No point in paying a 0% loan off early.
But if you're even paying 0.9%... paying that off early will benefit, depending on the opportunity costs of using that money elsewhere.
S&P 500 closes at a fresh record, Nasdaq jumps nearly 3%
- Thread starter dgordo
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No point in paying a 0% loan off early.
But if you're even paying 0.9%... paying that off early will benefit, depending on the opportunity costs of using that money elsewhere.
To expand on that, let's say you have enough cash to purchase a car outright, but they're offering 2.9% financing. You could take the financing deal and put that money you would have spent into a higher-interest CD (some are paying up to 5.5 percent now days). So, you'd be almost doubling your money at the end of this adventure by leveraging debt and cash appropriately.
Mine said the same thing, and he is also Governor Ron's adviser. I just bought 100 pairs of Trump shoes (sold some of my stocks to pay for them). Can't wait for them to get here. I recommend everyone do the same.
Well, there’s that, and then there is not paying off early a 2.75% home loan when most of the amortized interest has been paid, and you can put the money in a dividend fund, or a CD, if you like.
Let’s be real the difference in net worth is negligible.Yes if you have a low low interest rate on your mortgage you may make a 1 or 2% difference at best on that small investment.
That is not true, long term. All I am saying is that your example was extreme, and many people like me could pay off their mortgage early if they wanted to, but long term, they are money WAY ahead keeping the money in the market, especially when there are loans with very little interest to pay.
Most people don’t have a 3-4% interest rate on their mortgage and can invest it in a risk free rate higher than that. The money ahead is negligible. It could make up the difference by 1 less coffee a week. Also most of these individuals don’t invest it all the time. They make the statement then spend it elsewhere.
Many people have an interest rate less than 4%. Rates were very low for a long time. And I didn’t say risk free, and I wasn’t talking short term. Let’s say you have $100k left to pay over 10 years at 3%. I’m flying a little blind without excel in front of me, if over 10 years the market average return is 10%, you will have twice as many dollars in your account by not paying it off early, taking compounding into account.
I refinanced a couple years ago at 2.5%. I plan on keeping that into retirement until I downsize then use the equity to pay cash. I am paying less per month on a $300K+ mortgage than I could renting a house half this size.
Having no debt also has a value not measured in dollars though, so it's really up to the individual.
Having no debt also has a value not measured in dollars though, so it's really up to the individual.
3.85% on the mortgage and two more years to pay it off. Meanwhile, the 401k is up over 20% over the past year. I am looking at tempering my “aggression” somewhat, however.
I may be wrong but the initial discussion is you shouldn't pay off debt you should put it in cd's, hence the risk free rate. 2ndly Past performance is not a guarantee of future performance. I do not expect the market to average 10% in the next decade or two. For you to throw out a 10% number is no guarantee. I am seeing lots of interest rates in the 6,7, 8 and 9% range for operating notes, car loans, new home loans and equipment loans.
In theory yes it makes sense. However once you put it into action for the majority of individuals it never works and they are worse off than just paying off the debt. They pull it out to buy something else. They have medical bills. they get nervous during a big downturn and pull their money.
I would prefer they put extra money to pay off house early and invest. Then take all that money once the house is paid off and invest some more.
Just to follow up now that I have my computer, let's say you have 15-year mortgage at 3%, principal of $200K, and you just completed your fifth year. At the beginning of year 6, you have $22.7K in interest left to pay over the course of the next ten years, and $143K in principal. If you did not liquidate $143K in investments to be yeah-ring-the-bell-I'm-debt-free, assuming an average return of 10% and a 30% tax rate, you would have $281.3K. Taking out the $22.7K in interest you had to pay, you would have $258.6K more in your coffers than paying it off early. That is a hell of a lot of cups of coffee, and a pretty stiff price to pay for the peace of mind of not having mortgage.
Using slightly different numbers, now let's say your returns were qualified dividends taxed at 20%, with a return of only 8%, and you had them reinvesting for the 10 years. You would still end up with $265.9K, and $220.5K more in your coffers than paying it off early.
For one last set of numbers, same facts as the second example, but it is a 30-year mortgage. You would owe $75K in interest over the course of the next 25 years. Running out the $143K for 25 years, with qualified dividends taxed at 20%, with a return of only 8%, you would have $674.3K, which would be about a $600K difference.
Well, the initial concept was Trad's, not mine, and it is possible I am more sophisticated than Trad, and I did suggest a dividend fund. I am not suggesting voodoo or leveraging yourself for the sole purpose of putting money into the market on short term plays. What I am suggesting is exactly what I have done harnessing the power of compounding, and I have a lot more money because of it. And yes, while the markets go up and down, with the long view, you will be money ahead. As far as what average returns are, this is what Google/ Nerdwallet says at https://www.nerdwallet.com/article/investing/average-stock-market-return
| Period (start-of-year to end-of-2023) | Average annual S&P 500 return |
|---|---|
| 10 years (2014-2023) | 11.02% |
| 15 years (2009-2023) | 12.63% |
| 20 years (2004-2023) | 9.00% |
| 25 years (1999-2023) | 7.18% |
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I have only dabbled in options once ( did well) decades ago so totally dumb on this type of investing in this era.
Curious: what was the cost of those 699$ call options?
Nvidia up another 29 today at 813...wow you are going to have a fun weekend in Cabo!
The 5 years is 13.27%. That is over exaggerating the overall returns. I could argue a decent chunk is due to the Trump tax cuts that will have to be rolled back in some function, and taxes likely increased from prior levels. In a higher debt, higher interest rate, higher tax environment, we will not see the same returns. We are valuing the stock market current at 184% of GDP. There is a lot of room for compression in the stock market if things tighten up and cd and bonds returns remain high.
It is true that there are lies, damned lies, and statistics, so that is why I included the different horizons. Let's take the 25 year return of 7.18%, and assume the gains are qualified dividends and a tax rate of 20% on them. The numbers are $577.7K and $502.7K, based on the exercise above. With all of that being said, could the market collapse over for the entirety of next 25 years? Sure. Has it ever happened before? No. What is it worth to someone to say they own their home outright? That is an individual thing. Me personally, I could not care less about it. It's not like I don't still have to pay the government and insurance company to live there, on top of gas, electric, garbage, home maintenance costs, and home repair costs. What's one more payee, if my bottom line is massively better off?
so, I actually creeped up my stop loss and sold it when NVDA was at 810 … AND for good measure I bought a much lower cost PUT at the same time and sold that when it went down to 780. $35k in two days, from a $7.5k start
I struggle with options as the primary investment. As a covered call I do great. In most cases that 7.5 goes to 0. You have to hit the timing absolutely correct. With huge premiums that’s tough.
The market sets up similarly to a 70’s and 80’s environment. My stance is most don’t have the fortitude to keep their money invested for a variety of reasons. you are also assuming individuals stay in the same house and never leave And have to get a higher interest rest. Yes your philosophy adds a tad more upside but also increases risk. As I said before an individual should do both.
The timing was incredible by me.
But I use stop limits to buy and sell options with a large range. Say price is 7.5… for a buy, I’ll put the in a SL strike of like 8.25 and use 10 as the max. So if the price goes down, it won’t get executed. If I buy it, I will immediately put another buy order in with like a strike of 9.5 - 11.
Also put a SL as a floor, usually about 50%, to start. As I experience a large gain, I will move the SL price floor up and trail it.
Willing to lose 50% of what I start with is my motto. I don’t do it very often, a few times a year. But I feel my strategy to get in and out works pretty well for me anyway
I thought the hypothetical was premised upon someone already having a low interest rate note, and weighing whether to pay it off or invest the money elsewhere. If one moves early and has a new note at a higher rate, that is obviously a different hypothetical.
In investing you have to find what works well for you. That means for most having someone else do it or just invest in the S&P500.
Yep...if you want to somewhat minimize risk and looking at 40 year results...S&P is the route to go.
I am aggressive but do very well. I have outperformed the S&P every year going on 7 years, Just barely in 2022. However as an accountant it is just ugly entering in capital gains and investments returns. I only have a handful who have done really well. Otherwise lots and lots of losses, and most of those are from investment advisors (oof). A portion of my investments will go to the S&P500. I plan to put in 300% of my initial investment in the S&P500 in both my accounts so should never go in the hole. Also planning to invest in small bank that pays a dividend - basically a significantly discounted bond fund. Beyond that, let the returns come to me and not chase trends or follow Fomo even though I may want to. I very well may get run out of my MSTR that I sold 750 calls on . . . let me check yeah its at $1680. Even if I hadn't sold calls there, I would have sold calls since then or sold out completely. You can't regret the moves you make, and be happy with the returns. Good Luck.
👍 it’s crazy sometimes. I might have been better off or at least in the same position if I was just blindly investing in the S&P 500. I am a dumbass who thinks I can beat the market. The Fed disappointed me. I don’t expect 3 cuts if they truly want to control inflation. Went short S&P futures at 5310 and will short more if it keeps going up.
I take offense to you calling me a conservative. I don’t like to be labeled, but if you insist, I am much more a Libertarian.I've been shorting this board's conservatives and it's been very profitable.
The stock market is overvalued
I know there has been recent good news on earnings and GDP and etcetra, but the S&P 500 in my opinion is way overvalued. The Fed has indicated more rate increases are in order. The effect of past increases is delayed. I see a recession happening in the next 6 months. The market has had its...iowa.forums.rivals.com
