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 Post subject: recent market conditions
PostPosted: Sat Aug 04, 2007 8:42 am 

Joined: Thu Apr 19, 2007 7:58 am
Posts: 231
Admittedly I am a novice at investing. I was reading in the paper this morning how investors are putting risky securities into the bond market.

I don't plan on taking any money of of my portfolio or changing existing auto contributions. But I've recently been able to free up a bit extra a month and was wondering might this be a time where temporarily adding to the mortgage would be a good idea? Bonds don't return much, right? And any extra to my mtg is like getting a return equal to the intrest rate.

Just a thought I'd like some feedback on.


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 Post subject: Re: recent market conditions
PostPosted: Sat Aug 04, 2007 8:57 am 
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Joined: Wed May 30, 2007 11:23 am
Posts: 859
Location: Portland, OR
sandycheeks wrote:
Admittedly I am a novice at investing. I was reading in the paper this morning how investors are putting risky securities into the bond market.

I don't plan on taking any money of of my portfolio or changing existing auto contributions. But I've recently been able to free up a bit extra a month and was wondering might this be a time where temporarily adding to the mortgage would be a good idea? Bonds don't return much, right? And any extra to my mtg is like getting a return equal to the intrest rate.

Just a thought I'd like some feedback on.


What would you have done if the market hadn't been wonky for the last week or so?


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PostPosted: Sat Aug 04, 2007 10:08 am 

Joined: Thu Apr 19, 2007 7:58 am
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I would have added the amount to my index funds. You're gonna say "Stay the course" right? I know, probably a wise move.

When my mtg statement came today I got that sinking feeling when I saw the remaining principal amount. Relatively speaking my mtg is reasonable but I have issues with debt of any kind. So I started wondering how I could reduce my principal. I know everyone says you lose out due to opportunity cost when you prepay a mtg, but I didn't know if the 2 situations would even out given the recent volitility. When I saw the article about people moving to bond funds due to the volatility I thought, 'if I'm not going to be making gains, I may as well get that psychological boost from seeing my principal drop.'


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PostPosted: Sat Aug 04, 2007 12:41 pm 
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Here's my personal experience.

Because we just did an addition, we now have a first position mortgage and a home equity loan. Both are fixed at quite low interest rates. And we're a two-income household (whenever our house finishes and/or we get married in early sept, whichever comes first). My goal is to prepay away the HEL within 5 years. My reasons are as follows

The difference between the HEL interest rate and my expected market return (8%) is <1.5%. This is about where my self-identified risk premium is. Id prefer to pay off the debt. Another reason is that if we had only 1 mortgage lien, either Julie or myself could stay at home, become a consultant, start a business, in other words, our family would have flexibility right as we had kids. Thats a good thing

Hope that helps. We're not scaling back our investment in the market either. We're scaling back on food (cooking for ourselves now), transporation (we bike around, saves gas money and improves our health) and other things. There are many reasons to prepay or invest in the market. You gotta do what youre most comfortable witih

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PostPosted: Tue Aug 07, 2007 11:03 am 

Joined: Thu Jun 07, 2007 9:53 am
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It sounds like this is where the psychology of personal finance comes into play. You have to do what feels comfortable for you.

With the little market drop, there was a good article on The Simple Dollar a while back, when there was a 5% dip in early March. Here's a http://www.thesimpledollar.com/2007/03/05/ben-stein-and-i-explain-why-i-just-bought-stocks-today-even-with-stocks-down-5-in-the-last-week/, but the point I'm trying to make with the article is:

Quote:
I bought in on the S&P 500 today, even though the S&P 500 is down almost 5% since last Monday. Why? I may have lost some money in the last week, but what I see is an opportunity to buy something at 5% off that I was comfortable having at the higher price just a week ago. To me, it’s like hitting up a sale at the grocery store: I can get something good at a discount at the moment.


If you think that long term the market will return a good yield, which you probably do since you're investing in it, than now is a chance to get things on sale.

Another thought, you said investors were pulling out of riskier securities and going into bonds. What's a risky security? Index funds are about as un-risky as it gets while still offering the potential for good returns. Bonds and money markets are safer, but have a smaller return, of course.


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PostPosted: Tue Aug 07, 2007 12:18 pm 

Joined: Thu Apr 19, 2007 7:58 am
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I wasn't questioning that historically it has been more profitable to invest/prepay but rather whether recent market conditions and the impending fallout from subprime lending practices have/will altered the equation.

I guess I got to reading and started mentally catastrophizing. The stuff I was reading seemed to imply that this was not a normal part of the cycle but the beggining of a major downturn, or maybe I just interpreted it incorrectly. I'm not sure if this analogy will be lost on this audience, but I was essentially "googling while pregnant"


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PostPosted: Sat Aug 11, 2007 1:46 pm 

Joined: Sat Jun 30, 2007 10:35 am
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sandycheeks wrote:
I wasn't questioning that historically it has been more profitable to invest/prepay but rather whether recent market conditions and the impending fallout from subprime lending practices have/will altered the equation.

I guess I got to reading and started mentally catastrophizing. The stuff I was reading seemed to imply that this was not a normal part of the cycle but the beggining of a major downturn, or maybe I just interpreted it incorrectly. I'm not sure if this analogy will be lost on this audience, but I was essentially "googling while pregnant"


if you have an adjustable rate mortgage, perhaps contributing more to pay off early is wiser. even if the fed lowers rates to help with this mess, chances are high that creditors will increase their rates in order to cover losses as well as re-evaluate and constrict what they seem as credit worthiness.

if not, there are great stock values out there with the market being down. There are solid companies that do not have or have minimal exposure to all this mess. if you can accept the risk, then you could find bargains out there, perhaps in the investments that you already own.

echoing what someone else stated, it will depend on your comfort level (i.e. risk). there are plenty of people who have similar thoughts as you and head for more secure, less risky investments during times like these. there is nothing wrong with this. if you have a higher risk aversion, you might take a look for bargains in the market. if you have a low risk tolerance, you might do as you suggested and start reducing your debt and moving securities into safer ones. the thing not to do is panic. as pf101 suggested, your plan shouldn't change because of a market downturn. why? because if you have securities, you should have goals already for them and reasons you have held onto them. you should also have sell triggers in order to protect your assets or limit your losses. if these are good companies and they reach your sell triggers, you can always sell them and then buy them at the lower price. of course your sell triggers will depend upon your risk tolerance; however, they should be out of range of normal fluctuations. People lost a lot of wealth in previous drops, because they did not think about seller triggers since everyone is always focused on long term investing and forget that sell triggers are part of long term investing strategy.


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 Post subject: recent market conditions
PostPosted: Sat Aug 11, 2007 2:07 pm 

Joined: Fri Aug 10, 2007 1:32 pm
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I have been buying into the downturn in the market , I am retired and have most of my assets in CD's or real estate notes, a few I-bonds and about 10% of my assets are in the stock market, I buy individual stocks , the market is shaky but longterm if you have steady nerves , and buy decent stocks one should come out ahead, on the debt side I am from the old school and if I had extra money I would pay down the mortgage


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