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Pay off Home vs. Invest - math vs. psychology (1 Viewer)
- Thread starter Dentist
- Start date
Gr00vus
Footballguy
It was more about the condescending and brashness. Then again, you might be able to make a case he did some of that too.
ghostguy123
Footballguy
Sorta sounds like you are in a financial position to just do whatever you want and be well off. In that case, do what makes you happier.
Nobody told you to invest in hookers and blow yet, which surprises me.
Nobody told you to invest in hookers and blow yet, which surprises me.
Sorry, I was probing for more details. Care to share?That the opportunities for accredited investors are better than what the market has to offer.You were saying....If you could, you would....I guarantee it.
Jayrod
Footballguy
Basically, small companies that want to raise money through selling stock without enduring the time and costs of complying with the SEC can do a Regulation D offering. Under that rule, they can do what is called a private stock offering where they can sell to any number of accredited investors. To be accredited, you either have to be an investment group acting as one (like a trust company) or a wealthy individual. The wealthy individual must qualify through either net worth of $1MM excluding residence or annual income in excess of $200,000. Couples can qualify with $300,000 of annual income.Sorry, I was probing for more details. Care to share?That the opportunities for accredited investors are better than what the market has to offer.You were saying....
These offerings offer much higher returns than companies that are publicly traded. Many of them are accelerating in their first stage of real growth, spurred on by the fundraising. Some pay dividends, others have the goal of going public eventually. Whatever their goals, the payoffs can be tremendous. And the biggest thing is that they really aren't as risky as you'd think for the returns. Many of these are very solid companies with serious hard assets behind them. Companies with government contracts, R&D companies with patents gaining approval, and, yes, even REITs all growing at exponential rates. Really the only way to get in on a company at this stage is to either know someone or be an accredited investor.
The biggest risk in these is that there isn't the SEC oversight, hence the accredited investor requirement. The idea being that if you are that wealthy, 1) you won't be out on the street if things go bad & 2) you know what you are doing or at least can hire competent advisers. You have to actually read the stock offering documents, review audits and attend board meetings if you really want to know what is going on. In other words, you can't just read some articles online to know what is going on and assume it is all on the up and up. Many of these companies know this hurdle and go through a lot of third party confirmation of the facts. But still, the burden to know what they are buying falls on the investor.
ShaHBucks
Footballguy
This should be more like Suzy Orman where you have to actually provide a snapshot of your financial statement. No way to give specific advice. There is some great advice here. I'm glad I can view the topic being discussed. At what point will you know you won't ever have to work again? It's not a certain age. Is it a lump of cash saved up? Will it be when your passive income > monthly expenses?
You know the math. No need to discuss it further. From a psychology standpoint, if you're as tight as some are joking, maybe your irresponsible side has been held captive so long that it wants to sabotage everything and blow it's load on a 2% return when it gets a chance. Maybe letting the wife go to Gucci isn't such a bad idea..
kutta
Footballguy
I lease a car because I like to drive newer cars. I eat expensive dinners because I like good food. I fly first class because I can afford it and I like being comfortable, and I stay in expensive hotels because I want to. None of those are good financial decisions. But I don't care. I don't make all my decisions based strictly on finances. I paid off my house because I sleep better at night knowing it's paid off. I don't care what you think of the decision, just as I don't care if you think it's dumb for me to fly first class or blow 100 bucks on a glass of scotch. I dig my life.You're a big Jesusguy right? Cause there is no logic to it. Its basically amateur hour.Anyone who is in dentist's position is literally throwing away money if they pay off their mortgage. And the only justification is for warm fuzzies. No matter what you want to call the reason, it is simply an unsound financial decision and you know who makes unsound decisions? Amateurs.
Things to never ever ever do per the FFA: 1) try to leave dogs outside, 2) don't make your kid wear a bike helmet, 3) suggest someone is making an amateur mistake with a financial decision
It is so comical the number of people running to defend paying off the house with nothing but emotional reasons. If that is your reasoning, fine, but don't play it off like it is some "smart" decision. Call it what it is, an emotional decision. You are afraid of loss and like the secure feeling of not having a mortgage. That's great and works for some people, but its not a sound financial decision. I think what people are forgetting is that just because you are still better off, doesn't mean it was the right decision. Putting all of your money in a money market account is still earning interest, so you aren't losing, but everyone here knows that is a foolish way to invest. This is not much different than that. Is it safer? Sure. Is it better? Probably not.
Paying off the house has a high probability of resulting in a net loss when compared to the opportunity lost of investing those funds. Every single financial person in here has said the same thing, yet I'm the one drawing ire because I dared to say it was an "amateur" move. But that word is 100% accurate. People that invest for a living (aka "professionals" or "pros"), would never pay off the house. People who just dabble in investing (aka "amateurs") might because it makes them feel better.
Nugget
Footballguy
Mortgage rates are pretty cheap right now. For those with paid off houses, should they go get mortgages to have more money to invest with? What about paid off cars? 0% offers on credit cards? How much debt should someone take on to have additional investments?
Read this entire thread on the plane yesterday and didn't feel like typing a long response from my phone, so here it goes...
Jayrod
I don't think anyone is arguing the fact that from a pure black/white & dollars/cents thing paying off the mortgage at that rate will earn you less money in the long run than other investments. I'm honestly not sure if you're schticking up the rest or not, but if you have the financial background that you say you do, I'm shocked that you don't think that someone can actually but a $ amount on "soft things", and that makes it +EV for them. Let me give you an example of why I elected to pay my mortgage off first instead of funneling that cash into other investments.
Dentist
You and I have gone back and forth on this for a long time. In multiple threads. Where once you complete were shutting this idea off, it's great that you're open to it. A few thoughts
Best of luck.
Jayrod
I don't think anyone is arguing the fact that from a pure black/white & dollars/cents thing paying off the mortgage at that rate will earn you less money in the long run than other investments. I'm honestly not sure if you're schticking up the rest or not, but if you have the financial background that you say you do, I'm shocked that you don't think that someone can actually but a $ amount on "soft things", and that makes it +EV for them. Let me give you an example of why I elected to pay my mortgage off first instead of funneling that cash into other investments.
- I work at a company where I at some point before retirement may (+/- 50%) be "forced/asked" to move to another city. I absolutely don't want to do this. Paying off my mortgage removes the largest monthly expense that I will ever have, and allows me the freedom to say no to this potential move.
- I have always wanted to get into other riskier type investments (i.e. starting my own business, helping fund other businesses, etc) that could have a larger payoff and satisfy my entreprenual appetite. One way to enable that and mitigate personal risk is to pay down all debt
- I too one day want to retire whenever I damn well please. Having debt eliminated will take care of that
Dentist
You and I have gone back and forth on this for a long time. In multiple threads. Where once you complete were shutting this idea off, it's great that you're open to it. A few thoughts
- When you elected a 10 year instead of a 15 year mtg at the same rate b/c it "forced you" to pay it off quicker, you essentially did the exact thing that you are asking about doing now. You could've taken the 5 years of $ w/o paying add'l interest and invested that elsewhere. This would merely be finishing it off
- All across the FFA, you talk about wanting to retire as soon as possible and doing whatever you want. Paying of your home is more of an enabler to this than putting it in investments that won't generate any cash for awhile IMO.
- I think the best new idea in this thread was to set a goal of eventually scaling down you're practice to Tue-Thur operations. Look at it as semi-retirement. Figure out the financials around that and use the extra cash towards making that work (again, I assume that eliminating debt would be the biggest enabler...but that's just me).
- Now for the biggest one - and I'm just posting this given all of the information you've mentioned throughout multiple threads...just my thoughts.
Best of luck.
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Also, in 2 months I'll be able to write the check to pay off the last chunk of equity...but I may delay that decision by about 9 months due to another investment opportunity (one of the riskier ones that I mentioned) has come up. But having paid off so much of it has allowed me to make that decision much easier and enabled me to pull the trigger quicker.
Doctor Detroit
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Dentist
***Official FBG Dentist***
Chadstroma
Footballguy
For myself, my 30 yr mortgage is 3.25%. I have the payments set for the exact amount due and I have no plans on paying off the mortgage any faster. With the tax deduction and the rate as it is- it is as close to free money that you will ever get in terms of debt. I actually plan on not selling this house either. When we are ready to move on to a new house, I plan on renting my home out. With that rate (as well as the timing of when I bought) I will easily get rent that will cover the mortgage, taxes, insurance, fund a reserve for fixing and plus have extra cash flow.
However, since I deal with people about their finances on a daily basis the one thing I believe in strongly is the 'sleep well at night' factor or as put in the original post the 'psychology' factor. IF you get value from paying off the mortgage mentally/emotionally then sometimes even if the actual numbers say different- it is the better route to go.
I don't think there is a 'wrong' answer here. We are not really talking about bad vs good but good vs better. What is better really depends on the individual. Do you value that mental peace knowing you are debt free or do you value maximizing your return? Value means different things to different people. Follow what you value.
However, since I deal with people about their finances on a daily basis the one thing I believe in strongly is the 'sleep well at night' factor or as put in the original post the 'psychology' factor. IF you get value from paying off the mortgage mentally/emotionally then sometimes even if the actual numbers say different- it is the better route to go.
I don't think there is a 'wrong' answer here. We are not really talking about bad vs good but good vs better. What is better really depends on the individual. Do you value that mental peace knowing you are debt free or do you value maximizing your return? Value means different things to different people. Follow what you value.
ghostguy123
Footballguy
People spend money all the time to "feel better", so definitely agree with the psychology aspect. Some people feel better when the debt is paid off, some people feel better when they do what they can to make their money work for them. Some people would rather not think about it, while some people can't help but think about it and basically NEED to think about their money (which is fine, not saying anything against this, obviously).Chadstroma said:
If psychology had nothing to do with it people would never take vacations, would only eat the cheapest and most nutritious foods, would live in homes that provide the most value and functionality rather than things they want, would drive older cars that are cheap but reliable, and would only buy things they need while never buying things just because they want them.
In the case here for Dentist he seems to be at the point where paying off his house makes more sense than investing that money. Investing will PROBABLY make him more money down the line, but it is also possible it doesn't which would delay retirement that he seems to really want. Sometimes when you can make a plan and somewhat predict a time frame where you can retire it feels right, and that seems to be what he wants to do and what would make him comfortable.
There are a lot worse investments you can make than paying off your house.
Not sure why I missed this first time around, but I did. Is there a "loophole" (for lack of a better word) around the primary residence thing? So if I sold my house and rented, I'd be accredited; but since I own my house in full (i.e. no mortgage), I'm not considered accredited. Something doesn't sound right there.Basically, small companies that want to raise money through selling stock without enduring the time and costs of complying with the SEC can do a Regulation D offering. Under that rule, they can do what is called a private stock offering where they can sell to any number of accredited investors. To be accredited, you either have to be an investment group acting as one (like a trust company) or a wealthy individual. The wealthy individual must qualify through either net worth of $1MM excluding residence or annual income in excess of $200,000. Couples can qualify with $300,000 of annual income.Sorry, I was probing for more details. Care to share?That the opportunities for accredited investors are better than what the market has to offer.You were saying....
These offerings offer much higher returns than companies that are publicly traded. Many of them are accelerating in their first stage of real growth, spurred on by the fundraising. Some pay dividends, others have the goal of going public eventually. Whatever their goals, the payoffs can be tremendous. And the biggest thing is that they really aren't as risky as you'd think for the returns. Many of these are very solid companies with serious hard assets behind them. Companies with government contracts, R&D companies with patents gaining approval, and, yes, even REITs all growing at exponential rates. Really the only way to get in on a company at this stage is to either know someone or be an accredited investor.
The biggest risk in these is that there isn't the SEC oversight, hence the accredited investor requirement. The idea being that if you are that wealthy, 1) you won't be out on the street if things go bad & 2) you know what you are doing or at least can hire competent advisers. You have to actually read the stock offering documents, review audits and attend board meetings if you really want to know what is going on. In other words, you can't just read some articles online to know what is going on and assume it is all on the up and up. Many of these companies know this hurdle and go through a lot of third party confirmation of the facts. But still, the burden to know what they are buying falls on the investor.
Either way, I've set out a new goal to become "accredited" ASAP.
Appreciate your insight.
Jayrod
Footballguy
Yes, doing what you suggested of selling your house and renting could indeed place you into accredited status if the proceeds from the sale boosted your net worth over $1,000,000.
Its not meant to be a serious barrier to entry, but simply to weed out average Joe's and little old ladies from throwing their entire life savings into some shady business. I think all you really need to verify accredited status is a letter from a CPA. Here is a link to the SEC website explaining the various ways to be considered accredited.
Thanks. Yeah it sounded weird. I get what they're trying to do, but just b/c someone makes $300k/year doesn't mean anything if they're not responsible with money. Meeting with a CPA today
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