What investing strategy do you follow?

[Guest8]

Why put money into index funds versus reliable stocks?

Risk. A "reliable" stock is a stock that has been reliable historically. No guarantee it will be reliable in the future. Better to diversify with index funds which are far more reliable.

---

Members don't see this ad.

 

[Thr0mbus]

Risk. A "reliable" stock is a stock that has been reliable historically. No guarantee it will be reliable in the future. Better to diversify with index funds which are far more reliable.

You can diversify with lots of different stocks now. There are no fees to trade anymore. ETFs have fees that can take away profit

 

[Guest8]

You can diversify with lots of different stocks now. There are no fees to trade anymore. ETFs have fees that can take away profit

Most index mutual funds and ETFs have fees approaching zero. And sure you can diversify with individual stocks. But it will take you far longer to do so yourself than just setting auto-invest on an index fund or ETF - takes less than a minute to set up. Don't get me wrong, I like playing individual stocks as well. But index funds are wayyyyyyyyy easier than do and take all the work out of it for minimal cost.

 

[PathRes123]

I'd recommend paying down major debt (unless the rate is 1%) and setting in motion some standard monthly investments before delving into the rental property scene. You're not going to get rich in medicine but it's still your primary means to an end at LEAST until you've got your financial routine in order.

Have been wondering this- is it worth paying down a 3% mortgage on a 15 year loan, 10 years left?
(Do the rest- max 401k, etc but no energy or interest for physical real estate. Have some REITs though).

 

[Guest8]

Have been wondering this- is it worth paying down a 3% mortgage on a 15 year loan, 10 years left?
(Do the rest- max 401k, etc but no energy or interest for physical real estate. Have some REITs though).

When I did a bunch of quick napkin calculations it makes no sense to pay off a mortgage at these rates. Even if the market (ie a total market index mutual fund or ETF) only earns 7% on average annually going forward, that's still much better than you earn by locking that money in a 3% rate mortgage and a non-liquid piece of real estate. I'm literally refinancing to a 30yr loan right now because the rates are so low it makes no sense not to.

My personal calculation (obviously subject to future markets):

Paying off remaining $633K mortgage today and putting $3250/mo payment into 7% earning index fund (low estimate for S&P historically) equals estimated $2.63M after 30 yrs.
Instead taking that $633K and investing it all in 7% earning index fund today equals $4.18M after 30 yrs, then subtract expected mortgage interest (not accounting for mortgage interest tax break) of $313K over 30 yrs, still comes out to $3.87M or >$1.2M more gains over those 30yrs compared to paying off the mortgage now.


Is there peace of mind in having no debt? Sure. And if you need that piece of mind then by all means pay it off. But for me I'll take good mortgage debt at 2.875% and put the rest of my money to work.

 

[octopusprime]

When I did a bunch of quick napkin calculations it makes no sense to pay off a mortgage at these rates. Even if the market (ie a total market index mutual fund or ETF) only earns 7% on average annually going forward, that's still much better than you earn by locking that money in a 3% rate mortgage and a non-liquid piece of real estate. I'm literally refinancing to a 30yr loan right now because the rates are so low it makes no sense not to.

My personal calculation (obviously subject to future markets):

Paying off remaining $633K mortgage today and putting $3250/mo payment into 7% earning index fund (low estimate for S&P historically) equals estimated $2.63M after 30 yrs.
Instead taking that $633K and investing it all in 7% earning index fund today equals $4.18M after 30 yrs, then subtract expected mortgage interest (not accounting for mortgage interest tax break) of $313K over 30 yrs, still comes out to $3.87M or >$1.2M more gains over those 30yrs compared to paying off the mortgage now.


Is there peace of mind in having no debt? Sure. And if you need that piece of mind then by all means pay it off. But for me I'll take good mortgage debt at 2.875% and put the rest of my money to work.

I agree, though your mortgage is for a tangible asset that appreciates over time, and if you die, it can be sold to pay off debt.
Unless you have federal loans (which are high interest now but I believe are forgiven if you die), your private loans don't vanish if you die, and the debt is for an asset that doesn't appreciate [if anything, given the direction our profession is headed, it depreciates].

I have a 15 yr mortgage at 2.5%, no plans on paying it off early.

 

[PathRes123]

When I did a bunch of quick napkin calculations it makes no sense to pay off a mortgage at these rates. Even if the market (ie a total market index mutual fund or ETF) only earns 7% on average annually going forward, that's still much better than you earn by locking that money in a 3% rate mortgage and a non-liquid piece of real estate. I'm literally refinancing to a 30yr loan right now because the rates are so low it makes no sense not to.

My personal calculation (obviously subject to future markets):

Paying off remaining $633K mortgage today and putting $3250/mo payment into 7% earning index fund (low estimate for S&P historically) equals estimated $2.63M after 30 yrs.
Instead taking that $633K and investing it all in 7% earning index fund today equals $4.18M after 30 yrs, then subtract expected mortgage interest (not accounting for mortgage interest tax break) of $313K over 30 yrs, still comes out to $3.87M or >$1.2M more gains over those 30yrs compared to paying off the mortgage now.


Is there peace of mind in having no debt? Sure. And if you need that piece of mind then by all means pay it off. But for me I'll take good mortgage debt at 2.875% and put the rest of my money to work.

True. But I have heard the opinion that you pay off the mortgage using your risk averse / bond allocation money.
Why buy bonds that may earn ~3% /year when you can just pay the mortgage company that same amount and reduce the 3% interest accrued. Doesn't apply if you are an aggressive investor and your asset allocation doesn't include much bonds.

 

[Guest8]

True. But I have heard the opinion that you pay off the mortgage using your risk averse / bond allocation money.
Why buy bonds that may earn ~3% /year when you can just pay the mortgage company that same amount and reduce the 3% interest accrued. Doesn't apply if you are an aggressive investor and your asset allocation doesn't include much bonds.

That makes sense. I'm in the latter category and don't really own any bonds.