How in debt are you with your Tacoma?

I see your point and agree with you. Before 1957 it is hypothetical.I am not paying down my house because it is at 3.5% fixed. I am trying to pay down a condo I own only because I am upside down and paying 6.5%. I need to reach the magic number to be able to refi.

 

It's not hypothetical, though..they took the real returns of the market and made it the s&p 500 prior to 1957 but good for you not paying down a 3.5% fixed interest because it's lower than that when you deduct mortgage interest

To clarify, they called it the s&p 500 to simplify but the stock market exists going back to pre 1900's so it's all real returns

 

I dont know anything about investing or the markets only what this said on the site. I am not disagreeing with you at all.


All information for an index prior to its Launch Date is back-tested, based on the methodology that was in effect on the Launch Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.

 

Under 10k on mine iirc about 8k. Saved put 21k down, been paying double payments. Hope to be done in a year or so.

 

Thats a great way to go if you can stick with it.If something comes up you can just make a normal payment. Good luck with it. I did close to the same thing.

 

Thats what I did for the wife's car. Its a great way to get rid of a payment quickly. Some will criticize it saying you could save the money...but I would rather watch my savings grow quick AND own the car lol.

I wanted a truck...wife needed a commuter for her doctorate program. Bought the car for around 13k with $1000 down...paid anywhere from $1500-$2000 a month (sometimes more). "72 month loan"...Bought in 8/14...paid off by 12/14 (3k came from selling her old beat up neon). And just like that...I was ready for my truck

 

Though I see what you are saying about over the long term but that is like saying that a penny over a thousand years will turn in to a million dollars. Most auto loans are five years not to sound like Dave Ramsey, if you take the money that you were to put toward a payment to pay off debit once debit free you can invest all money toward investments or retirement and your return will be much higher and grow faster.

 

Here is the way to look at it. This is where one should start and then add different variations*. Also, below has to do with debt <5%. Anything over 5% and I don't think it's worth it. The market since 1871 (I won't use the S&P 500 since people don't like that but the markets go much further back then 1957 when the S&P 500 in its present form began) has return 9-11% annualized over time (you can't throw up a 5 year block and make it work)

Scenario 1: You put a lump sum of $30k into the stock market returning an 8% annualized return. In 30 years that lump sum is now $301,879.81. You take out a loan for $30k for Truck and you pay interest rate of 2.5% for 5 years. This will cost you $31,945.20 in total by the time 5 years is complete. And that's fine because you have your $30k in the stock market still and it's working for you.

Scenario 2: You withdraw that 30k from the stock market today. You pay cash for your truck. You have no debt but you also have no investment.

So, the question is do you want $301,879.81 in 30 years and that "cost" to you is $1,945.20? I'll take that everyday.

*Variation: Yes, I understand that if someone were to choose scenario # 2 that doesn't mean they would never invest again so they may not have zero in 30 years but they would have zero on that original $30k.

I do have a problem with Dave Ramsey to be honest. He is actually very good with advice when people are in debt (if it's credit card or high interest.) I hate how he tells people to pay off their home as fast as they can. I pay 3.375 rate for my mortgage (which is lower due to the mortgage interest deduction). I would never pay that off fast at anytime. All that extra money that I could put towards the mortgage I put in the stock market....In 30 years, i will be wealthier than the person who pays down low interest debt as fast as possible (all things being equal).

***one thing to note: to each his/her own. Some people don't like the markets and hate debt. have at it if that's your case. I won't argue that point and think you should do what's comfortable for yourself

 

@jk70

I'm with you, investing in Roth IRA instead of paying off mortgage with 3.5% rate early. How do you get 8% returns? I'm trying to play the market but it is not going like I thought. I've invested in a fund, ~70% stocks; https://www.google.com/search?q=VFFVX.

 

How long have you owned that fund? It will take time and those Vanguard funds are generally good funds. I used 8% to be conservative (sp500 is more like 9-11%) over time. think 30 year blocks. Can't do 5 or 10 years and see the market up or down in that timeframe and base anything off of that.

Here's a true story about someone I knew who attempted to pay his mortgage as fast as he could. I won't use real #'s. His mortgage was $1k per month. He was paying $2k per month for close to 2.5 years at this point. this was a 30 year mortgage. So he paid $25k+ extra in that time. financial crisis hit and he got laid off and guess what? the bank still wanted it's $1k per month. he eventually couldn't pay it anymore because all his savings got tied up in the house paying the extra on the mortgage. he lost the house. this wasn't an old day 8% mortgage rate where it makes sense to do that. this isn't the reason I don't pay it down but it's an interesting case, albeit an outlier, possibly

 

I've owned the funds just over a year. I guess I need to 'diversify'. I'll try and find a more conservative fund to throw some money at. Have any fund you like?

Good story, it makes you think. I'm young and like the risk. Why pay down when you can invest and earn to offset the interest cost. I'm not there yet.

 

How young are you? That fund already appears diversified. Don't think you need to get more conservative if you're in your 20's

 

Im guessing you are thirtyish right? If so, the fund you are in is pretty much perfect. Low cost and skewed towards stocks ( I would even venture to say you can be more heavily weight in stocks at your age).

Here is the thing, I'm right around your age and work in the field of finance. One word for you my friend: INDEXING.

The key to investing is this: Time, Diversification and low expense ratios. Indexing accomplishes the last two, its up to you to not sell when the market is weak. Its really THAT simple!

 

@jk70 & @TacomaMike37 I'm 28, and would love to cut my work to 20-30hrs/week by my 50s. I'll have a look into this indexing.

 

I would go into the VFFX (Vanguard Target Retirement 2055 Fund), it's composed of 90% stock vs 75% of your current. You have almost 40+ years till retirement so you can ride the waves of the market; in addition if you want to cut your workload in your mid 50's you need to take more risk my man and the VFFX will do that for you.

Here are the holdings.
Rank Fund name Percentage
1 Vanguard Total Stock Market Index Fund Investor Shares 54.1%
2 Vanguard Total International Stock Index Fund Investor Shares 35.7%
3 Vanguard Total Bond Market II Index Fund Investor Shares** 7.1%
4 Vanguard Total International Bond Index Fund Investor Shares 3.1%
Total 100.0%

 

I also like to have fluid cash. For this reason, I took a 30yr mortgage term and I make the 10yr payment. I don't like loans because they keep me cash poor each month. Once it's paid then I have less monthly responsibility. Low interest is awesome for buying things like houses and cars. I wish student loans would follow suit. The bank always makes money... Otherwise it wouldn't be there.

 

Check out mr money Moustache. It is a hard sacrifice, but it pays huge dividends. I am projecting to be 75% retired at age 50. Websites like this make me want to spend $$$ on mods and toys, but I stick to the budget, live on 45% of my income and hope to break out early on good behavior!

 

I love mr. money mustache. I'm snogirl over there. That dude changed my life!

 

Me too! Makes you feel really dumb for all the needless "necessities" that we piss our future away on. I can't go full blown bike riding moustache, but I sure cut out a huge amount of fat in my budget. Money now has a whole new function in my life. It's a tool, nothing else. Either you control it or it controls you!