... what she said ...
Frankies Girl had given you some excellent advice.
You have a once in a lifetime chance. Don't make a choice simply because you're too lazy to learn about the alternatives. That's simply foolish.
To put it in face-punch worthy terms, "If being given HALF A MILLION DOLLARS isn't enough to motivate you to get off your ass and study, what the heck will?"
Spend several evenings or lunchtimes at work over the next couple of months reading the JL Collins stock series. It's very straightforward. It's written for regular people.
Let's say you have a $500,000 fixed rate mortgage at 3% for 30 years. That works out to $25,296 a year in P&I, the Principal and Interest portion of your mortgage. (You'll still be stuck with taxes and insurance no matter what you do, so I'll ignore them.)
When you read up about the stock market, you'll learn that, over history, the stock market has earned 7% over inflation.
Some years it goes up way, way more. Some years it crashes and burns 50%. But over time, it's gone up 7% over inflation. That's because the assembled brains, greed and hard work of the companies in this country has made that happen and are likely to continue to. Our country is inventing multiple totally new industries per generation. That's a phenomenal growth opportunity.
Now, presumably, you bought your house with the expectation that you could pay it off because you (a) made enough money, (b) expect to continue to make enough money to do so, and (c) haven't sunk yourself in so much other debt you can't make it work out.
What might happen if you invested it in the stock market per JL Collins' advice by the end of your 30 year mortgage? Well, you might have anywhere from $1,100,000 to $7,700,000 worth of stock at that time. That's based on a 90/10 stock bond split, invested for 30 years, based on the historical real results for every 30 year period of time we have data for. Some of those time frames had up to 60% drops in value in just one year. And yet over time the value of the investments climbed.
Here's what it would look like if each year could be reliably counted on to return 7% over inflation. (It can't.) But it still is very illustrative.
$500,000
$535,000 1st year earnings, $35,000
$572,450
$612,522
$655,398
$701,276 5th year earnings, $45,858
$750,365
$802,891
$859,093
$919,230 10th year earnings, $60,137. Getting close to double 1st year earnings.
Your 30 year mortgage would now be 380,099.
You could pay it off 20 years early and still have more than you inherited.
$983,576 Or hang on for the ride and keep the mortgage...
$1,052,426
$1,126,096
$1,204,923
$1,289,267 15th year earnings, $84,344.
At this point, you are earning, on average, 4 times your annual principal and interest payment.
Think about that for a moment.
$1,379,516
$1,476,082
$1,579,408
$1,689,966
$1,808,264 20th year earnings.
$1,934,842
$2,070,281
$2,215,201
$2,370,265
$2,536,183 25th year earnings.
$2,713,716
$2,903,676
$3,106,934
$3,324,419
$3,557,129 30th year earnings.
What are the risks if you follow JL Collin's stock advice?
Well, the entire US or world economy could collapse and we could be in Mad Max times. Nothing you did to save money for the future would likely matter. So ignore this. (Or stockpile ammo, food, hand tools, how-to books and medicine. And move to a defensible house.)
At some point the stock market craps out like the Great Depression. Golly , wasn't that horrible? Well, remember that $1,100,000 to $7,700,000 spread in ending values I mentioned. That included every 30 year period of time between 1871 and last year. 59 of the tested outcomes included the Great Depression. And yet the money ended up at least doubling.
Actually, in your shoes, if you and your spouse keep your jobs, that's possibly the coolest thing that would happen. Why?
Because you don't HAVE to spend any of the money, so you don't have to sell any stock while it is still low.
So why is that so cool? Because when you re-invest the dividends your stocks are earning you'll be buying more stock at a huge discount! How neat is that?
What happens if you lose your jobs? Well, you could use a year's earnings to pay your mortgage principle and interest payments and just delay the increase in earnings a year.
I would hope, however, that if you've got a house you owe half a million dollars on that you have some other savings...
Of course, if you inherited this money at age 70, and have no kids, then worrying about optimizing for 30 years from now might be more trouble than it's worth. :)
Hope that gives you some food for thought!
