To Invest or Not to Invest

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imsantosh
Posts: 12
Joined: Wed Dec 05, 2018 2:59 pm

To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 4:15 pm

Hello,

Greetings fellow Bogleheaders! Just joined Bogleheads.org today. So, I am excited to be here.

My profile:
-----------
1) 40 year old married with a 3 year old kid
2) Have around 640K in the Stock Market (401(K), ROTH, 529 etc.,)
3) 275K in Cash (Ally bank and others) @ 2.0 APY
4) Outstanding 15 year Mortgage remaining of 185K balance @ 2.5 %

Question is should I pay off the mortgage or keep the mortgage and use the extra cash to invest? If its the latter, then what should i invest in?

Appreciate all the advice that I can get...

Yours sincerely,
SK

Grt2bOutdoors
Posts: 19513
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: To Invest or Not to Invest

Post by Grt2bOutdoors » Wed Dec 05, 2018 6:04 pm

Welcome to the forum!
How stable is your employment?
What is your expected target for retirement income? At what age do you anticipate retirement to begin?
2.5% is a very low rate. You could buy a 2 year us Treasury and earn more than that, albeit it will be federally taxed. How many more years on the mortgage? Is the mortgage rate fixed or adjustable?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

imsantosh
Posts: 12
Joined: Wed Dec 05, 2018 2:59 pm

Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 6:35 pm

hello Grt2bOutdoors!

Thank you for welcoming me in and thank you for responding to my post!

Answers to your questions:
======================
I think the employment is stable enough - never know how things change if and when recession hits
Target Retirement Income ... - not really sure, but at least 2M + ?
When to Retire - Probably around 50 or 55
Years on the mortgage left - 12
Mortgage Type - Fixed rate

Thanks again!

RadAudit
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Location: Second star on the right and straight on 'til morning

Re: To Invest or Not to Invest

Post by RadAudit » Wed Dec 05, 2018 6:46 pm

imsantosh wrote:
Wed Dec 05, 2018 6:35 pm

Target Retirement Income ... - not really sure, but at least 2M + ?
I'm not sure I'm reading that right. Do you mean an annual income of $2 million?
Last edited by RadAudit on Wed Dec 05, 2018 6:51 pm, edited 2 times in total.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The calvary isn't coming, kids. You are on your own.

viz
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Joined: Fri May 04, 2018 11:22 pm

Re: To Invest or Not to Invest

Post by viz » Wed Dec 05, 2018 6:47 pm

I think it is a personal choice. Purely based on the fact that your mortgage rate is so low, investing makes more sense as even treasury will yield more.
Personally, I will payoff and be debt free if I can pay down all my mortgage. One thing less to worry about and invest the savings.

imsantosh
Posts: 12
Joined: Wed Dec 05, 2018 2:59 pm

Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 7:03 pm

RadAudit wrote:
Wed Dec 05, 2018 6:46 pm
imsantosh wrote:
Wed Dec 05, 2018 6:35 pm

Target Retirement Income ... - not really sure, but at least 2M + ?
I'm not sure I'm reading that right. Do you mean an annual income of $2 million?
Sorry I meant a nest egg of 2M+... :oops:

imsantosh
Posts: 12
Joined: Wed Dec 05, 2018 2:59 pm

Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 7:16 pm

viz wrote:
Wed Dec 05, 2018 6:47 pm
I think it is a personal choice. Purely based on the fact that your mortgage rate is so low, investing makes more sense as even treasury will yield more.
Personally, I will payoff and be debt free if I can pay down all my mortgage. One thing less to worry about and invest the savings.
Thank you Viz for your reply. we (my wife and I) are conflicted on paying down the mortgage - since , as you said the mortgage rate is so low..we started off by thinking a cash reserve of 100K would be good enough for us, then, when we hit that number, we were afraid to invest that extra cash into the stock market (thinking that we will buy high and sell low), so we kept on saving more cash and now we are reaching close to 300K in cash and we know that it is just too much cash to keep as reserve.

We just dont know how, what and where to invest. Someone told me about this forum and so here we are. I read some of the articles here and looks like people here invest in Vanguard funds -but, does it mean that we talk to a financial advisor with Vanguard? or is there a bunch of funds that we can choose ourselves to invest in?

Thanks in advance

radiowave
Posts: 1880
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Re: To Invest or Not to Invest

Post by radiowave » Wed Dec 05, 2018 7:22 pm

OP, welcome to the forum

If you are 40 now and want to retire in 10-15 years, then you may have to fund 35-40 years off of the 2million portfolio. So a back of the envelope calculation, if you retire at 50, live to 90 = 40 years, $2M/40 = $50k per year living expenses. Will that work for you?
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KlangFool
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Re: To Invest or Not to Invest

Post by KlangFool » Wed Dec 05, 2018 7:29 pm

OP,

What is the price of the house? Is it safe to put that much eggs (money) into a single house basket?

KlangFool

KlangFool
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Re: To Invest or Not to Invest

Post by KlangFool » Wed Dec 05, 2018 7:31 pm

OP,

Why there are only 3 choices? House, cash, or stock? How about the bond?

KlangFool

dknightd
Posts: 1038
Joined: Wed Mar 07, 2018 11:57 am

Re: To Invest or Not to Invest

Post by dknightd » Wed Dec 05, 2018 7:37 pm

imsantosh wrote:
Wed Dec 05, 2018 4:15 pm
Hello,

Greetings fellow Bogleheaders! Just joined Bogleheads.org today. So, I am excited to be here.

My profile:
-----------
1) 40 year old married with a 3 year old kid
2) Have around 640K in the Stock Market (401(K), ROTH, 529 etc.,)
3) 275K in Cash (Ally bank and others) @ 2.0 APY
4) Outstanding 15 year Mortgage remaining of 185K balance @ 2.5 %

Question is should I pay off the mortgage or keep the mortgage and use the extra cash to invest? If its the latter, then what should i invest in?

Appreciate all the advice that I can get...

Yours sincerely,
SK
I'd suggest you keep doing what you are doing! I would not pay off a 2.5% mortgage early. Maybe move some of your cash into CD's.

StretchNM
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Location: New Mexico

Re: To Invest or Not to Invest

Post by StretchNM » Wed Dec 05, 2018 8:07 pm

This from limited experience: Does your wife work? She should have her own ROTH even if she doesn't work. Get her 5 yr penalty rule started and out of the way.
- Make sure you are funding your ROTH and 529 to their maximums.
- I am moderately risk averse in investments. It sounds like you might be to some degree too because of the amount of cash you've stored at Ally. 2 year CDs are paying as high as 3.1%APY, 3 years at 3.25%, and 5 years as high as 3.55% (Vanguard and Schwab [and others?]) With my risk tolerance, I would be considering putting $150K or more into CD ladder(s).
- At your age, you could invest more of that $275K savings in funds and earn more, but you said your job was relatively secure except in the event of a recession, as an example, so there's a risk worry there too.
- Just for starters, you can put a good portion of your savings to work right away, safely earning much more than your savings account at 2%.

Grt2bOutdoors
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Location: New York

Re: To Invest or Not to Invest

Post by Grt2bOutdoors » Wed Dec 05, 2018 8:22 pm

radiowave wrote:
Wed Dec 05, 2018 7:22 pm
OP, welcome to the forum

If you are 40 now and want to retire in 10-15 years, then you may have to fund 35-40 years off of the 2million portfolio. So a back of the envelope calculation, if you retire at 50, live to 90 = 40 years, $2M/40 = $50k per year living expenses. Will that work for you?
Are you assuming the portfolio has a real return of 3% or less? A married couple could get Social Security of say $30-40k that in inflation adjusted. That would suggest annual retirement income of $80-90k.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

justsomeguy2018
Posts: 144
Joined: Wed Oct 03, 2018 8:11 pm

Re: To Invest or Not to Invest

Post by justsomeguy2018 » Wed Dec 05, 2018 9:10 pm

imsantosh wrote:
Wed Dec 05, 2018 4:15 pm
Hello,

Greetings fellow Bogleheaders! Just joined Bogleheads.org today. So, I am excited to be here.

My profile:
-----------
1) 40 year old married with a 3 year old kid
2) Have around 640K in the Stock Market (401(K), ROTH, 529 etc.,)
3) 275K in Cash (Ally bank and others) @ 2.0 APY
4) Outstanding 15 year Mortgage remaining of 185K balance @ 2.5 %

Question is should I pay off the mortgage or keep the mortgage and use the extra cash to invest? If its the latter, then what should i invest in?

Appreciate all the advice that I can get...

Yours sincerely,
SK
I wouldn't pay off a mortgage at 2.5% when you could earn more than that in a 5-year CD, though you didn't say what your marginal federal and state income tax rate is.

I would keep the mortgage and use the extra cash to invest. I would look at: laddered CDs, treasuries, municipal bonds if in a high tax bracket, and growth stock ETFs for tax efficiency.

MBB_Boy
Posts: 35
Joined: Sat May 12, 2018 4:09 pm

Re: To Invest or Not to Invest

Post by MBB_Boy » Wed Dec 05, 2018 9:40 pm

No way should you pay down the mortgage. Get that money into the market ASAP.

If you're completely unsure what to invest in, just do a Target Date Fund at Vanguard/Fidelity/Schwab. It will select a mixture of stocks and bonds appropriate for your age and intended retirement year, and automatically adjust. No advisor needed.

Once you're more comfortable and educated, you can look to adjust it. Or not - the purpose of that fund is to be set it and forget it.

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Phineas J. Whoopee
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Re: To Invest or Not to Invest

Post by Phineas J. Whoopee » Wed Dec 05, 2018 9:45 pm

Welcome.

For the best advice you can use our asking portfolio questions format. It would be better simply to edit your original post (use the icon that looks like a pencil) to keep all the information in one place.

PJW

imsantosh
Posts: 12
Joined: Wed Dec 05, 2018 2:59 pm

Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 10:03 pm

radiowave wrote:
Wed Dec 05, 2018 7:22 pm
OP, welcome to the forum

If you are 40 now and want to retire in 10-15 years, then you may have to fund 35-40 years off of the 2million portfolio. So a back of the envelope calculation, if you retire at 50, live to 90 = 40 years, $2M/40 = $50k per year living expenses. Will that work for you?
Thank you radiowave..I guess, I have to continue working beyond the 50 year target retirement date. I think a 100K annual retirement income would make us feel comfortable..but, to be honest.. we dont know what that number should be.. we average around 75k in expenses (includes daycare, mortage, utilities and all other expenses) per year right now.

imsantosh
Posts: 12
Joined: Wed Dec 05, 2018 2:59 pm

Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 10:04 pm

KlangFool wrote:
Wed Dec 05, 2018 7:29 pm
OP,

What is the price of the house? Is it safe to put that much eggs (money) into a single house basket?

KlangFool
Thank you for your response Klangfool. We bought the house in 2013 for 325K

imsantosh
Posts: 12
Joined: Wed Dec 05, 2018 2:59 pm

Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 10:09 pm

StretchNM wrote:
Wed Dec 05, 2018 8:07 pm
This from limited experience: Does your wife work? She should have her own ROTH even if she doesn't work. Get her 5 yr penalty rule started and out of the way.
- Make sure you are funding your ROTH and 529 to their maximums.
- I am moderately risk averse in investments. It sounds like you might be to some degree too because of the amount of cash you've stored at Ally. 2 year CDs are paying as high as 3.1%APY, 3 years at 3.25%, and 5 years as high as 3.55% (Vanguard and Schwab [and others?]) With my risk tolerance, I would be considering putting $150K or more into CD ladder(s).
- At your age, you could invest more of that $275K savings in funds and earn more, but you said your job was relatively secure except in the event of a recession, as an example, so there's a risk worry there too.
- Just for starters, you can put a good portion of your savings to work right away, safely earning much more than your savings account at 2%.
Thank you StretchNM for your questions.

I am 40 and my wife is 34 and yes, we both work. We max out both of our 401k(s) - 37k in total every year, max out Roth IRA(s) - 11,000 in total every year, we also started GA 529 plan for our son in 2016 and contribute close to 7K every year to that as well. Apart from that its mostly cash savings at the moment..

socaldude
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Joined: Fri May 05, 2017 9:27 am

Re: To Invest or Not to Invest

Post by socaldude » Wed Dec 05, 2018 10:14 pm

Heya imsantosh, similar sit. a few years back, and bottom line is, I paid off my 15 yr. and it was the best (money) thing I've ever done. Period. My Van. holdings are 50% stks.40% bnds.10% cash. Good luck to you and family, I hope you live a long and happy life.

imsantosh
Posts: 12
Joined: Wed Dec 05, 2018 2:59 pm

Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 10:25 pm

justsomeguy2018 wrote:
Wed Dec 05, 2018 9:10 pm
I wouldn't pay off a mortgage at 2.5% when you could earn more than that in a 5-year CD, though you didn't say what your marginal federal and state income tax rate is.

I would keep the mortgage and use the extra cash to invest. I would look at: laddered CDs, treasuries, municipal bonds if in a high tax bracket, and growth stock ETFs for tax efficiency.
[/quote]

Thank you justmoneyguy2018. based on the new 2018 tax law our federal tax rate (married filing jointly) is 24% and state is 6%

imsantosh
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Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 10:25 pm

Phineas J. Whoopee wrote:
Wed Dec 05, 2018 9:45 pm
Welcome.

For the best advice you can use our asking portfolio questions format. It would be better simply to edit your original post (use the icon that looks like a pencil) to keep all the information in one place.

PJW
Thank you PJW. I will do follow that format and post the question again..

imsantosh
Posts: 12
Joined: Wed Dec 05, 2018 2:59 pm

Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 10:29 pm

socaldude wrote:
Wed Dec 05, 2018 10:14 pm
Heya imsantosh, similar sit. a few years back, and bottom line is, I paid off my 15 yr. and it was the best (money) thing I've ever done. Period. My Van. holdings are 50% stks.40% bnds.10% cash. Good luck to you and family, I hope you live a long and happy life.
:sharebeer Thank you socaldude. I wish you good health and a long and happy life too!

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grabiner
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Re: To Invest or Not to Invest

Post by grabiner » Wed Dec 05, 2018 10:33 pm

imsantosh wrote:
Wed Dec 05, 2018 4:15 pm
1) 40 year old married with a 3 year old kid
2) Have around 640K in the Stock Market (401(K), ROTH, 529 etc.,)
3) 275K in Cash (Ally bank and others) @ 2.0 APY
4) Outstanding 15 year Mortgage remaining of 185K balance @ 2.5 %

Question is should I pay off the mortgage or keep the mortgage and use the extra cash to invest? If its the latter, then what should i invest in?

See Paying down loans versus investing on the wiki. It makes sense to separate the two questions, as you did here: Should you pay down the mortgage? Whether you pay it down or not, how much risk should you take?

Given the size of the mortgage ($4500 annual interest), and the fact that you are married, I would assume that the mortgage interest is not deductible. Since you need to reach $24,000 in deductions to itemize and can include only $10,000 of state and local taxes, you need $9500 in other deductions (likely charity) to get only any mortgage interest deduction.

In another post, you mentioned that you bought the house in 2013. This implies that your 15-year mortgage is now a 10-year mortgage. (At least this is what I assume; you couldn't have gotten a 2.5% rate on a 20-year mortgage is 2013, while 2.5% would be possible if you paid a lot of points. My own 15-year mortgage in 2013 was at 2.625% after paying 2.75 points.)

Paying off the mortgage would get you a risk-free 2.5% return. Last year, GA didn't allow you to itemize deductions if you took the federal standard deduction; I don't know whether this has changed. Assuming it hasn't changed, you would get the full 2.5%. This would be equivalent to buying a bond portfolio of 120 bonds maturing in 1-120 months, as paying it off would give you a fixed benefit every month for the next 120 months. This portfolio would have a duration of about 5 years; this is the weighted average time for the payments.

And you could buy a similar bond portfolio instead. Admiral shares of Vanguard Intermediate-Term Tax-Exempt currently yield 2.75%, exempt from federal tax. You would pay GA state tax, reducing the return to 2.58%. Thus, if you bought a bond portfolio and used the bonds to make your mortgage payments, you would essentially break even without taking much more risk. It is thus reasonable to either pay off the mortgage or not. I would prefer not to pay it off in your situation, but the effective cost of paying it off is trivial, and the peace of mind (and happy wife) may be worth something.

If you do itemize deductions ($9500 donated to charity), that would reduce the after-tax mortgage rate to 1.75% if it is fully deductible, or 2.35% if it is just barely deductible because you get the full benefit of GA state tax. At those rates, you don't want to pay it off. (This is my situation; my 2.625% mortgage is fully deductible from Federal and MD tax, so it isn't worth my paying it off at 1.79%.)
Wiki David Grabiner

imsantosh
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Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 10:56 pm

In another post, you mentioned that you bought the house in 2013. This implies that your 15-year mortgage is now a 10-year mortgage. (At least this is what I assume; you couldn't have gotten a 2.5% rate on a 20-year mortgage is 2013, while 2.5% would be possible if you paid a lot of points. My own 15-year mortgage in 2013 was at 2.625% after paying 2.75 points.)
Hello garbiner,

We originally had a 30 year mortgage loan from Wells Fargo @ 4.125 % ( :annoyed but, then we refinanced it with Regions Bank in May of 2016 and paid some extra points to get the 2.5 % rate. I just checked the mortgage statement and it states that the maturity date is 05/01/2031 and the total unpaid balance is 185K. We are making extra payments so we hope we should be able to pay it off in 10 years if we continue to keep the mortgage instead of paying off in full with the cash that we have. But, I am leaning towards not paying off the mortgage based on your and the fellow bogleheaders who have provided their feedbacks which I am thanful for.

Now, i have to figure out, where to invest the cash..

Thanks
SK

imsantosh
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Re: To Invest or Not to Invest

Post by imsantosh » Wed Dec 05, 2018 11:04 pm


Hello garbiner,
[

David ,i apologize for the typo.. I meant to type grabiner.

radiowave
Posts: 1880
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Re: To Invest or Not to Invest

Post by radiowave » Thu Dec 06, 2018 6:01 pm

imsantosh wrote:
Wed Dec 05, 2018 10:03 pm
radiowave wrote:
Wed Dec 05, 2018 7:22 pm
OP, welcome to the forum

If you are 40 now and want to retire in 10-15 years, then you may have to fund 35-40 years off of the 2million portfolio. So a back of the envelope calculation, if you retire at 50, live to 90 = 40 years, $2M/40 = $50k per year living expenses. Will that work for you?
Thank you radiowave..I guess, I have to continue working beyond the 50 year target retirement date. I think a 100K annual retirement income would make us feel comfortable..but, to be honest.. we dont know what that number should be.. we average around 75k in expenses (includes daycare, mortage, utilities and all other expenses) per year right now.
OP, it's really hard to predict that far out, too many variables and assumptions. Keep saving and investing, live below your means, keep investing costs low, diversify, and keep things simple - some of the core Bogleheads philosophy - and you will optimize your portfolio to give you choices in the future. Good luck!
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

chevca
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Re: To Invest or Not to Invest

Post by chevca » Thu Dec 06, 2018 8:15 pm

imsantosh wrote:
Wed Dec 05, 2018 10:56 pm
In another post, you mentioned that you bought the house in 2013. This implies that your 15-year mortgage is now a 10-year mortgage. (At least this is what I assume; you couldn't have gotten a 2.5% rate on a 20-year mortgage is 2013, while 2.5% would be possible if you paid a lot of points. My own 15-year mortgage in 2013 was at 2.625% after paying 2.75 points.)
Hello garbiner,

We originally had a 30 year mortgage loan from Wells Fargo @ 4.125 % ( :annoyed but, then we refinanced it with Regions Bank in May of 2016 and paid some extra points to get the 2.5 % rate. I just checked the mortgage statement and it states that the maturity date is 05/01/2031 and the total unpaid balance is 185K. We are making extra payments so we hope we should be able to pay it off in 10 years if we continue to keep the mortgage instead of paying off in full with the cash that we have. But, I am leaning towards not paying off the mortgage based on your and the fellow bogleheaders who have provided their feedbacks which I am thanful for.

Now, i have to figure out, where to invest the cash..

Thanks
SK
Normally, I'm in the pay off the mortgage camp. But, a 2.5% mortgage rate makes me say, don't pay it off. My credit union pays 2.5% on up to $25k in checking now. As you know, Ally pays 2% on their online saving accounts now. My best guess is that savings and some checking accounts will pay more than your mortgage rate soon enough. No guarantees on that though.

Other thoughts... you paid points to get the low rate... quit paying ahead on the mortgage. Or, if you are going to keep paying ahead on the mortgage... just pay it off now. Don't do both, IMO. Take advantage of the low rate you paid points to get and let it ride. Or, just pay it off, be done with a mortgage, and save/invest the old mortgage payment.

Either way, you're in a good spot in that you can pay it off any time you wish.

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grabiner
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Re: To Invest or Not to Invest

Post by grabiner » Thu Dec 06, 2018 11:26 pm

imsantosh wrote:
Wed Dec 05, 2018 10:56 pm
In another post, you mentioned that you bought the house in 2013. This implies that your 15-year mortgage is now a 10-year mortgage. (At least this is what I assume; you couldn't have gotten a 2.5% rate on a 20-year mortgage is 2013, while 2.5% would be possible if you paid a lot of points. My own 15-year mortgage in 2013 was at 2.625% after paying 2.75 points.)
Hello garbiner,

We originally had a 30 year mortgage loan from Wells Fargo @ 4.125 % ( :annoyed but, then we refinanced it with Regions Bank in May of 2016 and paid some extra points to get the 2.5 % rate. I just checked the mortgage statement and it states that the maturity date is 05/01/2031 and the total unpaid balance is 185K.
So it's a 12-year loan, or shorter if you have already made extra payments. This doesn't change the math much; at the same risk level, it's just about break-even to pay off if you don't itemize deductions, and a net loss to pay off if you do itemize.
Wiki David Grabiner

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grabiner
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Re: To Invest or Not to Invest

Post by grabiner » Thu Dec 06, 2018 11:28 pm

chevca wrote:
Thu Dec 06, 2018 8:15 pm
Other thoughts... you paid points to get the low rate... quit paying ahead on the mortgage. Or, if you are going to keep paying ahead on the mortgage... just pay it off now. Don't do both, IMO. Take advantage of the low rate you paid points to get and let it ride. Or, just pay it off, be done with a mortgage, and save/invest the old mortgage payment.
Points are a sunk cost, and thus irrelevant to the decision whether to pay a mortgage down or off. An X% mortgage for which you paid no points because the market rate was X%, and an X% mortgage when the market rate was X.5% for which you paid lots of points, are equally good (or bad) to pay down.
Wiki David Grabiner

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jakehefty17
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Re: To Invest or Not to Invest

Post by jakehefty17 » Fri Dec 07, 2018 12:07 am

imsantosh wrote:
Wed Dec 05, 2018 4:15 pm
Hello,

Greetings fellow Bogleheaders! Just joined Bogleheads.org today. So, I am excited to be here.

My profile:
-----------
1) 40 year old married with a 3 year old kid
2) Have around 640K in the Stock Market (401(K), ROTH, 529 etc.,)
3) 275K in Cash (Ally bank and others) @ 2.0 APY
4) Outstanding 15 year Mortgage remaining of 185K balance @ 2.5 %

Question is should I pay off the mortgage or keep the mortgage and use the extra cash to invest? If its the latter, then what should i invest in?

Appreciate all the advice that I can get...

Yours sincerely,
SK
imsantosh wrote:
Wed Dec 05, 2018 10:03 pm
radiowave wrote:
Wed Dec 05, 2018 7:22 pm
OP, welcome to the forum

If you are 40 now and want to retire in 10-15 years, then you may have to fund 35-40 years off of the 2million portfolio. So a back of the envelope calculation, if you retire at 50, live to 90 = 40 years, $2M/40 = $50k per year living expenses. Will that work for you?
we average around 75k in expenses (includes daycare, mortage, utilities and all other expenses) per year right now.
Hello imsantosh!

Welcome to the forum. Lets get right into it, I would say your mortgage rate is so low that it's not worth paying off early. So what to do with the money? Reading through your posts, here's what I would suggest for you:

First, determine what you want in reserve as an emergency fund. You have an Ally account? They offer competitive CDs, do some research on building a CD ladder with your expansive savings. You said earlier your original goal for a safety net was $100k (which is over a year of expenses), so I would put around that amount into a CD ladder. Keep whatever amount of cash savings makes you comfortable beyond that.
https://www.bogleheads.org/wiki/Emergency_fund
https://www.bogleheads.org/wiki/Certificate_of_deposit
https://www.bogleheads.org/wiki/Laddering_bonds_or_CDs

When you feel comfortable with that, I'd take any "leftover" cash and stick it into a total market index fund or ETF. This will keep your tax burden low, and will be simple to manage. I'd suggest a DIY online broker such as Vanguard, Schwab, or Fidelity that offer no-fee purchases. Follow the boglehead investment philosophy. Adjust your tax-advantaged accounts to maintain your asset allocation as you determine necessary.
https://www.bogleheads.org/wiki/Boglehe ... philosophy
https://www.bogleheads.org/wiki/Tax-eff ... _placement

The key takeaway here is within your retirement accounts, what is your ratio of stocks to bonds? What is your risk tolerance? Do you have an asset allocation and long-term plan? If not, do some research in the wiki and recommended reading. There is a wealth of information not just here in the forum but within the wiki as well.
https://www.bogleheads.org/wiki/Asset_allocation
https://www.bogleheads.org/wiki/Asset_a ... e_accounts

Good luck! :beer
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ruralavalon
Posts: 14266
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: To Invest or Not to Invest

Post by ruralavalon » Fri Dec 07, 2018 11:18 am

Welcome to the forum :) .

imsantosh wrote:
Wed Dec 05, 2018 4:15 pm
Hello,

Greetings fellow Bogleheaders! Just joined Bogleheads.org today. So, I am excited to be here.

My profile:
-----------
1) 40 year old married with a 3 year old kid
2) Have around 640K in the Stock Market (401(K), ROTH, 529 etc.,)
3) 275K in Cash (Ally bank and others) @ 2.0 APY
4) Outstanding 15 year Mortgage remaining of 185K balance @ 2.5 %

Question is should I pay off the mortgage or keep the mortgage and use the extra cash to invest? If its the latter, then what should i invest in?

Appreciate all the advice that I can get...

Yours sincerely,
SK
imsantosh wrote:
Wed Dec 05, 2018 6:35 pm
hello Grt2bOutdoors!

Thank you for welcoming me in and thank you for responding to my post!

Answers to your questions:
======================
I think the employment is stable enough - never know how things change if and when recession hits
Target Retirement Income ... - not really sure, but at least 2M + ?
When to Retire - Probably around 50 or 55
Years on the mortgage left - 12
Mortgage Type - Fixed rate

Thanks again!
I would not pay off the 2.5% mortgage note. I would want it paid off by the time of retirement, and you look on track to do that.

Pick an amount which wouldd cover 3-6 months of basic living expenses, and set that amount of cash aside as an emergency fund. You can get a better rate than 2%, see www.bankrate.com. Or Vanguard Prime Money Market Fund VMMXX) has a current SEC Yield = 2.32%.

The remainder of the cash could be invested. Are you really currently 100% in equities in your retirement investing accounts? You could invest in a short-term or intermediate-term bond fund as well. What fund firm are your Roth IRAs with? What bond funds are offered in your 401k? Please give fund names, tickers and expense ratios.

Are you contributing the maximum allowed to your 401k and Roth IRAs?
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