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Old 10-12-2017, 04:00 AM   #121
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Originally Posted by pb4uski View Post
That is why we INVEST in broadly diversified portfolios of stocks and bonds, especially in retirement, rather than SPECULATE on narrow market sectors. Graph below compares Total Stock Market with Wellesley and Wellington for the decade ending in 2005.... the latter were much smoother.

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart
I love how it shows ending up at about the same place if u expand graph to 2017.
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Old 10-12-2017, 06:18 AM   #122
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Not sure what you are looking at. If you extend it to 2017 (from 1996) it looks pretty darn good to me. The balanced funds have a smoother ride but they are all 5-6.5x the initial investment.

$10k grows to $52k or $64k or $65k depending on which one you pick... over 20+ years... a 8.25% to 9.4% annual return...

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart
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Old 10-12-2017, 06:48 AM   #123
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Originally Posted by pb4uski View Post
Not sure what you are looking at. If you extend it to 2017 (from 1996) it looks pretty darn good to me. The balanced funds have a smoother ride but they are all 5-6.5x the initial investment.

$10k grows to $52k or $64k or $65k depending on which one you pick... over 20+ years... a 8.25% to 9.4% annual return...

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart
Exactly. Less volitility and about the same total gain over time. My point was Wellesley is a smoother way to get to the gain without the volatility
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Old 10-12-2017, 07:02 AM   #124
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Who is discussing them?
I lied. I couldn’t help myself. Yes, disingenuous. Typo. I WAS discussing those that rayvt referenced. I didn’t realize that mere mortals were not allowed to read your words of wisdom, ray, and only those young enough to begin a FIRE plan or already had FIREed were the only readers of this forum. What a load of bovine excrement. Why would anyone assume that? Because they don’t have 13000 posts? Of course those people read these threads, as ERD50 said, you can show them the reasons and math, and then they can decide if the gains are wroth the risk (as they see it). Why on earth would everyone already invested heavily in Wellesley discuss why investing in Wellesley is the best thing to do with others already invested in Wellesley? A mutual admiration society? It is almost never too late to learn about smarter paths to take and those with the most to gain on here are those with the least experience and haven’t or didn’t FIRE.

And as to my point about savings at 1.25, again, the math is clear. One could just show the actual calculations and illustrate the gains. Many do that here and it is usually “end of discussion” from that viewpoint. And yes, you are correct that I incorrectly read in to some of the replies that “this” is the correct thing to do. Many just pointed out the financial shortcomings. Others here made my point more eloquently.
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Old 10-12-2017, 07:35 AM   #125
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These threads crack me up, people see everything as religion and as if others are speaking to them. Iíll leave this thread reiteration my point. There is no right answer, what feels good psychologically is opposed to what is financially optimal, and most people will continually switch between the two modes and regret either one. When there isnít a right answer, people should split the difference and be content they are alway half right.
If you post a financial question in a financial independence forum, you should expect a financial answer.

You can always choose to ignore the financially better answer. Basically, you are spending money to feel better/more secure. We all spend money that isn't necessary.

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Everyone who uses 1970s style finance reasoning that there is a right answer may be myopic in todays finance theory.
I have no idea what this means.

Running the numbers has nothing to do with the 1970s any more than ignoring the numbers has anything to do with the 2010s.
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Old 10-12-2017, 08:52 AM   #126
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Everyone who uses 1970s style finance reasoning that there is a right answer may be myopic in todays finance theory.
I have no idea what this means.

Running the numbers has nothing to do with the 1970s any more than ignoring the numbers has anything to do with the 2010s.
Thank you. I am also totally lost - there seems to be an argument/discussion here, but I'm lost on just what is being argued/discussed.

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Old 10-12-2017, 08:59 AM   #127
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Thank you. I am also totally lost - there seems to be an argument/discussion here, but I'm lost on just what is being argued/discussed.

-ERD50
Easy. This is a conversation about whether or not there's a debate going on about an idea that's under discussion - or not.
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Old 10-12-2017, 09:31 AM   #128
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I think we have answered the Op's question adequately. However, I think some of the dogma to the effect that paying down your mortgage is not the way to go, and the big mortgage is the way to go is a bit flawed. At the heart you have an investment decision, which depends on return expectation, cost of funds, time horizon, and risk tolerance.

When you decide to take out a mortgage to fund stock investments, you are making a leveraged bet on stocks. That has risk. To make such an investment, your expected return must exceed your cost of funds (after taxes) by a large enough amount to justify risking loss.

The market is at all-time highs. Many prognosticators believe based on history that equity returns from here will be lower than historical averages, perhaps in the low single digits. Incurring a fixed 4% with such a nominal upside appears risky. If interest incurred is not fully deductible, the balance tilts more toward mortgage paydown, assuming taxable investments.

If the time horizon is not a decade or more, it tilts toward toward mortgage paydown.

A tool that has worked in the past in different market conditions may not work in the future, obviously.

So ultimately the answer lies in investor analysis, not in assuming markets will always generate market average returns, in my opinion.
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Old 10-12-2017, 09:37 AM   #129
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Easy. This is a conversation about whether or not there's a debate going on about an idea that's under discussion - or not.
We've already answered that. It appears to me that you posted because you wanted to try to have the last word - or not.
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Old 10-12-2017, 09:49 AM   #130
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Easy. This is a conversation about whether or not there's a debate going on about an idea that's under discussion - or not.
Yeah... I got lost about one third of the way through, but it got me to thinking about our own situation, which has to do with the asset value of the house in real numbers.
We bought outright. Current value of the home is 26% more than the purchase price in 2004. The same numbers in the CPI inflation index came out to 28%.

Who knows what the future will hold? Inflation? Rate of increase in the home values in the "given" location. Tax rates? hmmm.

I can still remember a day back in 1986 when we finally decided to buy a summer home in Lake Placid NY... Mountain top home with a view of the ski jump for $30K... Went to the bank on Wednesday to work out the interest rate... high, @ 11.4%. On Thursday we went back, and were told the rate had gone to 12.6% overnight. Sad, 'cuz we loved that place.

What looks right today, can be very different in a decade or so.
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Old 10-12-2017, 10:48 AM   #131
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I think we have answered the Op's question adequately. However, I think some of the dogma to the effect that paying down your mortgage is not the way to go, and the big mortgage is the way to go is a bit flawed.
There is no dogma about paying down a mortgage here that I am aware of and I've seen none in this thread. The issue in this thread is that the $24K doesn't fall from the sky once the mortgage is paid off. The principal payoffs don't change net worth, and the interest payments saved are offset by the loss of the investment income on the IRA. The only savings come if the IRA was earning say 2% and the mortgage was 2.75%. Then the difference is the .75% on the on the outstanding balance. If the balance was $100K, then they are up $750 for the year, not $24K. If they had a mortgage deduction that reduced the 2.75% interest payment and paid taxes on the IRA money to pay down the mortgage, that whittles away the $750 or maybe makes it negative.
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Old 10-12-2017, 11:13 AM   #132
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I think we have answered the Op's question adequately. However, I think some of the dogma to the effect that paying down your mortgage is not the way to go, and the big mortgage is the way to go is a bit flawed. ...
I'll second daylatedollarshort - I don't see that 'dogma' just a discussion about applying the numbers properly.


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... So ultimately the answer lies in investor analysis, not in assuming markets will always generate market average returns, in my opinion.
It doesn't depend on market averages, just accepting the risk that the market won't return less than the mortgage rate over the long term. Current mortgage rates are lower than historical market averages, I believe. ...OK, this chart shows 20 year returns are rarely less than 5%, and that could be tempered with some bonds in the AA.



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Originally Posted by Montecfo View Post
...
If the time horizon is not a decade or more, it tilts toward toward mortgage paydown. ...
Agree - 10 years is getting a little short term for this approach, but still not an unreasonable approach to consider.



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Old 10-12-2017, 01:27 PM   #133
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We just downsized last year from a big-a$$ house to something smaller, lower maintenance. Unfortunately, now have fresh 30y mortgage of $347K at 3.625%. Have about $110K in equity.

I am 61yo and would like to leave the rat race in < 3yrs if possible. I currently have $770K in liquid retirement assets (IRA,401K)

Also have 176K in older pension. Wife has $842K lump sum retirement assets. She is 57yo.

Cash flow estimates tell me we will be ok to carry the mortgage into retirement. However, 30yrs is a long time to have that hanging over our heads and it makes me uncomfortable.

Would it be a bad idea to dip into my retirement to pay off the mortgage?
Emotionally, I don't like having a lot of debt.
I will pay off the mortgage ASAP!!!!!! Not having any type of debt is the best feeling and you will be able to sleep better at night!!!
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Old 10-12-2017, 02:56 PM   #134
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I will pay off the mortgage ASAP!!!!!! Not having any type of debt is the best feeling and you will be able to sleep better at night!!!
Re-read the OP and consider the effect of income taxes. Do you stil want to pay it off to feel good? and in the process write a big check to the IRS?

Think.
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Old 10-12-2017, 03:07 PM   #135
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Re-read the OP and consider the effect of income taxes. Do you stil want to pay it off to feel good? and in the process write a big check to the IRS?

Think.
What is write a big check to the IRS There are no facts on your response. There is no way to get away from paying taxes in the US, that's just how it is.

NO DEBT is a good thing for some of us!
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Old 10-12-2017, 03:12 PM   #136
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Ah, don't ruin the bliss.
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Old 10-12-2017, 03:24 PM   #137
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What is write a big check to the IRS There are no facts on your response. There is no way to get away from paying taxes in the US, that's just how it is.

NO DEBT is a good thing for some of us!
The fact that you are not considering is that the OP was asking if they should make a $227k withdrawal from their retirement accounts to pay off the mortgage. That will be $227k of income in addition to whatever income that they would otherwise have, which will likely put them in the 28% or 33% tax bracket and result in a huge tax bill.

OTOH, if they just make ~$24k/year withdrawals from retirement accounts as needed to make the mortgage payments, then the tax cost will likely be much lower.

So while you can't get away from paying taxes, you can make some smart moves to minimize the amount of taxes that you do pay.

Still sticking with your advice to the OP to withdraw from retirement accounts to pay off the mortgage?
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Old 10-12-2017, 03:55 PM   #138
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After carefully reviewing the information you provided for that particular scenario, I'm in full agreement with you. He must find another way to pay off the mortgage without getting hit so hard when it comes to taxes.
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Old 10-12-2017, 04:04 PM   #139
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There you go.
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Old 10-12-2017, 04:34 PM   #140
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After carefully reviewing the information you provided for that particular scenario, I'm in full agreement with you. He must find another way to pay off the mortgage without getting hit so hard when it comes to taxes.
Well yes, he is contractually obligated to pay it off. To not do so could result in penalties, and/or foreclosure, and bad credit rating. That is the only thing he "must" do.

And with a reasonably low interest rate, the likely best way to pay off that mortgage would be with the regular monthly payments, over the next 30 years, right?

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