Any stock investors here?

[Turock]

LOL--OK sour grapes. Sometimes on this medium you just don't know how people are saying things!! Not being able to hear people's voices has a crippling affect on how you read a statement.

 

[Hokapsig]

I'm funding my retirement by contributing 6% to my company IRA. They match 50 cents on the dollar up to 6%. Then I fund my $5,500 into my work Roth IRA. I then add the 6% to the $5500 and figure out what percentage that is of my pay. I want to save at least 15% of my total pay, so the difference between what is invested at work and the 15% is what I add to my personal IRA. According to my retirement calculator at work, at age 67 I should be able to retire on $7K to $13K per month based on monthly expenses of $4500 per month. I look for Growth stock mutual funds that have a 10 year track record of growth and do dividend reinvestment. But I'm always a sucker for single stocks.

Of course I am debt free except for the house and next year I don't have to lay out for college tuition at Pitt.

 

[Hokapsig]

Let me ask this question: Would you pay off your house if you could? I want to pay mine off, but my tax advisor tells me not to and take the deduction on my taxes. The way I figure it, for every $10,000 that I send the bank in interest, I don't have to pay the goverment $2800 (my tax bracket is 28% for this example). Would it be smart to pay the house off (not send the bank $10000 in interest) and PAY the government the $2800, thereby saving ME the $7200??? This also reduces my risk exposure and increases my cashflow on a monthly basis (I wouldn't have a house payment)?

I am down to essentially a car payment to paying off my house and could write a check and pay it off today, but is that the smart thing to do?

 

[Boatboy24]

Let me ask this question: Would you pay off your house if you could? I want to pay mine off, but my tax advisor tells me not to and take the deduction on my taxes. The way I figure it, for every $10,000 that I send the bank in interest, I don't have to pay the goverment $2800 (my tax bracket is 28% for this example). Would it be smart to pay the house off (not send the bank $10000 in interest) and PAY the government the $2800, thereby saving ME the $7200??? This also reduces my risk exposure and increases my cashflow on a monthly basis (I wouldn't have a house payment)?

I am down to essentially a car payment to paying off my house and could write a check and pay it off today, but is that the smart thing to do?

Yes you would lose a 2,800 tax deduction, but that 2,800 costs you 7,200 in interest expense. Sounds like you need a new tax advisor.

 

[Rocky]

Hokapsig, Everyone's situation is different. The answer depends on many factors but essentially two questions that you need to answer are:

1. What is the interest rate you are paying on your mortgage currently?
2. What could you do with the money you would use to pay off the mortgage and what would be the return on that money?

For example, if my current mortgage rate were 3% and I have money invested at 8%, it would not make sense for me to pay off the mortgage and lose 5% per year. On the other hand, if my mortgage rate were 6% and the best return I could get on investments was 4%, it would be sensible to pay off the loan and save 2% per year. Admittedly, these examples do not consider tax implications which would change the figures slightly.

The argument that one needs a mortgage for a "tax deduction" never made sense to me for the reason that Jim states. People talk about getting a $2000 "deduction" but what they are actually getting back is only is a portion of what they paid.

 

[sour_grapes]

LOL--OK sour grapes. Sometimes on this medium you just don't know how people are saying things!! Not being able to hear people's voices has a crippling affect on how you read a statement.

So true, Turock, so true. I believe a good term would be "affect," that is, it is difficult to infer the writer's affect on a post.

Ironically, I often use italics (as well as smilies) to try to convey the tone of voice that I mean. However, even that can be ambiguous. As an experiment, I tried to read my earlier post with the thought in mind that it was intending to contradict you. To my "mind's ear," the italicized word could be read differently than I meant it, so as to imply a degree of contradiction. Sigh. Such is the potential pitfall of this medium.

 

[GaDawg]

As I think Rocky said. Is paying off your mortgage more important than your cash flow? If you have a good interest rate 3-5%? you then should factor in your tax deduction. That could lower your real interest rate to 2-3%. Can you make that return on the money you would use to pay off that mortgage? I think the bottom line is you need to run the numbers, and you need to sleep at night

 

[Geronimo]

I am down to essentially a car payment to paying off my house and could write a check and pay it off today, but is that the smart thing to do?

Like Rocky said, it's complicated, but IMO over the long term paying off the debts should be the #1 priority. You can't know how much you'll gain on those dollars next year if you invest them, but you DO know how much that mortgage costs you in interest.

Once you're out of debt, the compounded gains will add up very fast and you'll have a much larger sum to leverage to stay out of debt for all other purchases.

My debt philosophy is simple; if you can get rates below nominal inflation (~3.2%), then get the longest term you can on that debt and use the capital for investments. Otherwise don't go into debt. Also, if you're 20 years into a 30 year mortgage at relatively low interest (4% or less) then ride it out. The compounding of inflation, investment gains and the tax break will make it worth keeping the debt.

 

[michael-s]

Following and reading here made me decide to add to what I said earlier. My girlfriend and I, (wife now since Aug. 1980) when I was 21 and she 19 (35 years ago) opened up what was called then an "Ontario Home Ownership Savings Plan". (no longer available) It was set up to allow Ontarians a way to save for a home, you were allowed to put in $1,000.00 a year and all interest earned was tax free. You were allowed up $10,000.00 and we each had 1 setup. We were married when I was 23 and she 21 and we chose to continue with that HOSP and save the maximum. We chose to put off having children for 7 years and during that time we were in a big saving mode. (I was cheap) Also when we both started a full time job we both opened and contributed the maximum allowed into a "Registered Retirement Savings Plan" (RRSP's). During those early years our friends bought their toys but we stuck to our plan. We enjoyed ourselves but the plan was to save for that first house. With the full HOSP and savings in the bank we were able to pay cash for our first house ($47,000.00) Two years after we bought our home prices in our area went crazy and our house value doubled. We decided after 3 years to sell and build our home that we are presently in. With the money from the sale of our first house and some bank savings we were able to move into this house also mortgage free. Every year, all our working years, we continued to maximize contributions to our RRSP's. I made my last contribution to my RRSP this year because now being on pension I don't have an earned income that allows me to contribute any more. In Canada you contribute based on your earned income and pension income does not qualify.
Because we both have pensions we will probably not touch our RRSP's until the Canadian government forces us to starting when we turn 71. My personal belief is you have to save, every year, make goals for yourself and stick to them. Don't spend above your means. Because of our personal choices we are in a comfortable situation now that allows us to enjoy retirement, my wife retires January 1st, 2014.

 

[sour_grapes]

Michael, thanks for sharing your inspiring story. You deserve kudos for having a good plan while young, AND for executing it!

 

[michael-s]

Thank you very much.......... young people starting out should have some kind of long term plan......... they will benefit at the end.

 

[Rocky]

I agree that it is critical to have a plan. It is also critical to realize that a plan is based on certain factors, situations and inputs. Over time, these things can change and that requires one to re-evaluate his "plan" on a regular basis to see if it is still viable. I have a concern when I hear people say, "Make a plan and stick to it!" Remember, Custer had a plan.

 

[Geronimo]

The plan is 90% of the battle. I didn't even realize I made a plan, but when I got started using amortization software I quickly realized I could save 200,000 over the next 30 years by paying down my mortgage quickly. Then we refinanced from 9% to 6% and paid even faster. After 11 years we were out of debt. I still see it as a good deal to have the mortgage because we weren't paying rent. Before we had the mortgage paid up I started looking at the saving options. We currently max out all of our retirement options. If everything goes according to plan, we'll have almost twice the income in retirement than we've ever had working.

It all starts with a plan.

 

[michael-s]

Yes Rocky I agree that during one's life there are road bumps, personal or otherwise, along the way. We all have some. Myself, being a tradesman in the mining industry the world markets for nickel and copper, the primary products of the company I worked for went thru good and terrible price cycles. I was laid off on 2 separate occasions by Inco (at the time, now called Vale) directly because of low prices for nickel. So during those tough times I was forced to make some changes but each time when markets returned to profitable rates and thankfully I was able to get back on with the company we continued with our goals. My parents were not born into money and I was not born into money. I have to say it again. People cannot rely on winning the big lotteries to take care of them in retirement. We have lotteries in Canada too but never reaching the value of that large one you have in the U.S., powerball is the name I think. So you have to, during your working years, do something so you have something for your later years. That is a financial plan of some kind, whatever one that is designed to work for your personal situation and stick with it as best you can.

 

[Snafflebit]

One of my friends keeps pestering me about why I am not spending my money. I should be driving a Porsche like him, "or at least a BMW" LOL! Thanks, I have a plan. Don't need his help spending my money!

He is still young.

 

[GaDawg]

I think one of my biggest accomplishments in life was to get my daughter to invest in her 401K from day one on her 1st job out of college.

 

[jswordy]

I believe this should be required study for every high school senior and every college senior before they graduate:

http://www.amazon.com/Your-Money-Life-Transforming-Relationship/dp/0143115766

The companion website:

http://www.financialintegrity.org/index.php?title=Main_Page

The more you think of purchase decisions as involving your time, the easier it is to say no.

It's not: Oh, I want the new red BMW and I deserve it!"

It's: "The new red BMW is $45,000, not counting interest if I take out a loan. That $45,000, and at my current salary of say $25 an hour, takes me 1,800 hours to earn, and that is BEFORE PAYROLL TAXES or loan interest. Is it worth it? Or would a new red Toyota at $20,000 get me to work just as well at half the time investment? Maybe I can even buy it outright and eliminate the loan?"

The fallacy of loans is that you are borrowing against your future time to get something now. It's easier to do it if you think the thing you are buying will appreciate in value, but that is only a thought. There is no guarantee that what you think will happen. Yes, loans allow you to buy something real big you can't now afford, but you are crimping your future wealth and keeping yourself enslaved economically for that privilege, and all that has to be weighed.

Loan leverage is good. We bought our farm in two pieces with loans, but our farm has been paid off for years through advance payments we made every month to rid ourselves of that debt. Do not fall into the trap of spending your dollar to get 28 cents in deduction from Uncle Sam. I had to explain that to my accountant, too, when he kept telling me to go into debt for equipment "so you'll get more back from the government." No, I'm AHEAD by 72 cents by not buying it.

We buy our cars with cash and we run them until they die. My 1993 Sentra (which we bought new) is just about to turn 280,000 miles this week. Think I'm strange? Go to the library and read this book: http://www.amazon.com/s/?ie=UTF8&ke...vptwo=&hvqmt=b&hvdev=c&ref=pd_sl_64mmbwf2f2_b

So very easy to be truly content with my lot in life when I remember money = time. MY time. I can spend it all, and even more than I have now with loans, on stuff that decays from the moment it is bought. Or I can keep and invest it, and grow more.

Every kid should learn that. Above a subsistence level, it's not so much what you earn, it is what you save. As Turock pointed out, getting wealthy is a turtle's game. I'd add that there is a big difference between INCOME and WEALTH, and they are not interchangeable terms. Some of the poorest net worth people are making mid to high 6 figure incomes.

Hey, I can live my life running to catch up. Or I can live it watching money pile up. Some of you may remember that I lost my job during this economic debacle, and am making 40% less now than I did then. If I had lived it up to the hilt when I was making that big money, I'd be ruined now. As it is, I sheltered my entire salary from income taxes last year. Your money or your life - indeed!

 

[BernardSmith]

Jim, I agree with everything you say but I would add one point. Sometimes it does make good sense to borrow and that is if what you are buying will increase your real worth tomorrow. So , it CAN make good sense to borrow to invest in your own development. I say, "can" because I think you can invest in your own education in ways that don't make a great deal of sense (If I am 60 and I want to begin a doctoral degree I am not sure that that investment makes a great deal of sense although the same commitment and approach to self -education without paying for the credential may make a lot of sense. So borrowing to go on vacation or to buy a new car may not be very wise (although sometimes you need the vehicle to get to work and the purchase of a reliable car may be a necessity) but borrowing to invest in yourself (or for the community to invest in itself) may be just what is needed.

 

[jswordy]

Jim, I agree with everything you say but I would add one point. Sometimes it does make good sense to borrow and that is if what you are buying will increase your real worth tomorrow. So , it CAN make good sense to borrow to invest in your own development. I say, "can" because I think you can invest in your own education in ways that don't make a great deal of sense (If I am 60 and I want to begin a doctoral degree I am not sure that that investment makes a great deal of sense although the same commitment and approach to self -education without paying for the credential may make a lot of sense. So borrowing to go on vacation or to buy a new car may not be very wise (although sometimes you need the vehicle to get to work and the purchase of a reliable car may be a necessity) but borrowing to invest in yourself (or for the community to invest in itself) may be just what is needed.

I respectfully disagree. The fact that an individual has invested in a degree has little if any direct bearing on income ability in life. There are general statistics that show that degreed individuals in the aggregate make more than those without post-secondary education. However, on an individualized basis, the actual results are widely variable, and there are many studies showing that.

The one certain thing going into debt for college does is it ties you to payments when you are least able to afford them. If not somehow overcome by increasing salary, that has a lasting long-term effect on your future net worth. In today's economy steep salary increases are generally not in the cards.

That's why I took no loans to get my degree. I worked 80 hours a week every summer, worked during my breaks, and worked part-time while attending classes during my senior year in college to pay as I went.

I emerged in the depths of the early-80s collapse, went unhired for 6 months, then got on at a ridiculously low salary. I could endure that because I had no debt. Contrast that with the "play then pay" generation today, who get their own credit cards at 18. They come out of college saddled with debt.

Again, though there is a correlation there is no direct link between higher education and income. The education that is really needed is the economic education about how to build personal wealth that students are not getting.

 

[bkisel]

As a guideline I've long subscribed to the Rule of One Hundred with regards to my investments ( today 110-120 might be better advice for the young investor). Stay diversified. Only swing for the fence with your "mad" money. Make charitable giving/sharing your blessings part of your financial planning - what goes around comes around. For most a comfortable financial retirement will follow. Well, at least these priciples have worked for me.