~$200 every month. I feel good about putting a small dent in my mortgage every month, but I also have cash on hand to meet unexpected expenses and buy dips in my brokerage accounts.

 

That's what I did when I owned property. I ended up making one extra mortgage payment a year.

 

One extra mortgage payment a year knocks something like 6.5 years off a 30 year loan. We always used our tax return for such purposes.

[CheezWizHed]

One extra mortgage payment a year knocks something like 6.5 years off a 30 year loan. We always used our tax return for such purposes.

 

If you do that, pay your mortgage every 2 weeks (half your monthly mortgage each payment). That essentially will add 1 monthly payment per year, plus save some interest as it won't compound as fast. Plus, most people are paid every two weeks, so there is good alignment to the paycheck.

[PlayerHader]

^^^

That’s terrific. Congrats!

 

I feel an underrated aspect of the aggressive mortgage pay down strategy is the elimination of a fairly large re-occurring liability. Just from a mental accounting standpoint, it’d be nice to not have that huge outlay there every month. It frees you up to be more opportunistic (or generous),

 

I’ve sort of split the difference by paying off an extra ~$200 every month. I feel good about putting a small dent in my mortgage every month, but I also have cash on hand to meet unexpected expenses and buy dips in my brokerage accounts.

 

That's what I did when I owned property. I ended up making one extra mortgage payment a year.

 

One extra mortgage payment a year knocks something like 6.5 years off a 30 year loan. We always used our tax return for such purposes.

 

Just threw an annual single extra mortgage payment into a payoff calculator and it showed the loan would be paid off 3 years and 5 months earlier. This is a 30 year loan.

[CheezWizHed]

I'm curious to hear more. How old and where are you currently at with retirement money?

 

Paid off my college debt after 3 years of working after college (didn't have much). Carried over a CC balance for one month my entire life.

 

Paid off my last car loan in 1997 (my car payment goes into my pocket now). I try to buy cars that are 2-3 years old and sell them around 10 years old. Though technically I have a 10 year old and 16 year old cars right now because they run fine and this current COVID market is making used car sales crazy. So I'm waiting.

 

Been maxing out my employer contribution to 401k since I started my professional career (7-8% min. Doing 10% now).

 

I'm 47 and plan to retire at 60. Will still have a mortgage, but at 2.25%. Will have raised 6 kids at that point too.

 

My advice:

- Mortgage debt and college debt (assuming it leads to an improvement on your career) are the only debt worth carrying.

- Start saving for retirement early. If it is too late for "early" start now. Max out your employer contributions as they are the highest possible ROI you will ever make.

- Live within your budget, not your credit.

- Don't be paralyzed by investment options. If you don't like investment lingo, hit the easy button and do the 401k "retire in year XXXX" mutual funds. Then learn more as you go. I didn't understand much about the retirement rules until just this past year. My approach when younger was simply to save as much as I could (targeting 10%) and dealing with the details later. Things change in 40 years anyway.

- I'll have put 3 of my 6 kids (college isn't for everyone) through college and paying at least half of it for them (it is important that they earn it also and not just given to them). I started investing in a 529b account for them when they were pretty young. About half of what we are getting out of the account is earnings on the money put in... Starting early is important. So they are getting half of their college covered, while I'm only paying for 1/4 of it out of pocket.

[Dean Machine]

Just threw an annual single extra mortgage payment into a payoff calculator and it showed the loan would be paid off 3 years and 5 months earlier. This is a 30 year loan.

When I originally did this years ago it was a correct statement and it still pretty close the way I was thinking of what a payment is but when I say one extra mortgage payment I was including the entire payment including your escrow tax and insurance (which I guess varies by user). I am also thinking it may depend on interest rates as rates are very low right now.