bad idea or good one?

[ddeennis]

ok the house is paid off.

i want to take out all that i can on my house ($125,000) and invest it.

at 41 years old i have 21 years to go and i want to retire.

at about 10% a year i can have a million bucks and that would be enough for me to retire along with my rail road pension.

even if my million bucks earned me 5% 50,000 will be plenty for each year. (plus my railroad pension of course)

but i'm not sure where i can put this money in at so i can start earning.

ira?

even thou i borrow this money at 5% its still cheaper and faster growth then me spending about 1700 a month to an account to get close to 1 million bucks.

whats your thoughts on this.

 

[old woman]

I did it and it worked for me because I could at a decent rate and no cost.

 

[haha]

ok the house is paid off.

i want to take out all that i can on my house ($125,000) and invest it.

at 41 years old i have 21 years to go and i want to retire.

at about 10% a year i can have a million bucks and that would be enough for me to retire along with my rail road pension.

even if my million bucks earned me 5% 50,000 will be plenty for each year. (plus my railroad pension of course)

but i'm not sure where i can put this money in at so i can start earning.

ira?

even thou i borrow this money at 5% its still cheaper and faster growth then me spending about 1700 a month to an account to get close to 1 million bucks.

whats your thoughts on this.

If your job is secure; if you can afford the payments; if you could borrow long term fixed against your house at 5%; and if there were safe investment opportunities that might earn 10 percent; then I think it might be a good idea.

ha

 

[RetireeRobert]

but i'm not sure where i can put this money in at so i can start earning.

ira?..........

............whats your thoughts on this.

Do you have a 401k plan at work you can contribute to out of your pay?
If so, max out on that, especially if it gets any employer match. I think you can defer up to $15,500 out of pay to 401k (check with your employer HR dept.). Forget the IRA idea *except* for $4000 a year IF you earn that much wages each year.

Other than that, and for the $125K loan proceeds you take out of your home equity, you will have to invest in a taxable account.

 

[Sandy]

You might want to read many of the threads on paying off your mortgage. There are risks and benefits to using your home equity to invest.

Investment returns are not guaranteed. There is no investment that gives a certain 10%. Instead estimate 6-8%. At the same time, you could put it that 125K in on Jan 1, and see it become 90k or lower by Dec 31, and still owe 125K to the mortgage company. Are you willing to take that risk? You have to consider your job security and the flexibility you have by not having a mortgage.

When taking this approach, you also want to consider how your investments might differ instead of this lump sum, you take the amount that would be a mortage payment and invest it. Then, if the market tanks, you don't have it all in at once, and you continue to buy at lower cost - dollar cost averaging.

You don't say anything about other investments or assets. If your employer provides a match into a deferred payment plan, you should do that first, since that is free money. If that means you cannot make the mortgage payment, then you should not take take all the $$ out of the house.

 

[REWahoo]

You might want to read many of the threads on paying off your mortgage.

You'll find a list of them here: http://www.early-retirement.org/forums/f47/should-i-pay-off-mortgage-invest-money-30644.html

 

[Notmuchlonger]

I guess it depends how confident you are to get 10 percent a year. I would never take out a loan on my paid off house and assume I would get 10 percent a year. Id rather take the savings of a monthly house payment and slowly invest it as I go.

 

[wallygator69]

I guess it depends how confident you are to get 10 percent a year. I would never take out a loan on my paid off house and assume I would get 10 percent a year. Id rather take the savings of a monthly house payment and slowly invest it as I go.

DING DINg DING WE GOT A WINNER>>>>>>>>

 

[ddeennis]

thanks for the advice, i will be talking to a money management adviser soon and that will help too. heck my 401 k in the last four 1/4's have done 12.75% return on my money sure they vary but more often then not i get 4%-5% return each 1/4 thats good heck it takes cd's a year or better to get that.

i just wished i could put more money in my 401 k but i cant and having 125,000 bucks just sitting in my house is doing nothing it needs to be making money for me just not sitting there. making small payment each month wont get my 1 million bucks, it needs to be done with lump sum and watch it double up thru the years. in this case every 7 or so years at 10% return.

my understanding is since the start of time (ok maybe not that long ago) investments have grown 11% a year on the avg.

i just need to find a place to dump 125 grand it sucks that there is imposed limits on everything like only 30,000 a year for savings bonds and 15,000 a year on 401 k and such and ira limits to 4000 a year, where in the heck do rich people invest there money not that im rich but they would have millions im sure they just dont sit on it and watch it collect 1% some where, sure they invest it somewhere and use the returns for living on and such.

i have been all over the web in my spare time last few weeks looking at all this money market stuff and thats how i found this board and thought i would throw down some q's just kinda trying to learn some of this before i talk to a money management advisor so he or she isnt blowing smoke up my rear.

 

[REWahoo]

my understanding is since the start of time (ok maybe not that long ago) investments have grown 11% a year on the avg.

It's that "on the average" thing that will bite you in the rear end. By definition, half of the time returns were below average, sometimes for many years.

 

[donheff]

thanks for the advice, i will be talking to a money management adviser soon and that will help too....
i have been all over the web in my spare time last few weeks looking at all this money market stuff and thats how i found this board and thought i would throw down some q's just kinda trying to learn some of this before i talk to a money management advisor so he or she isnt blowing smoke up my rear.

Is this a troll?

 

[Martha]

My thoughts on this? Don't do it.

 

[Ronstar]

I would max out my 401k, and/or invest what amounts to a monthly house payment in an index fund. I dont see the benefit of borrowing money to invest in equities.

 

[Animorph]

I invested $175k from a HELOC... just before 9/11/2001! I hung in there and eventually broke even. Interest rates were too high for comfort at that point so I got out. Probably should have kept it invested though, since stocks kept going up. You never know, the market could decline just when you invest this money.

One headache: you can deduct the first $100k as a mortgage deduction. The rest you have to take as an investment expense. That can offset investment income, but that excludes capital gains. And it is all different for AMT. Not impossible to work through, but no fun.

Another problem I had was a 7-year loan term. Long enough to run one investment cycle, but now I'm in the last year. No way I will invest with the possibility of having to pay off the loan short term.

Other than that, I could easily pay off my mortgage but prefer to invest that money instead. No reason the rest of the home equity shouldn't be treated the same way. I'll probably try again when the HELOC is renewed and interest rates look favorable. Ideally the market would also be down about 20% too!

Dan

 

[cantlogin]

Is this a troll?

Yes. Why is someone who is counting on a 10% return complaining about...

"my understanding is since the start of time (ok maybe not that long ago) investments have grown 11% a year on the avg.

i just need to find a place to dump 125 grand it sucks that there is imposed limits on everything like only 30,000 a year for savings bonds..."

5% home equity loan to invest in savings bonds? Something here doesn't add up. Forgive me if I'm wrong.

 

[ddeennis]

thanks for the advice...........i did not imply i would use the 125,000 on U.S. savings bonds not at 3.5 % i was just saying there is an imposed limit on the amount you can purchase and do with your money.

i was looking at 21 years to invest so that would give the market all kinds of time to do its thing.

and whats the deal with the comment on the troll, what the hell im just getting advice looking stuff up and trying to open my eyes some since like most folks wait to long to think about retirement. im not here to start crap just the average joe looking for honest answers or opinions ...........gee

 

[Rich_by_the_Bay]

ddeennis,

The "take a huge mortgage and invest the difference" routine is rampant. While anyone can make it look like a winner on paper, it has created a lot of havoc for everyone except the lenders and mortgage brokers.

Your house can decrease in value at a time you need to sell, and you find you have no real equity in it or even owe more than the sale price. Or stocks tank and real estate prices soar; you've got nothing in your house to leverage the gain. Or adjustable mortgages reset while the market is down or you suffer a personal setback. Or divorce occurs and a forced asset swap. Or a career or life move necessitates a house sale as well as lots of cash to pay for the transition - you may be forced to sell stocks low.

Sure, if all goes perfectly, stocks will handily beat mortgage interest with tax deductibility. But rarely do things follow a smooth cure, and even more rarely do the peaks and valleys coincide with life disruptions.

I'd personally be cautious about how much of your home equity you convert to stocks. And be wise in heeding the advice of your "advisor" - make sure they don't do what's best for them but bad for you.

As you can tell, many here are skeptical of this scheme and don't take well to financial planners with secondary agendas.

Good luck.

 

[ddeennis]

ddeennis,

The "take a huge mortgage and invest the difference" routine is rampant. While anyone can make it look like a winner on paper, it has created a lot of havoc for everyone except the lenders and mortgage brokers.

Your house can decrease in value at a time you need to sell, and you find you have no real equity in it or even owe more than the sale price. Or stocks tank and real estate prices soar; you've got nothing in your house to leverage the gain. Or adjustable mortgages reset while the market is down or you suffer a personal setback. Or divorce occurs and a forced asset swap. Or a career or life move necessitates a house sale as well as lots of cash to pay for the transition - you may be forced to sell stocks low.

Sure, if all goes perfectly, stocks will handily beat mortgage interest with tax deductibility. But rarely do things follow a smooth cure, and even more rarely do the peaks and valleys coincide with life disruptions.

I'd personally be cautious about how much of your home equity you convert to stocks. And be wise in heeding the advice of your "advisor" - make sure they don't do what's best for them but bad for you.

As you can tell, many here are skeptical of this scheme and don't take well to financial planners with secondary agendas.

Good luck.

thanks.......very much understood.......great advice........sure looked good in the beginning but more and more getting disapointed.......just trying to figure out a way to retire-ok, just dont want to be broke............i have 21 years to go.

i can spare 1500 bucks easily each month just dont know what to do with it and on paper it sure seemed nicer to use a lump some of 125k to get an account rolling then it did using a small 1500 a month deposit each month you know............

 

[heyyou]

Your easy money plan sounds greedy to me. You are looking for a short cut to wealth. Your idea is not a new one. Short cuts seem to work best on paper. In real life, you only hear about the winners. Often the markets forget to cooperate with someone's plans.

In the early eighties, I lost $60,000 (two years gross wages) in limited partnership land investments. Calculate the compounding on that for 35 years. My suggestion is to start saving aggressively. In 21 or 25 years, you will be so used to living frugally, that you will need less for retirement than your spendthrift co-workers. That method works because there is less risk due to less leverage. If the market dumps, you still have more than the next guy. There are an enormous amout of very bright people trying to get rich in the markets, and a very few do, but at the expense of all of the other ones.

At age 41, you have seen someone take a new position and say, "I'm going to show them how to do this job" then fail due to lack of experience. Your proposal is similar. You intend to get rich due to your plan. Where is the experience, hard work, and sacrifice that the successful people use to get there?
Joe

 

[Rich_by_the_Bay]

thanks.......very much understood.......great advice........sure looked good in the beginning but more and more getting disapointed.......just trying to figure out a way to retire-ok, just dont want to be broke............i have 21 years to go.

i can spare 1500 bucks easily each month just dont know what to do with it and on paper it sure seemed nicer to use a lump some of 125k to get an account rolling then it did using a small 1500 a month deposit each month you know............

You've got a some self-education to get through before deciding. Why not just throw your extra money into a target retirement fund at Vanguard or Fidelity. You'll do as well as most advisors, will have no maintenance to do and it will buy you some time to figure you what is right for you long term.

Read any of the books at the bookstore - I like Solin ("smartest investment book..."), Lucia (Buckets of money), Pond and a few others to get you started. And this board will be invaluable, if a little rough around the edges.

Happy holidays.

 

[jazz4cash]

Bad idea. I think your calculation is off by the cost of the mortgage. If your investment is earning 10%, but the mortgage costs 6%, your retirement account is only growing by 4% per year, so it will take much longer than 21 yrs (or much much higher investment return) to get to 1 mil.

 

[Lazarus]

Do not borrow money to invest! It has worked for some and failed for others. The others are probably not posting here.

If you are willing to lose your house go right ahead. Thats the chance you are taking.

 

[kcowan]

Bad idea. I think your calculation is off by the cost of the mortgage. If your investment is earning 10%, but the mortgage costs 6%, your retirement account is only growing by 4% per year, so it will take much longer than 21 yrs (or much much higher investment return) to get to 1 mil.

Most of that 4% is before taxes too (except IRA/401K).

BTW make sure to ask the advisor how big his mortgage is, what is the value of his house, and how big his portfolio is. Maybe ask whether his Mercedes is leased or purchased!

 

[ddeennis]

Your easy money plan sounds greedy to me. You are looking for a short cut to wealth. Your idea is not a new one. Short cuts seem to work best on paper. In real life, you only hear about the winners. Often the markets forget to cooperate with someone's plans.

In the early eighties, I lost $60,000 (two years gross wages) in limited partnership land investments. Calculate the compounding on that for 35 years. My suggestion is to start saving aggressively. In 21 or 25 years, you will be so used to living frugally, that you will need less for retirement than your spendthrift co-workers. That method works because there is less risk due to less leverage. If the market dumps, you still have more than the next guy. There are an enormous amout of very bright people trying to get rich in the markets, and a very few do, but at the expense of all of the other ones.

At age 41, you have seen someone take a new position and say, "I'm going to show them how to do this job" then fail due to lack of experience. Your proposal is similar. You intend to get rich due to your plan. Where is the experience, hard work, and sacrifice that the successful people use to get there?
Joe

im not being greedy im just trying use what have to work for me and the sooner i act the better my chances are to make a little more money.

i live fugally now as it is, i have no car payments at all and i have no debt to anyone except a small balance on 2 credit cards just to keep something active on my credit report for which the balances are under 20% of total credit limit.

when working on paper i could double my money every 7 years at 10% and compare that to just starting out with just 1500 a month, it just seem to make more sense to start off with the bigger chunck of money

everyone im sure has done the numbers on paper and then try to decided from there what to do.............i did the same i started out on paper and thought of as many ways a possible to generate more money for retirement.

and so i jumped in and started to do research and look at the different ideas i had, so i asked q's like here on this board to help along my quest to find some answers.

the way i saw it was using my house for a lump some investment of 125,000 to get an account rolling had the potential of making 1 million in 21 years at 10% return. therefore that millions bucks would cost me about 1000 bucks a month.

but if i was to start out with smalller payments to reach the goal of 1 million bucks it would take many thousands of dollars each month to reach the goal for the next 21 years.

so it would be cheaper for me to use my house plus i can deduct my interest and i would have it paid off by the time i retire anyway.

and even if i lost the house so to speak i still have my money in the market and i could just walk away from the house and owe nothing ( which i wouldnt do anyway)

i dont see what the big deal is anyway wether the housing market tanked or not the end result is i would have more cash at retirement then doing nothing at all. even by the time i retire what different does it make if i my house is worth less or more in 21 years it would be paid off. and the botton line is i would have spent more money every month making payment to and investment to reach the same goal.

which would be worse

paying 1000 bucks each month on my house payment for which i invest the money to the market that tanked and now my 125000 invest is worth 90000 when i retire.

or pay 3000 a month and come to find out my invest ment is only worth 90000 at retirement.

all of this was in the attempt to reach a goal.

or em i just missing everything in all this?

 

[RetireeRobert]

im not being greedy
..............
when working on paper i could double my money every 7 years at 10% and compare that to just starting out with just 1500 a month, it just seem to make more sense to start off with the bigger chunck of money..........

Try this on paper----you can double your money in a mere 3 years if you make 30% a year. Why not do that?