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bad idea or good one?
Old 12-22-2007, 04:33 PM   #1
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bad idea or good one?

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.
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Old 12-22-2007, 04:41 PM   #2
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Old 12-22-2007, 04:44 PM   #3
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Originally Posted by ddeennis View Post
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
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Old 12-22-2007, 06:49 PM   #4
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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.
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Old 12-22-2007, 07:03 PM   #5
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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.
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Old 12-22-2007, 07:06 PM   #6
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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/foru...ney-30644.html
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Old 12-22-2007, 07:07 PM   #7
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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.
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Old 12-22-2007, 07:24 PM   #8
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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.
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Old 12-23-2007, 11:57 AM   #9
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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.
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Old 12-23-2007, 01:50 PM   #10
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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.
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Old 12-23-2007, 02:07 PM   #11
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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?
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Old 12-23-2007, 06:43 PM   #12
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My thoughts on this? Don't do it.
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Old 12-23-2007, 06:48 PM   #13
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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.
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Old 12-23-2007, 09:42 PM   #14
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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
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Old 12-24-2007, 07:37 AM   #15
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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.
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Old 12-24-2007, 05:05 PM   #16
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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
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Old 12-24-2007, 05:28 PM   #17
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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.
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Old 12-24-2007, 05:40 PM   #18
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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............
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Old 12-24-2007, 06:26 PM   #19
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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
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Old 12-24-2007, 06:30 PM   #20
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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.
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