Support NeoGAF

[Simplet]

I have a bit of a tricky question

I have a little bit of money saved up (like 15k), and will probably continue to make a little bit of money, but the problem is that this money is and will be in ren men bis, in China...

I don't really want to change back my money to euros (I'm french), because I might go back to China and live there for a while, and also the exchange rate is not that great at the moment and and I don't want to pay bank fees.

I can't really invest in stocks in China, because it's difficult for foreigners to buy stock ("A shares") in chinese companies, and the chinese stock market is known for being a casino anyway. I guess I could wait for a while and invest in an appartment in second or third tier chinese city, but I'm not full of confidence in the Chinese real estate market either :/

I'm open to any and all suggestions!

 

[Natetan]

I have a bit of a tricky question

I have a little bit of money saved up (like 15k), and will probably continue to make a little bit of money, but the problem is that this money is and will be in ren men bis, in China...

I don't really want to change back my money to euros (I'm french), because I might go back to China and live there for a while, and also the exchange rate is not that great at the moment and and I don't want to pay bank fees.

I can't really invest in stocks in China, because it's difficult for foreigners to buys stock ("A shares") in chinese companies, and the chinese stock market is known for being a casino anyway. I guess I could wait for a while and invest in an appartment in second or third tier chinese city, but I'm not full of confidence in the Chinese real estate market either :/

I'm open to any and all suggestions!

I worried so much about the exchange rate before too, and one of my friends said who cares about the exchange rate. I thought he was crazy. I was wrong.

With the amount my stocks and investments have increased I was really stupid to care about the exchange rate. I saved my 20% by sending it home while of I had been sending my money home earlier toninvest I would have probably doubled my money by now.

Granted o don't know what your investment strategy is but I'm kicking myself now for worrying about the exchange rate. Get your money back tonfrance and get it growing for you!

 

[otake]

1) To the bold - no it's not. You will do worse in any given market with managed funds, over time. There are decades of data to back this up. I started out in stocks and active funds and did far worse across the years I was in them. Now I'm in 100% index funds and am doing better than had I stayed or tried to pick and choose "winning" funds. I would be retiring 4-5 years earlier had I spent my first decade of retirement investing in index funds instead of active. (I calculated it when I did the cut over.)

I don't care about the next market crash. It will revert to the mean - both on the upside and the downside. And that long term growth is what I care about, not the next crash. I want the market.

Past performance is no indication of future performance. Diversifying is always a good strategy.

 

[PflargBlarg]

Past performance is no indication of future performance. Diversifying is always a good strategy.

"Diversifying" among fund management styles is not what would traditionally be considered diversification. I really don't think these maxims apply in this case.

 

[Cyan]

Past performance is no indication of future performance. Diversifying is always a good strategy.

That's not really what that phrase means. There are no guarantees, but over the long-term we expect stocks to outperform bonds, we expect well-managed mutual funds to outperform poorly-managed mutual funds, and we expect index funds to outperform actively managed mutual funds.

Diversifying is not always a good strategy. There's not much point to it when what you're adding is very highly correlated with what you already hold, has a slightly worse expected performance, and has similar risk.

 

[GhaleonEB]

Past performance is no indication of future performance. Diversifying is always a good strategy.

I agree, that's why I own the entire US stock market.

I do not agree that diversifying to own a mix of high cost, erratically performing but generally losing (relative to the market) funds along with a mix of low cost funds that represent the market is a smart way to diversify.

 

[Randolph Freelander]

My thinking is that there are markets where active managers tend to beat indices, and vice versa. Because I can't predict when the market will change, I've decided to diversify so I'm not only holding index funds. I do have a feeling we'll start seeing a lot more volatility soon, and that is when we'll start to see managers begin beating indices more consistently again.

Past performance is no indication of future performance. Diversifying is always a good strategy.

Study: Do (active) mutual funds outperform during recessions?

Spoiler alert: no.

 

[Natetan]

Amazon closed over $1000 today. Let's get to $2000!

 

[GhaleonEB]

Study: Do (active) mutual funds outperform during recessions?

Spoiler alert: no.

An interesting finding was that fund tracking error increased during recessions, indicating that fund managers became more active during such periods. Yet, there was no evidence that the extra activity was productive. In fact, the authors found that during times of economic downturn, funds with high tracking error unperformed funds with low tracking error — another indication that the additional activity was indeed unproductive.

This is basically a double argument against actively managed funds. As a class, they under-perform. And they are susceptible to the same mistakes amateurs make when markets turn down, and actively make things worse - during the period when they purport to add the most value.

 

[tokkun]

That's not really what that phrase means. There are no guarantees, but over the long-term we expect stocks to outperform bonds, we expect well-managed mutual funds to outperform poorly-managed mutual funds, and we expect index funds to outperform actively managed mutual funds.

Diversifying is not always a good strategy. There's not much point to it when what you're adding is very highly correlated with what you already hold, has a slightly worse expected performance, and has similar risk.

Right. I have noticed people often try to apply that aphorism without really thinking it through. If past performance was really no indication of future results, then there is no point in investing. If you ignore historical evidence, what basis is there to think the market will do better than cash?

But there is wisdom in the idea that you need to be careful about interpreting historical data to project future returns. For the most part, markets do seem to behave efficiently, given time. We live in a time when investment banks think it is worthwhile to tunnel through a mountain in order to lay fiber optic cable with a latency that is a few milliseconds lower than what already exists, because there is that much profit in high-frequency trading. The lesson you should take from that is that if you expect a certain type of investment to outperform for long periods of time, there must be some fundamental reason why other investors are not piling on board, to the point that the returns equalize. In the case of stocks vs bonds, the fundamental reason is that stocks have higher risk and volatility. For bonds vs cash, it's liquidity. For passive cap-weighted index funds vs active funds, it's management overhead.

If you cannot articulate a fundamental reason why one asset should outperform another, beware.

 

[BreezyLimbo]

Should I open a Roth IRA?

 

[tokkun]

Should I open a Roth IRA?

It's hard to lose opening a Roth IRA. In retrospect, I wish I had done so even back when I was a poor college student.

If you keep the money in, you get the advantage of tax-free growth for the rest of your life. If it turns out that you need the money early, you can withdraw the principal without penalty. The only cost is having to fill out a form at tax time.

On the other hand, if you don't open one now, you will never get the chance to go back and make up the contributions you missed.

 

[BreezyLimbo]

It's hard to lose opening a Roth IRA. In retrospect, I wish I had done so even back when I was a poor college student.

If you keep the money in, you get the advantage of tax-free growth for the rest of your life. If it turns out that you need the money early, you can withdraw the principal without penalty. The only cost is having to fill out a form at tax time.

On the other hand, if you don't open one now, you will never get the chance to go back and make up the contributions you missed.

Hmm. I think i will open up. Before I go to a shady site, can I open it online or do I have to go to say, my bank?

 

[GTI Guy]

A friend of mine said I should talk to someone at Edward Jones. Good idea or are they going to rip me off?

 

[elrechazado]

A friend of mine said I should talk to someone at Edward Jones. Good idea or are they going to rip me off?

If you like paying fees, go talk to them.

 

[Piecake]

A friend of mine said I should talk to someone at Edward Jones. Good idea or are they going to rip me off?

If you like paying fees, go talk to them.

I admittedly don't know much about Edward Jones, but everything that I have heard makes them appear to be one of the more fee excessive financial companies

 

[SecretMoblin]

When talking with someone at a financial institution in person, the first thing out of your mouth after pleasantries should be a request for their fee schedule. If they deflect or hesitate, they aren't worth dealing with. Any of the agreed-upon "good" companies will be absolutely up-front about what they're charging.

 

[Randolph Freelander]

Hmm. I think i will open up. Before I go to a shady site, can I open it online or do I have to go to say, my bank?

You can open an account online. We often and near universally recommend Vanguard or Fidelity. If you want a total hands off investment solution, Vanguard's low cost target date funds are hard to beat.

If you would prefer to go through your bank and a connected brokerage, be sure to understand the fees, what they might be attempting to shove you into, etc.

 

[BreezyLimbo]

You can open an account online. We often and near universally recommend Vanguard or Fidelity. If you want a total hands off investment solution, Vanguard's low cost target date funds are hard to beat.

If you would prefer to go through your bank and a connected brokerage, be sure to understand the fees, what they might be attempting to shove you into, etc.

I see.

Vanguard, hands off investment? So if I wanted to say, invest in stocks in the future, Fidelity would be betteR?

 

[Randolph Freelander]

I see.

Vanguard, hands off investment? So if I wanted to say, invest in stocks in the future, Fidelity would be betteR?

If you're looking to invest in individual stocks -- which we wouldn't particularly recommend in this thread about retirement investing -- you can do that with either. If you're looking for stock funds, both offer good, low cost index funds that track the entire market. Vanguard is better at offering those same funds via ETFs, which you can trade for free if you use Vanguard. Fidelity offers free trades on certain iShares ETFs.

That's what gets me back to my statement, the big difference (as far as retirement investing goes) is that Vanguard offers better (lower cost) target date funds. So if you're looking for something virtually completely hands off, Vanguard is tough to beat. If you're looking to be somewhat more active in your own management, then Fidelity is going to be comparable.

 

[Natetan]

What's the best performing va guard etf? Although it's only been a short time, VTI is doing better than quite a few of my stock investments, and was thinking about diversifying those poorly performing stocks into other etfs that aren't VTI.

 

[BreezyLimbo]

If you're looking to invest in individual stocks -- which we wouldn't particularly recommend in this thread about retirement investing -- you can do that with either. If you're looking for stock funds, both offer good, low cost index funds that track the entire market. Vanguard is better at offering those same funds via ETFs, which you can trade for free if you use Vanguard. Fidelity offers free trades on certain iShares ETFs.

That's what gets me back to my statement, the big difference (as far as retirement investing goes) is that Vanguard offers better (lower cost) target date funds. So if you're looking for something virtually completely hands off, Vanguard is tough to beat. If you're looking to be somewhat more active in your own management, then Fidelity is going to be comparable.

Thanks. I'll take this into account on my research~!

 

[Randolph Freelander]

What's the best performing va guard etf? Although it's only been a short time, VTI is doing better than quite a few of my stock investments, and was thinking about diversifying those poorly performing stocks into other etfs that aren't VTI.

VTI is the entire domestic market, you're not going to get further diversified in US stocks than that. VXUS will give you international. BND will give you bonds, if you want them. There's your diversification strategy.

54% VTI, 36% VXUS, 10% BND will give you roughly what their target date 2055 fund is doing.

If you want to go beyond that and incur more risk while looking for greater rewards, (a) reduce or eliminate bond exposure and/or (b) tilt a little bit towards small and mid caps with VXF. Don't go nuts with this, these are already included in VTI. If it were me, I would do 5-10%, though some tilting strategy advocates would suggest as much as 25% of your domestic holdings could be in a small/mid tilt.

Anything other than that, I wouldn't feel comfortable recommending.

 

[Natetan]

VTI is the entire domestic market, you're not going to get further diversified in US stocks than that. VXUS will give you international. BND will give you bonds, if you want them. There's your diversification strategy.

54% VTI, 36% VXUS, 10% BND will give you roughly what their target date 2055 fund is doing.

If you want to go beyond that and incur more risk while looking for greater rewards, (a) reduce or eliminate bond exposure and/or (b) tilt a little bit towards small and mid caps with VXF. Don't go nuts with this, these are already included in VTI. If it were me, I would do 5-10%, though some tilting strategy advocates would suggest as much as 25% of your domestic holdings could be in a small/mid tilt.

Anything other than that, I wouldn't feel comfortable recommending.

Thanks,

I wasn't asking about diversification or risk, what specific vanguard etf has /can be expected to increase in value the most over, say, 5 years and 10 years? I had a hard time figuring that out even thumbing through all the descriptions

What is the vanguard emerging market etf ticker?

 

[SecretMoblin]

Thanks,

I wasn't asking about diversification or risk, what specific vanguard etf has /can be expected to increase in value the most over, say, 5 years and 10 years? I had a hard time figuring that out even thumbing through all the descriptions

What is the vanguard emerging market etf ticker?

That's a dangerous question to answer, because growth rates can differ between 5yr/10yr/LTD and those numbers absent context can be misleading about the likelihood of the kind of growth you're looking for. Vanguard's ETF list provides that basic information if you're looking for it, but be very very careful about interpreting the numbers for ETFs like MGK or VOO correctly.

Vanguard's classic emerging markets fund is VWO, but again it's worth researching and investing carefully as the expense ratio for VWO is 14 basis points while VOO's is just 3, and that difference absolutely matters.

 

[Randolph Freelander]

Thanks,

I wasn't asking about diversification or risk, what specific vanguard etf has /can be expected to increase in value the most over, say, 5 years and 10 years? I had a hard time figuring that out even thumbing through all the descriptions.

I can tell you that no more than I can tell you what horse will win the Kentucky Derby in 5 or 10 years. What we like to do in this thread is bet on every single horse in the race.

Even in that analogy, I'm thinking primarily of stocks, but if there's a recession in this 5 or 10 year window, and depending upon the timing and severity of it, the answer might well be bonds.

Do you need the money in 5 or 10 years? If so, you need to be focused on risk mitigation, and that would mean you would be heavy into bonds. Let Vanguard's Target 2025 fund manage that for you. Is your time frame for needing the money longer than that? Then don't worry about the risk mitigation -- or a possible recession -- and go more with stocks.

Still want to bet on a specific sector? Can't help you there. Returns over the past 5 or 10 years cannot tell you with certainty what the returns of the next 5 or 10 years will be. Growth markets change, new competitors arrive, old stalwarts falter. It's back to the Derby, and the only thing I know is the winning horse hasn't even been born yet.

 

[Natetan]

That's a dangerous question to answer, because growth rates can differ between 5yr/10yr/LTD and those numbers absent context can be misleading about the likelihood of the kind of growth you're looking for. Vanguard's ETF list provides that basic information if you're looking for it, but be very very careful about interpreting the numbers for ETFs like MGK or VOO correctly.

Vanguard's classic emerging markets fund is VWO, but again it's worth researching and investing carefully as the expense ratio for VWO is 14 basis points while VOO's is just 3, and that difference absolutely matters.

Looks like IT is by far the best (largest percentage increase) etf at least in the 1-5 year range.

But in terms of regional, the FTSE Europe and Global stock market ones have the best 5 year.

 

[Makai]

I figured you guys could explain property tax. I saw that it's about 1% where I live - is that every year? I was thinking about getting a house in the future for nonspeculative reasons but if it's an annual flat tax I'm sticking with renting forever. If you're paying $5k a year to own a $500k house, how does anybody make money in real estate?

 

[Randolph Freelander]

I figured you guys could explain property tax. I saw that it's about 1% where I live - is that every year? I was thinking about getting a house in the future for nonspeculative reasons but if it's an annual flat tax I'm sticking with renting forever. If you're paying $5k a year to own a $500k house, how does anybody make money in real estate?

It's every year. And you're already paying property tax indirectly, since your landlord is passing the cost to you via the rent. I'm not telling you to buy, but if you're paying 1% in property tax but home values are appreciating by 3 or more percent per year, do the math. When and if you sell, all things held equal and your home isn't falling into ruin, you should come out ahead.

Also, by itemizing on your tax returns, the property tax comes off the top of your income. Your mortgage interest also comes off the top of your income. These are costs already being passed along to you in rent, except you're not able to deduct them. When you own, those costs are directly yours and are deductible. (In simple terms, it's essentially like you're reducing your property tax and interest rates, since you're getting a portion of that money back.)

 

[Unknown Soldier]

I figured you guys could explain property tax. I saw that it's about 1% where I live - is that every year? I was thinking about getting a house in the future for nonspeculative reasons but if it's an annual flat tax I'm sticking with renting forever. If you're paying $5k a year to own a $500k house, how does anybody make money in real estate?

Property tax is deductible from your federal taxes.

Also if you own a home and pay a mortgage, the interest on your mortgage is also deductible from your federal taxes.

There are a lot of financial incentives to own instead of rent.

 

[GTI Guy]

If you like paying fees, go talk to them.

Of course no one wants to pay fees. That being said it's reasonable to charge for services rendered. I guess I'm not sure how to properly evaluate if I'm getting good value from a financial advisor. No idea how to determine if the fees incurred are within market norms or out of bounds.

 

[GhaleonEB]

A friend of mine said I should talk to someone at Edward Jones. Good idea or are they going to rip me off?

Of course no one wants to pay fees. That being said it's reasonable to charge for services rendered. I guess I'm not sure how to properly evaluate if I'm getting good value from a financial advisor. No idea how to determine if the fees incurred are within market norms or out of bounds.

I used to be with Edward Jones, when I started out investing. They sold me 1) actively manged funds 2) with a front end load and 3) high expense ratios and 4) an annual account fee, for funds that dramatically under-performed the market. It's added years to my time until I retire. It was not a reasonable charge for the services rendered.

Do not talk to Edward Jones about investing. If you do, set some parameters: do not buy funds with loads, do not buy anything with an expense ratio in excess of 0.4% (preferably, index funds), and above all make sure they are a fiduciary. They work on commission and will steer you to funds from which they will make profit, not funds that will serve your needs.

 

[Domino Theory]

I asked this in the Stocks thread, but I figure it might be better suited here. Any help is appreciated:

I have a decent amount in my savings account right now sitting there and I'm wondering if that money would be better suited sitting in some sort of conservative fund on Vanguard. Perhaps the money market settlement fund or something else?

I'm not looking to be risky with this specific savings account, but with a yield of 0.25 (or something incredibly low) for my current Wells Fargo savings account, I feel like I'd benefit more from having it sit somewhere else.

This money isn't necessarily being saved for retirement, but it could be if that ended up being the better course of action. Or I could put it into the VFINX index fund I'm already invested in.

 

[ISWThunder]

A friend of mine said I should talk to someone at Edward Jones. Good idea or are they going to rip me off?

Everyone's situation is different, and a financial professional can help you with a complicated situation.

The general advice here and other places is this: If you are just starting out your retirement plan and/or are contributing a few hundred bucks per month, you'll want to explore any employee benefits (like a 401K) and lock in any matching funds and/or tax breaks first. Then (or if that isn't an option) find a low cost provider (like Vanguard) to open up an IRA to contribute money to.

In either case, you want to start with low cost (less than 1%) diversified investments like Vanguard's Target Date Funds that automatically take risk factors into account based on the target retirement date and make your portfolio more conservative as you get closer to retirement.

Edward Jones will likely push you towards investments with higher fees, that will end up in their pocket. On average, these types of investments do not outperform the market and will only cost you money (a lot of money if you're investing long term).

But like I said, you may have a more unique situation that requires more in-depth knowledge.

 

[tokkun]

I figured you guys could explain property tax. I saw that it's about 1% where I live - is that every year? I was thinking about getting a house in the future for nonspeculative reasons but if it's an annual flat tax I'm sticking with renting forever. If you're paying $5k a year to own a $500k house, how does anybody make money in real estate?

Real estate markets are local, but on average, buying a house is not a great investment for someone who is relatively young compared to taking your 20% down payment + closing costs and putting it in the stock market.

Yes, there are tax breaks, but fewer than 1/3 of households do any amount of itemization on their taxes, let alone enough non-housing deductions to go beyond the standard deduction limit and get the full benefit of the housing deductions.

The bottom line, though, is that many people view it as a lifestyle choice - one that is also part of the traditional American cultural identity - that is more important to them than the investment aspect.

 

[tokkun]

I asked this in the Stocks thread, but I figure it might be better suited here. Any help is appreciated:

I have a decent amount in my savings account right now sitting there and I'm wondering if that money would be better suited sitting in some sort of conservative fund on Vanguard. Perhaps the money market settlement fund or something else?

I'm not looking to be risky with this specific savings account, but with a yield of 0.25 (or something incredibly low) for my current Wells Fargo savings account, I feel like I'd benefit more from having it sit somewhere else.

This money isn't necessarily being saved for retirement, but it could be if that ended up being the better course of action. Or I could put it into the VFINX index fund I'm already invested in.

You pay a lot in opportunity cost for extreme liquidity with cash. Personally, I believe that is largely unnecessary in a society where you can pay for most reasonable expenses with a credit card.

I suggest putting it in VCIT for a modest amount of risk. That yields 3.2%.

 

[demosthenes]

Real estate markets are local, but on average, buying a house is not a great investment for someone who is relatively young compared to taking your 20% down payment + closing costs and putting it in the stock market.

Yes, there are tax breaks, but fewer than 1/3 of households do any amount of itemization on their taxes, let alone enough non-housing deductions to go beyond the standard deduction limit and get the full benefit of the housing deductions.

The bottom line, though, is that many people view it as a lifestyle choice - one that is also part of the traditional American cultural identity - that is more important to them than the investment aspect.

Not sharing walls, not sharing floor or ceilings was really important to me personally. I know you can rent a house but I'm happy where I'm at. I'll pay down my mortgage and not use this as an investment.

 

[GhaleonEB]

Real estate markets are local, but on average, buying a house is not a great investment for someone who is relatively young compared to taking your 20% down payment + closing costs and putting it in the stock market.

Yes, there are tax breaks, but fewer than 1/3 of households do any amount of itemization on their taxes, let alone enough non-housing deductions to go beyond the standard deduction limit and get the full benefit of the housing deductions.

The bottom line, though, is that many people view it as a lifestyle choice - one that is also part of the traditional American cultural identity - that is more important to them than the investment aspect.

I echo this strongly, but wanted to add one footnote - thinking about when you pay off the mortgage, which will change your financial picture considerably. That is pretty far out in time, and a lot can change in situation and plans during that time. But if you do settle down and pay off a mortgage, it will have an outsized impact on savings from that point forward.

(My wife and I are paying off ours next year, 13 years into a 30 year mortgage. It's kinda bonkers what that will do to our disposable income and savings rate. Of course, the question of how quickly one should pay it down given other options, interest rates, etc. is a whole other topic.)

 

[PflargBlarg]

Looks like IT is by far the best (largest percentage increase) etf at least in the 1-5 year range.

But in terms of regional, the FTSE Europe and Global stock market ones have the best 5 year.

I strongly encourage you to stop going along this line of thinking. This is exactly where that maxim about past performance not indicating future returns comes into play. Basing your pick (particularly of domestic/global index funds) of a fund based on its past performance is not going to get you anywhere.

Look at https://novelinvestor.com/asset-class-returns/

Different sectors are all over the place over the years, there's really no telling what's going to happen. Our recommendations are kind of like the AA (asset allocation) choice on that chart. Looking at performance all the time could lead you to make emotional choices which is not going to be a good time.

You need to decide on an asset allocation (I personally decided on 10% Canadian equity, 90% global ex-Canada equity) and then stick with it. If you feel like making a change to that allocation you better have a good reason to present to yourself.

It's been shown over and over that for amateur investors, buy and hold is the most successful strategy there is on average.

 

[Natetan]

I strongly encourage you to stop going along this line of thinking. This is exactly where that maxim about past performance not indicating future returns comes into play. Basing your pick (particularly of domestic/global index funds) of a fund based on its past performance is not going to get you anywhere.

Look at https://novelinvestor.com/asset-class-returns/

Different sectors are all over the place over the years, there's really no telling what's going to happen. Our recommendations are kind of like the AA (asset allocation) choice on that chart. Looking at performance all the time could lead you to make emotional choices which is not going to be a good time.

You need to decide on an asset allocation (I personally decided on 10% Canadian equity, 90% global ex-Canada equity) and then stick with it. If you feel like making a change to that allocation you better have a good reason to present to yourself.

It's been shown over and over that for amateur investors, buy and hold is the most successful strategy there is on average.

Guys it's just a question, not an investment strategy.

 

[tokkun]

I echo this strongly, but wanted to add one footnote - thinking about when you pay off the mortgage, which will change your financial picture considerably. That is pretty far out in time, and a lot can change in situation and plans during that time. But if you do settle down and pay off a mortgage, it will have an outsized impact on savings from that point forward.

(My wife and I are paying off ours next year, 13 years into a 30 year mortgage. It's kinda bonkers what that will do to our disposable income and savings rate. Of course, the question of how quickly one should pay it down given other options, interest rates, etc. is a whole other topic.)

Alternatively, if you took a $50K down payment and left it in the stock market for 30 years, assuming a 6% real return, you would have almost $300K in today's dollars, which could produce a passive income of $17K / year. That's more than enough to pay my current rent, although who knows if rents will grow faster than inflation.

 

[GhaleonEB]

Alternatively, if you took a $50K down payment and left it in the stock market for 30 years, assuming a 6% real return, you would have almost $300K in today's dollars, which could produce a passive income of $17K / year. That's more than enough to pay my current rent, although who knows if rents will grow faster than inflation.

This is what I was talking about when I wrote, "Of course, the question of how quickly one should pay it down given other options, interest rates, etc. is a whole other topic."

For my priorities, goals and mortgage interest rate, it made sense. It won't make sense for everyone. We want a house, and we want the certitude of not having housing costs beyond bills and taxes. The raw math favored pumping it into retirement, but there are other reasons for paying down a mortgage.

 

[Unknown Soldier]

The obvious reason being once you own the house outright, living there is free the rest of your life excepting the property tax.

 

[tokkun]

The obvious reason being once you own the house outright, living there is free the rest of your life excepting the property tax.

The point I was trying to get at is that there are more complex ways of looking at the cost of something. If you want to know the true cost, you need to consider opportunity cost as well. You may not be making any more mortgage payments on that house, but you are permanently missing out on that $17K / year of hypothetical inflation-adjusted investment return you might have got if you invested the upfront costs in the stock market instead. That does not equate to "free" in my mind.

 

[Gruco]

FWIW, I think people tend to underestimate the value of buying a house. If you could buy an asset that gave you 5% in a guaranteed annual tax-free dividend, and in expectation earned an inflation-level capital gain (also tax free) every year, most people would prefer that over Vanguard total stock market, especially once tax advantaged accounts are maximized. And I think both of those numbers are fairly conservative.

The problems are 1) you have to live there for years for it to be worthwhile, because there's a fixed cost to moving, and 2) most people make this investment on margin, because it requires a huge up-front payment.

But there's nothing questionable about buying a house itself. Tax-free rental dividends are great. The issue is that buying a house is such a good deal that many people are willing to borrow to do it, who wouldn't think of taking that step for other investments.

But really, I think the big question is how soon do you think you'll move.

 

[Skel1ingt0n]

I'm so torn on the whole selling the house thing.

I'm 28. Half my wife and I's mortgage is paid off. We have 8 more years on; but could PROBABLY pay it off in the next ~4.

Thing is, it's way too small for a family. We can get by with one newborn - but two kids and we'll have to move. All the other houses in the area just keep going up in cost the last two years - and while ours is doing the same - to get to the next "tier" of home, it's a fair increase in cost.

On one hand - why not just bust my ass and pay off this first house? Have a constant stream of rent coming in, or hell, live in a small house but never have a house payment again at 33.

On the other hand, waiting another three years, I could see houses in our budget cost another $100K - no guarantee, but that's equity I might be missing out on.

 

[GTI Guy]

Thanks for the info guys. I think I'll steer away from Edward Jones for the time being. When he started talking about fees I got a bit turned off.

I've got a 401k established, savings account, some stock. Trying to make sure I'm leveraging my money best for retirement.

I think the top things I need help on establishing.
- 529 college fund
Gotta get money saving for my kids education.

- Backdoor Roth IRA
I just learned about this, our household income is too much for an IRA but I have heard I can do a post-tax IRA then convert it to a Roth. This sounds like a good idea

- Life insurance
I have this only thru my employer, with 1 kid and 1 on the way I thought I better get something not tied to my work.

- Mutual/Index funds
I don't think I want to play in the stock market but rather diversify with some funds.

 

[PantherLotus]

Notes:
-- I have a mortgage with $X remaining for payoff with no early-payoff penalties. Estimate says we'll pay it off in about 17-18 years at the current rate.

-- I think I can sell the house for $Y in the next 6 months.

-- I want a new house for $Z

Goal is upgrading from a 3 BR / 2 car garage to a 4BR / 3 car garage. Some back of the napkin calculations says we can get a much bigger house (which we need since our family has grown since our first house) for right around the same payment if we use the equity in house one to pay down house two.

Questions
-- Is my assumption that 'if i'm paying this on a house with a bunch of equity, i can put that equity into a more expensive home and keep the same-ish down payment?

-- Related: How much should I factor in for taxes on a bigger home?

-- Is it fair to assume (Y - X) = new down payment? What should I factor in?

-- I see avg mortgage rates are hovering around 4%. Is it fair to assume with great/perfect credit and a lovely debt to income ration mine will be lower? How much lower?

-- If I have enough for a down payment of any range up to say, 22.5%, should I put in all 22.5% or keep some back for other purposes?

-- What other questions should I be asking?

 

[GhaleonEB]

Notes:
-- I have a mortgage with $X remaining for payoff with no early-payoff penalties. Estimate says we'll pay it off in about 17-18 years at the current rate.

-- I think I can sell the house for $Y in the next 6 months.

-- I want a new house for $Z

Goal is upgrading from a 3 BR / 2 car garage to a 4BR / 3 car garage. Some back of the napkin calculations says we can get a much bigger house (which we need since our family has grown since our first house) for right around the same payment if we use the equity in house one to pay down house two.

Questions
-- Is my assumption that 'if i'm paying this on a house with a bunch of equity, i can put that equity into a more expensive home and keep the same-ish down payment?

-- Related: How much should I factor in for taxes on a bigger home?

-- Is it fair to assume (Y - X) = new down payment? What should I factor in?

-- I see avg mortgage rates are hovering around 4%. Is it fair to assume with great/perfect credit and a lovely debt to income ration mine will be lower? How much lower?

-- If I have enough for a down payment of any range up to say, 22.5%, should I put in all 22.5% or keep some back for other purposes?

-- What other questions should I be asking?

--One way to manage to a similar payment as you have now is to just plan for the same size loan as you took out for your current home. The equity + appreciated value is the down payment you can make, if you don't add other funds to it. Use that to back into the loan size, and monthly payment. (Plus taxes and factoring in the loan rate.)

--Property taxes are local and typically expressed in a certain cost per assessed value of the property. (For example, $10 per $1,000 of assessed value.) Look into the property tax rate and values in the areas where you are looking for a new house.

--Don't forget to factor in the capital gains tax you will pay on the appreciated value of your current home. If it cost $200k when you took the mortgage and you sell for $250k, that $50k increase will be taxed at the federal and state level as capital gains at the time you sell. You'll want to factor that into the amount you plan to put into the down payment of the new place so you don't get caught counting on having it and getting clobbered when the tax bill come.

--I don't have much insight into mortgage rates, maybe someone else can help. My mortgage is at 4.625%. We could probably refi down a bit, but it's not worth it at this point.

 

[tokkun]

FWIW, I think people tend to underestimate the value of buying a house.

I'm surprised to hear that perspective. If anything, I think that people overestimate it. I hear tons of people repeating that line about "throwing your money away" renting, without understanding the concept of opportunity cost in the downpayment.

If you could buy an asset that gave you 5% in a guaranteed annual tax-free dividend, and in expectation earned an inflation-level capital gain (also tax free) every year, most people would prefer that over Vanguard total stock market, especially once tax advantaged accounts are maximized. And I think both of those numbers are fairly conservative.

You'll have to clarify what you mean by "5% guaranteed annual tax-free dividend".

But there's nothing questionable about buying a house itself.

Putting a huge amount of money into a single leveraged asset is always going to be questionable. There is an expensive condo building on the corner of my block. The city just put up an apartment building on one side and is now building a hotel on the other side, blocking all of their lake views. I'm sure those owners lost a ton of property value.