Is 25 too young for paid off house?!

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Dave55
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Joined: Tue Sep 03, 2013 2:51 pm

Re: Is 25 too young for paid off house?!

Post by Dave55 » Fri Jul 31, 2020 2:33 pm

Unbrokenspark wrote:
Thu Jul 30, 2020 7:59 pm
Emergency Fund: 3 months of expenses.
Debt: None House is Paid off (65K)
Filing Status: married filing jointly
Tax Rate: 12% Fedral 9% state
State: Iowa
Age: 25 wife 27
AA: 100/0
income 50K
Right now we have roughly 82K invested between work traditional/Roth 401k and Roth's and HSA

I will be investing 20K+ for the forseable future a year


I'm kind of stressing out on this subject, as if i missed out on funding more into my retirement accounts vs paying my house off last march.. now interest rates are low. im contimplating kicking the tires and looking into getting a mortgage..to invest...let me know what you guys think! either way!
Never too young to pay off a house. Why pay interest for 30 years if you don't have to?

Dave

Swivelguy
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Re: Is 25 too young for paid off house?!

Post by Swivelguy » Fri Jul 31, 2020 2:47 pm

000 wrote:
Thu Jul 30, 2020 8:08 pm
If you think stocks will outperform your house in the long run and understand the risks of leverage, you could get a mortgage for investing.
Stocks don't have to outperform the housing market for this to be a good idea, they only have to outperform the mortgage interest rate. One has the same exposure to the real estate market whether there's a mortgage or not.

Swivelguy
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Re: Is 25 too young for paid off house?!

Post by Swivelguy » Fri Jul 31, 2020 2:52 pm

CyclingDuo wrote:
Thu Jul 30, 2020 8:42 pm
Unbrokenspark wrote:
Thu Jul 30, 2020 7:59 pm
Emergency Fund: 3 months of expenses.
Debt: None House is Paid off (65K)
AA: 100/0
income 50K
Right now we have roughly 82K invested between work Roth 401k and Roth's and HSA

I will be investing 20K+ for the forseable future a year
Do NOT, I repeat - do not get another mortgage so you can invest. That would be insane and an entrance ticket to the NUT HOUSE material.
Hmm. Let's say OP already had a mortgage with 80% LTV. Then the situation would look like this:

$50k income
$52k mortgage at 3% = monthly payments of $219
$134k invested in 100% stocks, $82k in Roth and $52k in taxable with no unrealized gain or loss

Would we advise him to sell the stocks in taxable and pay off the mortgage in full? Hell no, I wouldn't. The portfolio value is AT MOST 22% of what OP would want to have on hand to retire on ($25k of expenses / 4% withdrawal rate = $625k), it's absolutely the time to be staying fully invested and build that portfolio.

000
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Re: Is 25 too young for paid off house?!

Post by 000 » Fri Jul 31, 2020 3:04 pm

Swivelguy wrote:
Fri Jul 31, 2020 2:47 pm
000 wrote:
Thu Jul 30, 2020 8:08 pm
If you think stocks will outperform your house in the long run and understand the risks of leverage, you could get a mortgage for investing.
Stocks don't have to outperform the housing market for this to be a good idea, they only have to outperform the mortgage interest rate. One has the same exposure to the real estate market whether there's a mortgage or not.
You are of course correct that outperforming the mortgage interest rate is all that is needed to stay solvent.

I believe real estate is underrepresented in total market indices.

randomguy
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Re: Is 25 too young for paid off house?!

Post by randomguy » Fri Jul 31, 2020 5:51 pm

Dave55 wrote:
Fri Jul 31, 2020 2:33 pm

Never too young to pay off a house. Why pay interest for 30 years if you don't have to?

Dave
Because you like money. I would much rather have 1 million dollars after paying. 200k in interest than have 800k after paying 0 dollars in interest. I know a lot of people on this board feel differently...

flaccidsteele
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Location: Canada

Re: Is 25 too young for paid off house?!

Post by flaccidsteele » Fri Jul 31, 2020 6:03 pm

Unbrokenspark wrote:
Fri Jul 31, 2020 8:30 am
flaccidsteele wrote:
Fri Jul 31, 2020 8:04 am
It appears that the consumer item makes up a significant portion of your net worth. It’s not what I would do at a young age

I was able to retire early because I focused more on buying investments instead of consumer items

Time in the market is king, and the more capital I allocated to the market in my 20s was better for my financial situation
Yup i totally get where your comin from. Congrats on early retirement! is it everything its cracked up to be?
So far so good
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat

Dave55
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Re: Is 25 too young for paid off house?!

Post by Dave55 » Fri Jul 31, 2020 6:27 pm

randomguy wrote:
Fri Jul 31, 2020 5:51 pm
Dave55 wrote:
Fri Jul 31, 2020 2:33 pm

Never too young to pay off a house. Why pay interest for 30 years if you don't have to?

Dave
Because you like money. I would much rather have 1 million dollars after paying. 200k in interest than have 800k after paying 0 dollars in interest. I know a lot of people on this board feel differently...
However there is no guarantee that you will make $1M. by having the mortgage.

Dave

Grt2bOutdoors
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Re: Is 25 too young for paid off house?!

Post by Grt2bOutdoors » Fri Jul 31, 2020 6:42 pm

Unbrokenspark wrote:
Fri Jul 31, 2020 11:40 am
JoeRetire wrote:
Fri Jul 31, 2020 10:12 am
Unbrokenspark wrote:
Thu Jul 30, 2020 7:59 pm
I'm kind of stressing out on this subject, as if i missed out on funding more into my retirement accounts vs paying my house off last march.
Why stress out over something that's already over and done with? Assuming there is some reason you chose to pay off your mortgage, what has changed?
We drank the dave ramsey cool aid..Nothing has changed really, Just want to be effecient as possible with our money I guess.
Tell me you managed to get on his show and do your debt-free scream! You are killing it! Congratulations! :sharebeer Ask Dave your question. You know what he's going to say right? Freedom! Now you can live and give the way you want. You're on your way to being a millionaire!
The paid off mortgage has taken the place of the BMW fer sure! Wow! Great job!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

randomguy
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Re: Is 25 too young for paid off house?!

Post by randomguy » Fri Jul 31, 2020 7:10 pm

Dave55 wrote:
Fri Jul 31, 2020 6:27 pm
randomguy wrote:
Fri Jul 31, 2020 5:51 pm
Dave55 wrote:
Fri Jul 31, 2020 2:33 pm

Never too young to pay off a house. Why pay interest for 30 years if you don't have to?

Dave
Because you like money. I would much rather have 1 million dollars after paying. 200k in interest than have 800k after paying 0 dollars in interest. I know a lot of people on this board feel differently...
However there is no guarantee that you will make $1M. by having the mortgage.

Dave
Of course not. You might have 1.5 million:) For a simple thought experiment see how this played out over the last 30 years
50k invest and paid about 35k in interest -> 787k
50k in a mortgage. Invest that 236/month -> 419k

The wins from investing are big and the losses are small. It is the best type of bet to be making.

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CyclingDuo
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Re: Is 25 too young for paid off house?!

Post by CyclingDuo » Fri Jul 31, 2020 7:22 pm

Swivelguy wrote:
Fri Jul 31, 2020 2:52 pm
CyclingDuo wrote:
Thu Jul 30, 2020 8:42 pm
Unbrokenspark wrote:
Thu Jul 30, 2020 7:59 pm
Emergency Fund: 3 months of expenses.
Debt: None House is Paid off (65K)
AA: 100/0
income 50K
Right now we have roughly 82K invested between work Roth 401k and Roth's and HSA

I will be investing 20K+ for the forseable future a year
Do NOT, I repeat - do not get another mortgage so you can invest. That would be insane and an entrance ticket to the NUT HOUSE material.
Hmm. Let's say OP already had a mortgage with 80% LTV. Then the situation would look like this:

$50k income
$52k mortgage at 3% = monthly payments of $219
$134k invested in 100% stocks, $82k in Roth and $52k in taxable with no unrealized gain or loss

Would we advise him to sell the stocks in taxable and pay off the mortgage in full? Hell no, I wouldn't. The portfolio value is AT MOST 22% of what OP would want to have on hand to retire on ($25k of expenses / 4% withdrawal rate = $625k), it's absolutely the time to be staying fully invested and build that portfolio.
Well, first things first...

He doesn't have a mortgage as his house is paid off. Therefore, he should not borrow money to invest in the stock market at age 25. That's just noodles. He is already on a path to investing $20K per year to add to his current $82K in his investments and has $0 debt. Plenty of time for the additional investments to accumulate over the next 35-40 years.

If one did have a mortgage and had enough money to pay it off in taxable investments, depending on one's overall goals and strategy, paying off the mortgage early could indeed be a worthwhile step (many of us have done that). It's called Baby Step 6 in the Ramsey Baby Steps. That's an argument that seems to never get put to rest, but it doesn't have anything to do with the OP.

Back to where the OP currently stands. I do like the Fidelity "journey" shown below on how much money one needs for retirement - which we know is based on working to 65, taking SS at FRA (67), having no pension, and investing 15% of your income each year (starting at age 25) throughout your working career to have 10X your salary by age 67. That's a lot of assumptions and it doesn't matter if it is a perfect. It is simply a very good starting point to use as a path. The OP may have a higher multiple and even the potential to retire earlier at his rate.

You will see that at age 25, the OP is ahead of the path in his current financial standing since he has more than 1X his current salary already saved and invested at age 25 - plus his house is debt free. :shock: So if he is adding $20K per year from his income to his savings and investments, by the time he hits age 30 in 5 years, he could very easily be over $200K or 4X his current salary at age 30 give or take market returns and what his salary is in 5 years. I don't think I will retract my advice that borrowing money on his already paid off house to take out a mortgage on it to invest in the stock market would be anything short of nutty or crazy. :twisted:

https://www.fidelity.com/viewpoints/ret ... -to-retire
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CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Swivelguy
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Re: Is 25 too young for paid off house?!

Post by Swivelguy » Fri Jul 31, 2020 7:45 pm

CyclingDuo wrote:
Fri Jul 31, 2020 7:22 pm
Well, first things first...

He doesn't have a mortgage as his house is paid off...If one did have a mortgage and had enough money to pay it off in taxable investments, depending on one's overall goals and strategy, paying off the mortgage early could indeed be a worthwhile step (many of us have done that). It's called Baby Step 6 in the Ramsey Baby Steps.
Ah yes, the Dave Ramsey appeal to authority. A person whose aversion to debt is far stronger than is objectively optimal.
That's an argument that seems to never get put to rest, but it doesn't have anything to do with the OP...Back to where the OP currently stands.
Actually it has everything to do with OP. If you have a choice between being in situation A and situation B, you should pick the optimal situation, regardless of whether you're currently in A or B. If those situations are having a mortgage and investments, or having neither, and it's better to have both (which is the case for OP, in my opinion), then you should have both. Now sure, there's a little bit of cost of moving from A to B (mortgage closing costs) so it's not completely equivalent, but it's close. It is a common fallacy to stick to the status quo even when you would make a different choice if you approached the situation at arm's length with neither choice already made.
You will see that at age 25, the OP is ahead of the path in his current financial standing since he has more than 1X his current salary already saved and invested at age 25 - plus his house is debt free. :shock: So if he is adding $20K per year from his income to his savings and investments, by the time he hits age 30 in 5 years, he could very easily be over $200K or 4X his current salary at age 30 give or take market returns and what his salary is in 5 years. I don't think I will retract my advice that borrowing money on his already paid off house to take out a mortgage on it to invest in the stock market would be anything short of nutty or crazy. :twisted:
You're right, OP is young and doing great, which is all the more reason to take advantage of the capital he has accumulated to maximize investment returns. With a 40% savings rate, you can do basically whatever you want and retire early. Or you can choose an optimal strategy, which is buying stocks before buying $52k of 3%-yielding bond-equivalent, and probably retire even earlier.

drk
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Location: Seattle

Re: Is 25 too young for paid off house?!

Post by drk » Sat Aug 01, 2020 12:02 am

Based on OP's home value and implied income, there's no benefit to having a mortgage. Kudos, OP. You're doing great.

Topic Author
Unbrokenspark
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Joined: Thu Nov 21, 2019 5:29 pm

Re: Is 25 too young for paid off house?!

Post by Unbrokenspark » Sat Aug 01, 2020 9:32 am

MathWizard wrote:
Fri Jul 31, 2020 2:18 pm
OP,

You are doing great.

Congratulations, you are way ahead of the game.
Don't let what might have been get in your way.

I could have invested in Apple when Jobs came back in 1996, when it's market cap was $3billion . Last I checked Apple was worth over a Trillion dollars.

Lots of opportunities that could have been, but I am doing well.

I think you are too.

Thats the thing hind sights 20/20 but thanks for the kind words

cutterinnj
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Re: Is 25 too young for paid off house?!

Post by cutterinnj » Sat Aug 01, 2020 9:34 am

This is awesome!
You completed a life goal at age 25.
Smile and don’t ever pay a mortgage again!

Topic Author
Unbrokenspark
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Re: Is 25 too young for paid off house?!

Post by Unbrokenspark » Sat Aug 01, 2020 9:36 am

Swivelguy wrote:
Fri Jul 31, 2020 2:47 pm
000 wrote:
Thu Jul 30, 2020 8:08 pm
If you think stocks will outperform your house in the long run and understand the risks of leverage, you could get a mortgage for investing.
Stocks don't have to outperform the housing market for this to be a good idea, they only have to outperform the mortgage interest rate. One has the same exposure to the real estate market whether there's a mortgage or not.
Your math is right, i wouldnt take on a loan to invest because if the investment is lost the debt is still there and thats what I would be doing by getting a mortgage.. but i would dely on paying down low interest debt to invest... but i do like the flexibility of not having a house payment i guess. plus it would take me a couple of years to invest this money in my work 401k and our roths.

Topic Author
Unbrokenspark
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Re: Is 25 too young for paid off house?!

Post by Unbrokenspark » Sat Aug 01, 2020 9:45 am

JupiterJones wrote:
Fri Jul 31, 2020 1:35 pm
Unbrokenspark wrote:
Fri Jul 31, 2020 11:40 am
We drank the dave ramsey cool aid..Nothing has changed really, Just want to be effecient as possible with our money I guess.
Ah, well then you also know what Dave always says to callers (and I often repeat here) about paying off their mortage: If you decide you don't like it, you can always get another mortgage. But I suspect the thought of going back into home debt after finally getting out of it would bother you a lot more than the second-guessing you're doing now. I suppose that's the point of the thought experiment. :D

Anyway, I get how it is to want to do the right thing when it comes to your money. But I would argue that "efficiency" is not the only thing that matters. Or if it is, there is more than one area in which to gain that efficiency.

An analogy I use sometimes is that of a plane taking off. There are all sorts of angles and airspeeds a pilot can use when taking off. Some might be more fuel-efficient. Some might use less runway or have a better chance of avoiding an obstacle at the end of it. Some might get you to your destination fastest.

But what pilots use most of the time is the airspeed that gets you as much altitude as you can, as quickly as possible (best rate-of-climb). For a plane, altitude equals safety, because the higher you are when something goes wrong, the more time and options you have. This prioritizes risk-reduction, perhaps at the expense of groundspeed and fuel efficiency, but I think you'd agree that the trade-off is worth it!

Same with your finances. Many people will argue that any scheme that doesn't eke out the highest possible monetary gain is inferior and left to those who let their emotions get the better of what's rational and "mathematically correct". But the way I see it, doing something like paying down low-interest debt instead of making leveraged investments is just as rational and mathematically correct.

It's merely optimizing something different. Not necessarily worse or better. Just different.
Woah great analogy! I like everyones feedback ill prolly re read this post like 20 times. It seems like you have people on both sides and neither one is right or wrong. the math works out to mortgage up and invest but the gains is not garunteed only the debt would be.. :twisted:

Candor
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Re: Is 25 too young for paid off house?!

Post by Candor » Sat Aug 01, 2020 10:07 am

Don't let the pursuit of the perfect plan obscure the fact that you already have a great one in place.

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Unbrokenspark
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Re: Is 25 too young for paid off house?!

Post by Unbrokenspark » Sat Aug 01, 2020 10:16 am

Candor wrote:
Sat Aug 01, 2020 10:07 am
Don't let the pursuit of the perfect plan obscure the fact that you already have a great one in place.
+1

Swivelguy
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Re: Is 25 too young for paid off house?!

Post by Swivelguy » Sat Aug 01, 2020 11:14 am

Unbrokenspark wrote:
Sat Aug 01, 2020 9:36 am
I wouldnt take on a loan to invest
So what you're saying is that you hypothetically would not carry debt in order to possess investments.
i would dely on paying down low interest debt to invest
So what you're saying is that you hypothetically would carry debt in order to possess investments.

I hope you realize the contradiction here. What you've expressed is not an opinion on handling debt and investments, but rather an opinion against change. And that's fine. You have the freedom to make your own choices. You should just be aware of what choice you're actually making and why, in order to be a logical actor.

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CyclingDuo
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Re: Is 25 too young for paid off house?!

Post by CyclingDuo » Sat Aug 01, 2020 11:26 am

Unbrokenspark wrote:
Sat Aug 01, 2020 9:45 am
Woah great analogy! I like everyones feedback ill prolly re read this post like 20 times. It seems like you have people on both sides and neither one is right or wrong. the math works out to mortgage up and invest but the gains is not garunteed only the debt would be.. :twisted:
"Not guaranteed!"

That's the key component.

Ask those of us who have been through real bear markets that have lasted years. Or ask those that have been on margin or leverage when the market heads south and stays south for a good bit of time. What would you do, or how would you react if you did take out a mortgage and put the extra $50K in the market if and when your investments were down 30-50% for more than a year - maybe even several years? What if you lost your job due to a layoff in a recession as a result on top of that? Those mortgage payments would still be due month in and month out. The mortgage company could care less that your stock are down. They want your payment.

Human behavior is an interesting thing in such scenarios (usually very predictable) and being underwater on a loan that you have used to invest (if you do it at a brokerage house, it's called investing on margin by borrowing money from the broker to invest more than you have - at much higher interest rates, of course). It all goes well if and when a market is moving higher, but those years - or sometimes protracted periods of more than one year - when it goes down and stays down are just as telling. Fear and greed. It gets investors who reach for more in both directions. Most of us would be able to guarantee you at least that. :twisted:

Recency bias of the market move from 2009 to current is not what I would be basing any decision on using leverage to invest more than you already are investing. It all sounds good when things are going your way and a bull market is raging, but I don't see it as a risk you need to take on to be successful with your upcoming wealth accumulation. You are in an excellent position as it is and have no reason to push the envelope by using leverage. You have plenty of organic portfolio growth in front of you at your current portfolio level and adding $20K of your income per year into your investments will keep you well on your journey. If you want more risk, eat some of those leftovers in the back corner of your fridge. :mrgreen:

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Unbrokenspark
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Re: Is 25 too young for paid off house?!

Post by Unbrokenspark » Sat Aug 01, 2020 12:22 pm

Swivelguy wrote:
Sat Aug 01, 2020 11:14 am
Unbrokenspark wrote:
Sat Aug 01, 2020 9:36 am
I wouldnt take on a loan to invest
So what you're saying is that you hypothetically would not carry debt in order to possess investments.
i would dely on paying down low interest debt to invest
So what you're saying is that you hypothetically would carry debt in order to possess investments.

I hope you realize the contradiction here. What you've expressed is not an opinion on handling debt and investments, but rather an opinion against change. And that's fine. You have the freedom to make your own choices. You should just be aware of what choice you're actually making and why, in order to be a logical actor.
Trust me I do see it, that’s just how I’m looking at this scenario.

Topic Author
Unbrokenspark
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Re: Is 25 too young for paid off house?!

Post by Unbrokenspark » Sat Aug 01, 2020 12:26 pm

CyclingDuo wrote:
Sat Aug 01, 2020 11:26 am
Unbrokenspark wrote:
Sat Aug 01, 2020 9:45 am
Woah great analogy! I like everyones feedback ill prolly re read this post like 20 times. It seems like you have people on both sides and neither one is right or wrong. the math works out to mortgage up and invest but the gains is not garunteed only the debt would be.. :twisted:
"Not guaranteed!"

That's the key component.

Ask those of us who have been through real bear markets that have lasted years. Or ask those that have been on margin or leverage when the market heads south and stays south for a good bit of time. What would you do, or how would you react if you did take out a mortgage and put the extra $50K in the market if and when your investments were down 30-50% for more than a year - maybe even several years? What if you lost your job due to a layoff in a recession as a result on top of that? Those mortgage payments would still be due month in and month out. The mortgage company could care less that your stock are down. They want your payment.

Human behavior is an interesting thing in such scenarios (usually very predictable) and being underwater on a loan that you have used to invest (if you do it at a brokerage house, it's called investing on margin by borrowing money from the broker to invest more than you have - at much higher interest rates, of course). It all goes well if and when a market is moving higher, but those years - or sometimes protracted periods of more than one year - when it goes down and stays down are just as telling. Fear and greed. It gets investors who reach for more in both directions. Most of us would be able to guarantee you at least that. :twisted:

Recency bias of the market move from 2009 to current is not what I would be basing any decision on using leverage to invest more than you already are investing. It all sounds good when things are going your way and a bull market is raging, but I don't see it as a risk you need to take on to be successful with your upcoming wealth accumulation. You are in an excellent position as it is and have no reason to push the envelope by using leverage. You have plenty of organic portfolio growth in front of you at your current portfolio level and adding $20K of your income per year into your investments will keep you well on your journey. If you want more risk, eat some of those leftovers in the back corner of your fridge. :mrgreen:

CyclingDuo
I agree I don’t need to take on the risk and I will accumulate wealth regardless if I do this or not. I have never seen a bear market besides the one recently this year I think it was bear briefly but I’ve been investing since 2014 so I have not had that experience where a market is down for years..that’s why I like to hear what the old timers here have to say.

Thanks for your many responses on here!

randomguy
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Re: Is 25 too young for paid off house?!

Post by randomguy » Sat Aug 01, 2020 1:34 pm

Swivelguy wrote:
Sat Aug 01, 2020 11:14 am
Unbrokenspark wrote:
Sat Aug 01, 2020 9:36 am
I wouldnt take on a loan to invest
So what you're saying is that you hypothetically would not carry debt in order to possess investments.
i would dely on paying down low interest debt to invest
So what you're saying is that you hypothetically would carry debt in order to possess investments.

I hope you realize the contradiction here. What you've expressed is not an opinion on handling debt and investments, but rather an opinion against change. And that's fine. You have the freedom to make your own choices. You should just be aware of what choice you're actually making and why, in order to be a logical actor.
They are slightly different
a) I take out a loan for 50k. I either have to lump sum it in the market or I have DCA into the market over time and pay the opportunity cost of holding cash

b) I am picking if I want to put my 300 towards a loan or into an investment fund. If I invest, I am DCAing in either way.

A leaves you somewhat vulnerable to bad timing (i.e. take out your loan in October 1929) that DCAing somewhat avoids.

For a lot of people a mortgage loan matches up with their risk needs nicely. They leverage up in their 20s-30s when time is on their side and they should be piling on the risk and deleverage up in their 50s and 60s when it is time to be conservative.

And yes if I could get a 30 year, nonCallable, nonrecourse loan at around 3% I would definitely be considering it. You can't. There is a big difference between margin loans and mortgage loans in the real world.

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