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Message
re: Pay Off Debt v Invest
Posted on 12/1/22 at 2:35 pm to REB BEER
Posted on 12/1/22 at 2:35 pm to REB BEER
quote:
Good God Eugene, if what you are predicting happens. Having a paid off house or extra money on hand will be the least of your concerns. You're talking about a near collapse of entire economy.
Without getting political at all, I offer these two statements about Eugene's post.
1- That scenario has happened in the past. Many times.
2- People living in societies undergoing that scenario have weathered the scenario.
Roman collapsed, but Romans persevered. Not necessarily as "Romans" but you get my point. People survive these things. They aren't necessarily pretty or fun, but doable.
ETA: meant to add, that the paid off house in that scenario would be a huge positive.
This post was edited on 12/1/22 at 2:37 pm
1
Posted on 12/1/22 at 2:36 pm to REB BEER
That right, I am.
Which is why my investment philosophy is centered on physical commodities like household consumables. Yes, I'm a prepper and have a fair bit of preps already laid in, but it always takes more than you think.
And if I'm wrong, they're things we'd use anyway.
Which is why my investment philosophy is centered on physical commodities like household consumables. Yes, I'm a prepper and have a fair bit of preps already laid in, but it always takes more than you think.
And if I'm wrong, they're things we'd use anyway.
This post was edited on 12/1/22 at 2:39 pm
Posted on 12/1/22 at 3:15 pm to Eugene Fullstack
So what are you going to do with the cash? What kind of physical commodities are you suggesting?
Posted on 12/1/22 at 3:22 pm to Meauxjeaux
quote:
ETA: meant to add, that the paid off house in that scenario would be a huge positive.
Not sure what good a piece of paper will do when society is in anarchy. If we are not in anarchy and have experienced true hyperinflation then a fixed rate mortgage may be the best inflation hedge. Imagine your monthly mortgage note being less than your hourly wage.
Posted on 12/1/22 at 3:31 pm to Eugene Fullstack
quote:
I'm a prepper
I'm a semi-prepper. I have enough to get by for a while, but also have lots of guns and ammunition to go take what I need later if things ever do truly hit the fan.
Posted on 12/1/22 at 4:50 pm to PerceivedReality
quote:
Student loan is a must to pay off.
Yes, but the forgiveness is still going to be revisited when the government decides to go to work next year.
Posted on 12/1/22 at 5:24 pm to DRock88
No brainer according to Dave Ramsey. Always pay off your debts first. Always.
Posted on 12/1/22 at 7:57 pm to Enadious
I don't know that I completely agree with Dave Ramsey. I think paying off all debt has its benefits, but capitalizing on low interest rates, keeping cash in your pocket, and investing better than the interest you're paying also has its benefits.
I look at interest payments as a penalty for not having the cash on hand, but earned interest as the reward for having the cash on hand. If your reward is greater than the penalty, well, it's worth mulling over at the very least. At present, the penalty for a student loan is literally 0, the balance is a fixed amount, and at least a portion of it may be forgiven - if Dave suggests that he'd pay that off, he's lying.
The best case is probably somewhere in the middle - minimize debt, capitalize on interest earned greater than interest payments, find peace of mind, think long term and short term, etc.
Thanks for the continued dialogue on the topic.
I look at interest payments as a penalty for not having the cash on hand, but earned interest as the reward for having the cash on hand. If your reward is greater than the penalty, well, it's worth mulling over at the very least. At present, the penalty for a student loan is literally 0, the balance is a fixed amount, and at least a portion of it may be forgiven - if Dave suggests that he'd pay that off, he's lying.
The best case is probably somewhere in the middle - minimize debt, capitalize on interest earned greater than interest payments, find peace of mind, think long term and short term, etc.
Thanks for the continued dialogue on the topic.
Posted on 12/1/22 at 8:56 pm to DRock88
Debt free
I am not one of them.
Payoff student loan
The investment requires more info like your objectives, time horizon, risk tolerance, etc.
Lacking that info, assuming you are 10 yrs or more away from needing that money for anything (eg, college costs, retirement, medical expenses), my personal approach (not a financial advisor!) would be 70% in stocks index mutual fund or ETF (ex, VASGX), 15% bond index mutual fund and 15% in money market.
Enjoy the positive spread over the low cost remaining debt and the optionality to payoff this remaining debt at any time.
Or, if peace of mind is of very high value to you, forego the positive spread and debt payoff optionality and payoff all debt.
But make sure you price the peace of mind (ie, the opportunity cost / present value of future positive spread (and optionality if you want to get fancy)) before you go that route.
Depending on your time horizon and risk tolerance, peace of mind might be terribly expensive.
quote:
Some people would say that’s worth way more than the lost opportunity cost on investing the rest.
I am not one of them.
Payoff student loan
The investment requires more info like your objectives, time horizon, risk tolerance, etc.
Lacking that info, assuming you are 10 yrs or more away from needing that money for anything (eg, college costs, retirement, medical expenses), my personal approach (not a financial advisor!) would be 70% in stocks index mutual fund or ETF (ex, VASGX), 15% bond index mutual fund and 15% in money market.
Enjoy the positive spread over the low cost remaining debt and the optionality to payoff this remaining debt at any time.
Or, if peace of mind is of very high value to you, forego the positive spread and debt payoff optionality and payoff all debt.
But make sure you price the peace of mind (ie, the opportunity cost / present value of future positive spread (and optionality if you want to get fancy)) before you go that route.
Depending on your time horizon and risk tolerance, peace of mind might be terribly expensive.
Posted on 12/1/22 at 10:02 pm to DRock88
Pay off all debt first. Nothing hanging over your head. You own all your stuff. Any money you make after that you can invest. You'll probably sleep better too.
Posted on 12/2/22 at 9:57 pm to Intelligent
How well would you sleep if...
This cost you $1 million of investment opportunity cost.
REM sleep is f'n expensive.
quote:
Pay off all debt first. Nothing hanging over your head. You own all your stuff.
This cost you $1 million of investment opportunity cost.
REM sleep is f'n expensive.
Posted on 12/5/22 at 2:55 pm to DRock88
quote:
You have $200,000 in hand.
$150,000 left of mortgage at 2.5% interest.
$15,000 left on vehicle at 1.9% interest.
$35,000 left on student loan at 7% interest.
Do you pay any or all of the debt off? If not, where do you put the cash you have in hand?
Paying off the student debt would be paramount. 7% interest? F a bunch of that.
From there I would pay off the mortgage. I'm fairly risk-averse, so I would want as much debt off the books as possible. The monthly 1.9% car note would be more than covered by the income saved on the house note and student loan, meaning I would be free to do with the rest of the extra income as I wish.
Posted on 12/7/22 at 11:25 am to DRock88
Right now I’d dismiss all stats. The market has been flooded with so many counterfeit shares I don’t even know why anyone is still buying stock. I’d pay the debt and never look back
Posted on 12/7/22 at 12:30 pm to Bard
quote:
From there I would pay off the mortgage. I'm fairly risk-averse, so I would want as much debt off the books as possible. The monthly 1.9% car note would be more than covered by the income saved on the house note and student loan, meaning I would be free to do with the rest of the extra income as I wish.
This is the logical approach, but I would pay off the student & car loans and keep the mortgage. I'd then figure out when I want to have the mortgage paid off and apply some of the cash flow savings to the mortgage to knock it out quicker.
It's strange, but having a car note annoys me (currently have 2, down to 1 in 4 months), but I don't think twice about my mortgage.
Posted on 12/7/22 at 12:51 pm to DRock88
If you are unsure I would pay off the student loan and invest in 1 Yr T's @ 4.7%, state tax free (beyond that CDs start looking more attractive due to current yield gap), and figure it out before the bonds mature. I owe ~ $250k on an ARM @ 1.625% for 71 more months and invested multiple 6's in PDO and VWEAX in a Roth as I am not sure if we will be living here long term. PDO was yielding just under 12% due to discount to NAV when it was trading in the low 13's and VWEAX is still yielding just over 7%. Sooner than later I can draw on the Roth if I want with no tax consequence. People down voted me regarding PDO (which is currently trading at $15.26) but they have zero idea what the rest of my investments are, including over 60% equity allocation.
Posted on 12/7/22 at 1:25 pm to Weekend Warrior79
quote:
This is the logical approach, but I would pay off the student & car loans and keep the mortgage. I'd then figure out when I want to have the mortgage paid off and apply some of the cash flow savings to the mortgage to knock it out quicker.
It's strange, but having a car note annoys me (currently have 2, down to 1 in 4 months), but I don't think twice about my mortgage.
i am admittedly bad at math, but putting the money that he'd use to pay of the house and car note into a high-yield checking or savings would yield interest that could cover his monthly car note.
Posted on 12/7/22 at 1:55 pm to REB BEER
quote:
I'm a semi-prepper. I have enough to get by for a while, but also have lots of guns and ammunition to go take what I need later if things ever do truly hit the fan.
Odds are the people who were prepared enough to have what you need are going to have lots of guns and ammo as well
Posted on 12/7/22 at 2:45 pm to DRock88
I like the debt free idea. Hell stick it in Capital one savings account drawing 3% intrest and make $500/month until you decide.
Posted on 12/7/22 at 4:17 pm to jchamil
quote:
Odds are the people who were prepared enough to have what you need are going to have lots of guns and ammo as well
Yes but they’ll be sewing dresses together made of flour sacks while people like us will be putting on indian war paint and making tomahawks from scrap metal
Posted on 12/7/22 at 7:11 pm to Jag_Warrior
CDs are a sucker bet compared to tbills purchased directly from the treasury through treasury direct.
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