J
John Galt
Guest
Hello wabmester! It's like I said before. If it's raining
money, find the biggest bucket you can and run outside.
John Galt
money, find the biggest bucket you can and run outside.
John Galt
You are absolutely correct. Based on that, of course, no analysis FIRECALC can offer is valid. In fact, there is really no analysis you can do that would be unarguably meaningful.I would say the assumption that future performance can be predicted by past perfomance is a fairly faulty assumption. Every fund I've ever seen has included that as a disclaimer.
True, I could lose my advantage over the next several decades. But, of course, I could always pay off my mortgage tomorrow and lock in the gains. Those who have already paid off their mortgage do not have an analogous option if I keep running up the gains.While you may be up 30k with your decision, MY decision not to borrow at the markets peak has 'earned' me at least double that. Are we near another market top? Who knows? If we are, your 30k advantage may be temporary.
Yes, and none of us know what those "lower" returns than in the past might be over the next several decades. I have heard some of the more successful investors suggest returns of 6% to 8% as reasonable guesses over the next decade. That would put me in very good shape. If we see a market that acts like that of the Great Depression, I may be retreating from this strategy in a few years. I have enough financial cusion to absorb it. If we see a market worse than the Great Depression, we may all be in trouble.The fact mortgage rates are at historic lows reflect an expectation future returns will be lower than those in the past. Those historic higher mortgage rates reflected a belief that future returns then would be higher. Using today's mortgage rates in yesteryear's investment climate to conclude anything is definitely faulty analysis. It may work out for you and if it does I congratulate you on your good fortune.
Alternatively, you could keep a mortgage and reduce your equity/fixed allocation to reduce risk. Using the example from before, here is how that might affect your probability of gaining financially:
EQU/FIXED PROBABILITY OF
RATIO BEATING PAYOFF RESULTS
80/20 78.8%
70/30 78.8%
60/40 78.8%
50/50 76.5%
40/60 72.0%
30/70 70.5%
So if you want to make a high probability investment and reduce your risk, the odds are still with most investors.
But retirees face a different situation. Presumably, most retirees are attempting to maximize the probability that they will successfully sustain a particular withdrawal rate over a particular number of years....
I agree completely. And I appologize to the entire board for being so single minded about these posts. It is not because I want to convince any of you that you should not pay off your mortgage. But I admit to feeling like my motives and integrity were being questioned unfairly. I may be making the wrong decision (I honestly don't think so) but it is based on some fairly detailed analysis of both the rewards and risks, as well as a thorough understanding of my own situation.Good point, and probably the key to understanding the differences of opinion here. At the two ends of the spectrum, early retirees (<50) with marginal assets may have a different viewpoint and need than later retirees (>60) with sufficient assets.
A couple more thoughts, Buffet, et al, suggested future market returns would average 6-8% before last year. Could that mean we have 'used-up' about 3 years of gains already with last year's stellar results? OR are the gurus still predicting 6-8% going forward from this 'elevated' point in the market? I'd sure like to ask them. If they choose the latter, I'd like to know, how they could be so wrong last year.
And I apologize to you and the board, if you feel I was questioning your motives or integrity. I honestly feel the analysis is mathematically flawed and while your decision may be well timed and positive, it is NOT a given or a mathematicall certainity. NO not even a 78% likely-hood.
I am fairly certain that Buffet's comments were made prior to last year's run up, so I assume his expectations are that we are in for several sub 6% years over the next decade. That still leaves me ahead at the 10 year mark in my mortgage and I will have almost 2 decades more to get further ahead -- unless I back away from the strategy at some point in the future. I don't know of any predictions for 30 year returns that I would trust. The historical simulators are the tool I trust most to analyze this kind of situation. You could also use Monte Carlo simulations, but these tools omitt some very important correlations in economic data and are calibrated using historical simulations anyway.A couple more thoughts, Buffet, et al, suggested future market returns would average 6-8% before last year. Could that mean we have 'used-up' about 3 years of gains already with last year's stellar results? OR are the gurus still predicting 6-8% going forward from this 'elevated' point in the market? I'd sure like to ask them. If they choose the latter, I'd like to know, how they could be so wrong last year.
I really have assumed nothing about home appreciation rates in any of this analysis. I have implicitly assumed that both the mortgage holder and the person who chose to pay off the mortgage keep the house for at least the life of the loan. If the house depreciates and the investors have to sell, both lose.About the only assumption that I think bears reconsideration is the one on home appreciation rates. . . .
I think the main reason why I tend to disregard
historical financial data is my very short horizon.