How could it not be so? If someone had $1mm in a Firecalc endorsed 70:30 split and removed $250,000 to pay off her mortgage on Jan 1, 2008, she has saved herself from a $50,000 drawdown and has been less nervous to boot. What's not to love?
But it is as meaningless as any other timing dependent choice. Sometimes you win, sometimes not. As long as your probability matrix is more or less accurate and you don't overextend, no problem how you play it.
Ha
I can't tell if we're talking past each other or not. I'm somewhat curious to find out. I also want to clarify my position for anyone else interested.
When we make decisions about the future, there are probabilities about what will happen, there is our decision, and then there is what actually ends up happening.
My point is simply that it makes more sense to me to attempt to evaluate my decisions based on whether or not I assessed the probabilities correctly and made the right decision and less on what the actual outcome was.
Let me use a series of bets on a coin toss to clarify my points:
1. You tell me you have a fair coin, I can choose to bet on heads or tails. I put up a $1, and you pay me $100 if I guess correctly.
a. I choose to bet and I win. I would choose to feel good about this, partly because I'm ahead $99, but more so because I believe I assessed the odds correctly.
b. I choose to bet and I lose. I would choose to feel good about this even though I lost $1, again because I believe I assessed the odds correctly and made a good decision, even though the outcome was bad.
2. Same as (1), but you only pay me 50 cents if I win.
a. I choose to bet and I win. I wouldn't feel good about this because, even though I won, I would have made a bad bet in the sense that the probabilities didn't favor a payoff.
Back to the mortgage case: I am in situation 1(b) - I've placed a bet that the probabilities tell me I should win over time, but so far I happen to be losing. While I'm not happy about having less wealth than I would have had if I had made a different set of decisions, I still think it was a good decision because I think the basis for my bet was valid and I just happen to have been unlucky so far.
There of course, may be some feedback from the actual outcome to what the probabilities actually turned out to be. If you claim to have a fair coin but then the coin starts turning up tails 90% of the time, I'm going to revisit my assumptions. If in 15 years the S&P is still in it's current range and inflation between now and then has run at 2% annually, then I'll admit I made a bad choice and will be suitably regretful.
It depends on how one sets one's assumptions or predictions, I guess. In a sense both the people who decided to pay off their mortgage recently and have done well by that decision, and the people like me (and Nords) who have decided to try to arb a mortgage are both looking at past history to set those assumptions. The former are looking at a smaller time frame and a smaller data set and extrapolating to the larger question; the latter are looking at greater time frames and a larger data set to try to interpolate to an individual situation.
2Cor521
Other than to hint that there is a mixture of the rational(aka numerial analysis) and emotional(assessment of Mr Market going forward) and coverage of retirement expenses(budget) that is often summed up by the 'sleep at night' statement/factor.
