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Payoff the Mortgage or Invest?
- Thread starter Vincent Vega
- Start date
You might be a few dollars better off if all the stars align and you actually make money in the stock market , then you have to pay income taxes on what you earned
Stock market investments are just a piece of paper from a company that says they might someday , maybe , give you some or all of your money back but probably not
Most companies that you invest in are like Enron and just cook the books to boost their stock price
And stock market investments are not real, have no tangible value and no use whatsoever other than using them as a gamble that they will increase in value
Your house on the other hand , is real , you can see it , feel it , touch it , smell it , and best of all , you can live in it .
It’s fine to do some investing
If your employer has a 401 match then you should put in whatever they will match , since that doubles your investment , but other than that , if you have any extra money , throw it at your cars and house
But if you lose your job , get laid off , get injured , get bad sick etc
You can and will lose everything that you owe money on
In the Financial world there is no better feeling than making the last payment on your house
It just feels different to walk around in the yard and sit on the sofa in a house that as long as the property taxes get paid , no one can ever take it away
My house is no where near paid for but I wish it was
This is a big deal to me
It’s not all just percentage return
It’s emotional
When I was 15 we had a nice house , a lot on lake hartwell , a motor home , 2 boats , and several antique and classic cars , motorcycles etc
My father lost his job , and in less than three months we lost the house , the lake lot, the boats, the motor home , because they were not paid for
Sold the antique cars in a hurry for about a fourth of what they were worth
The emotional return of knowing you have an emergency Fund of 4-6 months bare bones living expenses is step one and then a few years later , knowing your house is paid for , is worth far more than a few extra electronic dollars in a computer hard drive somewhere that you can’t cash out without paying a hefty penalty and income tax
This post has so much bad information I recommend you disregard.
You pay interest on your home, maybe 4-6%? If you think you will make more than that in the stock market, and enough to cover your risk, then you should do it. Depends on YOUR personal risk tolerance.
The "company" does not pay you for your stock, you sell them to other investors who want to buy the stock. (Except for the occasion of a stock buyback)
"Most companies" do not cook the books. Looks up Sarbanes Oxley and SEC regulations
Stocks are absolutely real and have tangible value, you can sell them whenever you want for what someone is willing to buy them for.
Not all companies match dollar for dollar on 401k so you don't double your money as a fact
You said you feel different when your house is paid off, but yours is nowhere near paid off?
Clearly you are very risk averse and that's fine. For clarity though on one last point.
You can cash out stocks whenever you want without penalty, and you do have to pay tax on the PROFIT. If you buy for $100 and sell for $105, you pay tax on the $5 profit. It's a capital gains tax rate which is normally less than your paycheck tax.
If companies don’t lie and cook the books, how did Enron and Worldcom happen ?
I understand that EVERY employer doesn’t match dollar for dollar
That’s why there’s an “if” in the sentence
I thought most people bought stock market investments thru a self directed IRA or SEP or some tax delayed vehicle
That’s why I mentioned penalty on top of the capital gains tax
And I think I wrote that in fact you might make more money in stocks than your mortgage interest rate ,
the other side is that if you miss three house payments , your house is gone
I’m working hard on paying primary residence off
Sure , I’ve made some mistakes along the way , that’s why I’m tossing in my opinion ,
Stocks can and do lose value in the blink of an eye , everyday .
You should never spend more on stocks than you can afford to lose
The stock market is less of a gamble then Vegas , but lots of people lose money in the stock market everyday
Your house can lose value , but at least you can still live in it till it comes back up
I can understand why you don't trust the market but for every Enron or Worldcom there are numerous reputable companies that generate real cash flow: Coca-Cola, Microsoft, Home Depot, Walmart, etc.
My investment philosophy has changed in that I no longer buy individual stocks but back when I did pick individual stocks my approach was pretty simple. If I couldn't explain in one or two sentences how a company made money, I didn't invest in them. If they didn't pay a dividend, I didn't invest in them.
Enron and Worldcom happened because of collusion at the highest levels of the companies. Also when your "independent" auditor is in on the gig as was the case with Enron then yes fraud can occur. That's what gave us SOX which in my opinion is worthless because 99% of publicly traded companies already do a good job of maintaining adequate oversight and controls. While what happened at Enron and Worldcom were terrible for the employees I think the fallout made the market a much safer place to be. That's just my opinion though.
You can't directly compare the two options based on after-tax return alone since risk profile is drastically different.
Prepaying your mortgage is a guaranteed 4.5% after-tax return, or 6.1% gross in your case, which you won't get in the market. The general answer is to split your money and do both but only after you have at least 6 months of expenses in liquid funds. The hard part is figuring out the split, but that's a typical portfolio allocation exercise that depends on things like your overall net worth, income security, years until retirement and risk tolerance.
FWIW, our 30 year mortgage is only 3.25% but my wife still sends extra every month to be done with the mortgage before our oldest goes to college.
Prepaying your mortgage is a guaranteed 4.5% after-tax return, or 6.1% gross in your case, which you won't get in the market. The general answer is to split your money and do both but only after you have at least 6 months of expenses in liquid funds. The hard part is figuring out the split, but that's a typical portfolio allocation exercise that depends on things like your overall net worth, income security, years until retirement and risk tolerance.
FWIW, our 30 year mortgage is only 3.25% but my wife still sends extra every month to be done with the mortgage before our oldest goes to college.
