Anonymous wrote:

Anonymous wrote:We paid off our mortgage 5 years into a 15 year @ 3.25%. Best thing we ever did. Kept the same insurance. covers the same as when first purchased.

It's good to know that it's possible to keep your insurance.

You've been under the impression that everyone who owns his home outright lacks homeowner's insurance?

The core of bogleheads philosophy is very simple--

1). costs matter-- very few if any people will beat the market over the long run and even if someone does it's impossible to know in advance who that will be, so the thing to do is to try to get market returns at the lowest possible cost

2) you want to diversify, but you can get all the diversity you need from three funds-- total stock market index, total bond market index and total international stock index.

3) the allocation you make to those three funds will vary according to your age and personal view on what sort of risks are acceptable, but you might want anywhere from 50-80% in stocks (with maybe 1/5 - 2/5 of that in int'l stocks) and the rest in bonds.

the easiest way to get a sense of what you might do is take the quiz on the Vanguard website (and do it more than once to see how answers might change things).

Yes, just go with a Vanguard Index Fund, or that Wellington, or one of their target date funds. Read Bogleheads if it'll make you feel better, but basically the theory is that index funds can match or even outperform the market, especially over time, and mean that you don't have to feel like you need to be a trader. After all, they are the sort of funds that a lot of people have in their 401ks.

I'm about to come into some money (inheritance), a similar amount to yours, and almost all of it will be going right into index funds, except for a small amount to pay off our Home Equity LOC, which has a higher, variable interest rate. No way we're going to pay off our sub-4% mortgage early.

Why not do both? Aggressively pay down the mortgage with some of the money and invest the rest in a target date fund or Vanguard Total Stock Market.

Do it over a year or two. Divide the cash by 24 and put half the monthly amount toward principal and half into a Vanguard brokerage account.

In two years you will have taken a chunk out of your mortgage without losing the deduction and you'll have six figures invested.

If it will make you the most comfortable, pay off the mortgage. It is better than having the money sitting in an account that is not earning any interest. There is a lot to be said for being debt-free. It gives you a lot of flexibility if one of you needs to leave your job for some reason in the future.

After that you will still be saving money and at some point you will need to think about investments. There is always a risk with investments (they can go down as well as up) and that needs to be a risk you are comfortable taking. You have to think long-term if you are thinking about investing. If you are going to panic every time the market moves you should not be in it. I personally don't have time to research individual stocks and investments. I've done well in the Vanguard Wellington Fund (about 70 percent stocks, 30 percent bonds) but Vanguard, Fidelity, etc. have other balanced funds as well where you can put your money and forget about it for a while. I know that I would never rebalance among stocks and bonds myself so a balanced fund works for me. Just make sure that whatever fund you choose has a low expense ratio. The returns should be going to you; not to the people running the funds.

Anonymous wrote:

Anonymous wrote:No, you should not pay down the mortgage. There are two key things for you to understand:

1. You're not just leaving a little bit of money on the table by not investing it. You are leaving huge sums. The compound returns on the investment over years are massive. I understand the idea of wanting to feel secure, but you're not paying a few hundred or a few thousand dollars for that security. You are paying hundreds of thousands or millions of dollars for that security.

2. There is no risk-free way to store your money. If you do not invest your money, you WILL lose most of it to inflation and other factors. You need to stop thinking about investment as taking on risk and not investing as playing it safe. You are exposing yourself to risk either way. Just face that reality and work to build your wealth.

A financial advisor should help you understand both of these concepts.

The market can go down as well as up.

OP and her husband are in their mid-30s. The chances of the market going down overall between now and when they need to retire are as unprecedented as to be nil. It is far more likely that they will lose their principal to inflation if they don't start making their money work for them.

^^^

OP never mentioned the mortgage interest deduction as an incentive to not pay off her mortgage, but thanks for the party line.

Anonymous wrote:Not having a mortgage gave me an indefinite amount of mental security. I realize it isn't the smartest way to maximize your money but it was something I really wanted to achieve and it was also the last "to do" before my wife became a SAHM. Having the mortgage out of the way eased that transition.

We did this. We are debt free. Doesn't matter if Uncle SAM gives you a break…there is a definite mental mind shift that comes when you are debt free. So I agree with PP, except I DO look at it as the smartest way to maximize your money. Because what's money for, if not to free you up? Mentally as well as physically.

BTW Dave Ramsey gives a financial argument that it is actually smarter to do this and he deconstructs the myth of the mortgage interest deduction as being better for you. Here's his take below:

"It is wise to keep my home mortgage to get the tax deduction."
Wrong! If you've listened to me for any amount of time, you know I strongly encourage people to pay off their mortgage so they have their entire income to use for wealth building. (This is, of course, after you've paid off all your other debts, have an emergency fund, and started investing for retirement and your children's college funds.) But when I talk about paying off the mortgage, I almost always hear from someone touting the tax deduction.

Let's do the math. If you have a home with a payment of $900, and the interest portion is $830 per month, you have paid around $10,000 in interest that year, which creates a tax deduction. If, instead, you have a debt-free home, you would in fact lose the tax deduction, so the myth says keep your home mortgaged because of tax advantages.

If you don't have a $10,000 tax deduction and you're in a 30% tax bracket, you will have to pay $3,000 in taxes on that $10,000. According to the math, we should send $10,000 in interest to the bank so we don't have to send $3,000 in taxes to the IRS. Personally, I think I will live debt-free and not make a $10,000 trade for $3,000.

Anonymous wrote:No, you should not pay down the mortgage. There are two key things for you to understand:

1. You're not just leaving a little bit of money on the table by not investing it. You are leaving huge sums. The compound returns on the investment over years are massive. I understand the idea of wanting to feel secure, but you're not paying a few hundred or a few thousand dollars for that security. You are paying hundreds of thousands or millions of dollars for that security.

2. There is no risk-free way to store your money. If you do not invest your money, you WILL lose most of it to inflation and other factors. You need to stop thinking about investment as taking on risk and not investing as playing it safe. You are exposing yourself to risk either way. Just face that reality and work to build your wealth.

A financial advisor should help you understand both of these concepts.

The market can go down as well as up.

Question: If you do pay off your mortgage, what will you do with the part of your income that you currently spend on your mortgage? Just let it build up in a savings account again?

Paying off your mortgage isn't bad. But it seems to me that you have a bigger problem of what do with your money. I think you need to look at the big picture and figure out what you want to do with your money. Bogleheads.com is a great place to start learning about smart options.

Don't put your money in anything you don't understand.

I would not use an adviser. I would just spend a couple of hours on the bogleheads website.

I spend no more than 10 minutes a month managing my investments, plus a couple of hours when I do my taxes.

It really isn't that hard, just be conservative, and don't trust anything that looks too good to be true.

I am sure I will get people who strongly disagree, but the answer to how do you learn is. . . you don't.

There's actually a fair amount of research on financial literacy, and not much of it supports that knowing more significantly improves your outcomes.

If you're feeling like you'd need to read an infinite amount of material to learn how to beat the markets that's because you would. You'd need to have perfect knowledge to do it, so you shouldn't try.

Instead, you should be focused on investments that don't require either you or the investment manager to outsmart other people. You want funds that are diversified and have low fees. That's about it. It is a fairly simple strategy and its easy to research.

I do think you should talk to a financial adviser, which will require you to overcome some trust issues. But consider these two things:

1. Your financial situation is really pretty simple. The core bits of advice an advisor should be giving you should be pretty much the same across a group of people. And if you want to be sure of that fact, talk to more than one person.

2. I feel like you'll have trouble shelling out money to an advisor, and that's ok because I think a free advisor would be ok for you to get started with. There are decent free advisors for various financial institutions who will all give you the same essential advice.

Of course, point #2 gets back to your trust issues. Before you spend your money the way your free advisor tells you to, you'll want to make sure their advise isn't biased. But often, its pretty easy to find out what makes them the most money and be skeptical of those reccomendations. (I have an advisor I like through Northwestern Mutual but I kind of tone him out when he starts pushing Northwestern Mutual life insurance options). And anyhow, it is a lot more discrete of a research task for you to educate yourself about what your financial advisor's angle is than for you to educate yourself until you're a savy investor, isn't it?

OP here.

Thanks for the information everyone.

I guess part of the reason why we haven't invested is because we don't feel like we have time to really learn the stuff well, and we don't feel comfortable just trusting an advisor.

We are busy working, with young kids not even in elem yet. we use a cleaning person once in 6 weeks, and do the rest ourselves. we shop at asian farmers markets. we do our own yardwork, drive priuses. try our best to keep our home maintained ourselves. We bought a small home in 2008 in a good area (but still big enough for us), in a good school district, and don't intend to move until we have to (which we prob won't have to because spouse is a fed). We like the neighborhood and the community.

All of this to say is that we are kinda frugal do-it-yourself people...i just don't think we can trust an adviser.

It seems like to invest intelligently - you have to read massive amounts - forbes, motley fool, bogleheads, and we seem to be seriously strapped for time.

if you do it on your own, how much reading did you do? how much time do you spend, monthly, on your investments/strategy?

Honestly, every time we think about it we just get overwhelmed. But I get that it makes more sense to invest than pay down our mortgage.

don't put all of it into the mortgage, but don't invest in anything you aren't comfortable with
how did you choose your 529 plans? maybe you could use the same firms as the ones administering the 529s? vanguard, tiaa?