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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Fri Jan 11, 2013 9:34 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Matthew Clinger wrote:
http://www.gambling-law-us.com/State-Law-Summary/

According to this site, it shows that social gambling is allowed in my state. Is it in yours? So although it isn't much, how about we make a bet? I'll bet you $20 that the spread between my stock strategy and VTI is 5% or more at 6-months. Granted my portfolio is already 2.74% ahead as of the last update, so I only have to make another 2.26% over 4 months. However, if the trend reverses or it simply doesn't advance enough, you win. I know that the 5% spread is rather conservative from my perspective, but then.. You don't really believe in my stock picking abilities, so that shouldn't bother you. And you did ask for money to be involved. So how about it?


I'll bet you $500k that my methods have yielded me more money than yours. Let's compare networths.

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Fri Jan 11, 2013 9:39 pm 

Joined: Fri Jun 25, 2010 3:06 pm
Posts: 81
Get rid of the mortgage. There is no *guaranteed* investment that will provide a greater return. But you don't have to completely ignore other investments. Get the matching funds from the 401k and max out the roth while you're paying off the mortgage. That way you have some balance.

Now the nice thing about paying off a mortgage from a psychological perspective is it's a definite goal. And as you get closer you'll be more likely to divert "fun money" to the mortgage because debt free is within your grasp. Also once it's paid off, your cashflow problems will disappear.


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Fri Jan 11, 2013 11:20 pm 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 149
Bichon Frise wrote:
I'll bet you $500k that my methods have yielded me more money than yours. Let's compare networths.



How typical for someone who has absolutely no confidence in what he's been saying. You can't even stomach a $20 bet when I give you a handicap. You claim to not believe that my system works, but then you completely back away from actually committing to backing up your words. Is a single penny too large a price on your beliefs? Because I'll bet you a penny instead of the $20 if suddenly you're all talk. Then it'll cost you more money to mail it to me than I would get from you. You sure do talk a bunch of trash for someone who isn't willing to back up his beliefs with even a small portion of his wealth. Of course, you say that you wanted me to put my money where my mouth is.. but then you back away when it might involve your money as well. And only $20 as well. You have absolutely no confidence in your position that my stock selection process doesn't work and your response shows it. Back up your words that you wish me to put my money where my mouth is or be known for the hypocrite you are.

Of course, I'd always accept a public apology instead. After all, I did give you a small handicap. Anyone with any confidence whatsoever that someone can't just create a stock portfolio that outperforms the market so easily or that a system flat out doesn't work shouldn't be afraid to take the bet. And, just to make it easier on you to take this bet because you don't seem to be able to put your money where your mouth is without an even greater advantage, if VTI flat out beats the portfolio then I'll pay twice the bet. Really, how much do I have to stack things in your favor according to how you proclaim that you see the situation before you'll accept?


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Sat Jan 12, 2013 12:15 pm 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1776
Location: Ottawa, Canada
Matthew Clinger wrote:
Anyone with any confidence whatsoever that someone can't just create a stock portfolio that outperforms the market so easily or that a system flat out doesn't work shouldn't be afraid to take the bet.


Syntactic clumsiness aside, if I understand you correctly, then I believe I fit that category. That is, I do not believe it is easy to create a stock portfolio or "system" that can consistently outperform the market.

Heck, let's keep it simple and friendly. Let's limit it to just one year, and bragging rights. Why don't you list any number of stocks you want, comprising whatever proportion you want of a theoretical portfolio, using yesterday's (Jan. 11) closing prices, and in one year's time, we'll see if your portfolio is higher than the most appropriate comparable index (DOW, S&P 500, NASDAQ, whatever, depending on what stocks you pick). Any number you want, any stocks you want.

Aaaaaaand.... go.


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Sat Jan 12, 2013 12:37 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5395
kombat wrote:
Let's limit it to just one year, and bragging rights. Why don't you list any number of stocks you want, comprising whatever proportion you want of a theoretical portfolio, using yesterday's (Jan. 11) closing prices, and in one year's time, we'll see if your portfolio is higher than the most appropriate comparable index (DOW, S&P 500, NASDAQ, whatever, depending on what stocks you pick). Any number you want, any stocks you want.

Aaaaaaand.... go.


We're already doing that. He posted an update a couple of days ago. Our friend though seems to be ignorant of risk adjustment though so we are not really getting a fair comparison.


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Sat Jan 12, 2013 2:21 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Matthew Clinger wrote:
Bichon Frise wrote:
I'll bet you $500k that my methods have yielded me more money than yours. Let's compare networths.



How typical for someone who has absolutely no confidence in what he's been saying. You can't even stomach a $20 bet when I give you a handicap. You claim to not believe that my system works, but then you completely back away from actually committing to backing up your words. Is a single penny too large a price on your beliefs? Because I'll bet you a penny instead of the $20 if suddenly you're all talk. Then it'll cost you more money to mail it to me than I would get from you. You sure do talk a bunch of trash for someone who isn't willing to back up his beliefs with even a small portion of his wealth. Of course, you say that you wanted me to put my money where my mouth is.. but then you back away when it might involve your money as well. And only $20 as well. You have absolutely no confidence in your position that my stock selection process doesn't work and your response shows it. Back up your words that you wish me to put my money where my mouth is or be known for the hypocrite you are.

Of course, I'd always accept a public apology instead. After all, I did give you a small handicap. Anyone with any confidence whatsoever that someone can't just create a stock portfolio that outperforms the market so easily or that a system flat out doesn't work shouldn't be afraid to take the bet. And, just to make it easier on you to take this bet because you don't seem to be able to put your money where your mouth is without an even greater advantage, if VTI flat out beats the portfolio then I'll pay twice the bet. Really, how much do I have to stack things in your favor according to how you proclaim that you see the situation before you'll accept?


Again, put your money where your mouth is. Can't you even stomach a little $500k bet?

Your stock picks are wildly risky. Why not just suggest greek bonds and be done with it?

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Sat Jan 12, 2013 8:26 pm 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 149
kombat wrote:
Heck, let's keep it simple and friendly. Let's limit it to just one year, and bragging rights. Why don't you list any number of stocks you want, comprising whatever proportion you want of a theoretical portfolio, using yesterday's (Jan. 11) closing prices, and in one year's time, we'll see if your portfolio is higher than the most appropriate comparable index (DOW, S&P 500, NASDAQ, whatever, depending on what stocks you pick). Any number you want, any stocks you want.

Aaaaaaand.... go.


Sure. I'm willing to do another portfolio, kombat. Pick 3 indexes, funds, or combination of the two for comparison purposes and I'll compare results against all 3 at the same time. I have the feeling that Bichon Frise is just going to declare my victory in 10 months over VTI as pure luck anyway. Beating 3 comparisons at once is much more convincing than just 1.


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Tue Jan 15, 2013 10:17 am 

Joined: Tue Jan 15, 2013 9:55 am
Posts: 2
'wisely investing your money': I think the key word here is 'wisely.' You'll get various opinions about what 'wisely' means.

On the other hand, as someone who paid off a mortgage early (saving thousands) cash is nice. It's better than nice. It's unique. When you've paid off that mortgage, it's no longer a drain on your cash.


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Tue Jan 15, 2013 11:23 am 

Joined: Tue Jun 30, 2009 9:44 pm
Posts: 308
Location: Atlanta, Georgia
DoingHomework wrote:
Personally there is no way I would pay any more than I was required to on a mortgage under 4% whether it is tax deductible or not. Instead, I would deposit any extra into a high quality, intermediate term, unleveraged bond fund. Such a fund might yield a little less than the mortgage right now but over the next 30 years the likelihood of underperforming the mortgage is slim. Plus, you can always use the lump sum to pay off the mortgage at any time if the emotions overcome you.

This is in fact exactly what I am doing with my own 30 year mortgage.

But you must be aware that doing this requires discipline. If you just try to do it haphazardly by putting away a little extra whenever you have it then it is likely to fail. Similarly, if you ever withdraw from that mortgage offset fund, even in an emergency, you'll be on the slipper slope to failure. (You should have a separate emergency fund.)

But if you can maintain the discipline to make extra payments to yourself consistently every month and if you can overcome any emotional considerations and understand what the math is telling you, it's a no-brainer.

I am very intrigued by this concept you raise, DH. I had not thought of this before, but I intrinsically like the idea -- it's like you're paying off your mortgage, except that you're maintaining flexibility with the "extra payments" instead. Would something like VBTLX or VBILX qualify for the types of bonds you are referring to?


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Tue Jan 15, 2013 11:34 am 

Joined: Mon Apr 25, 2011 7:37 am
Posts: 446
Shaun I just wanted to add as others have said the choice is a personal one. If you are willing to invest in stocks (and maybe real estate) you would likely get a higher return, because the risks are higher. You know what you will save if you prepay a mortgage. With stocks you are statistically likely to end up with more money, though your specific situation -depending on what you invest, when you withdraw the money, etc- will vary. In my situation, I refinanced from a 30 year mortgage to a 15 year. If I could have swung financially a 10 year mortage I would have considered it. Why? It's my only debt (except for temp cc balances). I hate feeling in debt. In less than 10 years my first kid is going to college. Since we don't make a lot of money, I would love to have no mortage so when that time came, I would have more cash flow freed up to help my children with college costs. Mathematically this may or may not be optimal. But to me, to have a concrete date in my head, where I no longer am carrying that mortgage cost, is desirable to me.
So, whatever you do, whether it is prepay the mortgage, or stick it in a Roth or whatever, use that money to invest rather than fund an inflated life style. Second, consider the reasons you KNOW you will need to upgrade your housing situation in 15 years. Think deeply whether those are real needs, or simply desire for a nicer living situation (or both). And whether maybe at least some of that money you are mentally allocating to a nicer house would be better "spent" by investing in something that makes you financially independent sooner. My husband and I were talking about it, and personally if we got a windfall, we are more of the mind we would more likely try to find another place to fix up and either rent or sell, than to upgrade our house.


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Wed Jan 16, 2013 1:50 pm 
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Joined: Wed Sep 23, 2009 9:01 am
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LeRainDrop wrote:
I am very intrigued by this concept you raise, DH. I had not thought of this before, but I intrinsically like the idea -- it's like you're paying off your mortgage, except that you're maintaining flexibility with the "extra payments" instead. Would something like VBTLX or VBILX qualify for the types of bonds you are referring to?


I think either of those would be fine. VBTLX is the Vanguard Total Bond Market Index fund. It yields 2.65% right now and has a duration of 4.97 years. That means if interest rates rise by 1% you can expect the price of the fund to decline by 4.97% about 2 years of interest. That's not great but it's not too risky. You can also expect that the yield would increase by the 1% so you'd be getting more return at the same time.

If that happened twice (a 2% interest rate rise) your principle would go down about 10% but you'd be getting a yield of 4.65% on the principle. The 2.65% yield is already close to the effective after-tax yield of paying toward a mortgage so it's already almost a wash. If your yield goes up you will be making more return on the bond fund that it costs in not paying extra on the mortgage. (But to be fair I guess we must calculate the yield on the total amount you had put in since you'll have less money earning the higher yield.) If you run the numbers it seems to work. I would definitely encourage you to do the analysis for yourself to confirm it for your situation. Don't forget that your bond fund yield is taxed lower than the mortgage deduction as well

VBILX is Vanguard's intermediate bond index. It yields 3.13% with a duration of 6.46 years. So there you'd get a little higher yield with somewhat more risk.

This is a little bit speculative. Bond funds are much more predictable than stock funds though. And there is a good chance that the funds managers can keep the fund's price from going down as much as expected by shortening the duration when an interest rate increase seems more likely. The Fed has stated a recipe for when this will happen too so no one should be surprised. But the VBTLX follows an index so it may actually not be as well protected.

Personally I use the T. Rowe Price Corporate Income fund for my mortgage offset pool. It yields about 3.75% and has a duration of about 7 years. I am taking a little risk but I am comfortable with that. Of the two funds you mentioned I think I would prefer the VBILX because it does not have to blindly follow an index. The trouble with following a bond index is that record low rates are causing corporations, countries, and the US government to refinance debt by issuing long term bonds and repaying shorter term higher rate notes. This is driving out the duration of indexes and setting up a potential long bond bubble. When rates eventually rise the longer term bonds and funds will get hurt the most. That's why some active management and keeping an eye on the duration of your fund is a good idea.

Really though, taking this approach is not about yield over the next few years. Right now it is roughly a break even. You can do it with little or no risk right now and basically make a bet that the average bond return over the next 30 years (or the remaining term of your mortgage) will be higher than your mortgage rate. With rates at historic lows, that seems like a fairly safe bet.


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 Post subject: Re: Do you save or do you pay it down?
PostPosted: Mon Jan 21, 2013 1:10 pm 

Joined: Fri Jan 18, 2013 7:21 am
Posts: 95
Location: New York
brad wrote:
I understand the argument from a pure financial perspective, I was just referring to the psychological part of the equation.
.


Perhaps, though it's worth noting that having equity in your home is a pretty big source of temptation too

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