behumble wrote: ↑
Fri Nov 22, 2019 5:52 pm
Thanks. I'm considering liquidating everything in my taxable (VTSAX and the money market fund) and CD's ($56K) once they mature and paying off the entire mortgage some time in 2020, only if we can pay off the remainder approx. $450K. That would leave us with nothing in the taxable account, 3 months of Emergency Funds and whatever is in our retirement accounts. What do you think about that?
I wouldn't go that far. Consider the consequences of your actions on the networth, AA and liquidity. You can play a shell game and shuffle the ball underneath, but in the end, you haven't really changed anything. In the short term, your networth isn't going to change based on your financial decisions. You could take out some equity from your home and put the funds in a CD or bond, but net worth remains the same. I don't think it really should impact your AA either, but it all depends on how you count things. Some people count only bonds, but not cash or CDs. Some include the home equity loan, while others don't. Or you could take some CD or bonds and pay down your mortgage. If the interest rate is identical, and you want or need liquidity, then by all means take out the loan, but usually the CD and bond returns are less than the mortgage and home equity loans, so you're paying for that liquidity. Over time, your net worth goes down because you're paying to keep cash in CDs and bonds, if you never touch it. So if your emergency fund is sufficient, and you have a reasonable fall back plan for worse, then I'm all for taking that CD and money market and savings a little in interest, which over time will increase your net worth.
Now as far as liquidating VTSAX, what is the tax liability. That alone might be reason not to move. The other is that selling stocks to buy bonds (same as paying down mortgage IMO) is a change in AA. On average, stocks return higher than bonds, so having stocks is riskier, but positive on your net worth, so over the long run, the stocks should increase your net worth, and selling them now hit your with a double (triple) penalty. Capital gains tax (how much in your holdings?) and lower expected returns (and less liquidity).
Where is that extra cash coming from to pay off the mortgage? My count was about $100k short, but if you're close, next year might be too aggressive and leave you with too little reserve. A 3-5 year plan seems reasonable, and you might not need to sell off any stocks or change AA.
Based on where you are, what is your AA? and do you want to increase or decrease your equity risk at this time? Tweaking bonds, CDs and mortgages is mainly optimizing a bit and not going to be impacted much by market moves and mainly benefits from lower costs or better rate of return.