Author Topic: Please Help Me Think Through This Investing Thing  (Read 1950 times)

WalkaboutStache

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Please Help Me Think Through This Investing Thing
« on: March 12, 2018, 02:35:11 AM »
I got a bit of a windfall this month with my unused vacation payout, and after having spent the past year paying down my mortgages, I figured this would be the month to start putting some of my savings into an index fund.  Here is the rub:

Since I work in financial services, even index fund trades need to be pre-cleared.  I dutifully did so as soon as my salary hit.
I was feeling good.  There had been a little dip on the news of the steel tariffs, and I figured I could shove a good chunk of money into the fund.
Then, it took 2 days for the clearance to arrive, 3 when you consider that it came after market close on the 2nd day, so here I am, contemplating 2 days of spikes where the numbers moved almost +3% and I lost my nerve.  If I want to trade now, I have to submit another clearance request because it was only valid for a business day, so I'll just throw the money at my mortgage for the safety of the 4.625% (foreign borrower, the rate is what the rate is).

I lost my nerve, partly because of what I thought of as an unfair process stacked against me (trade when my Overlords allow, and get a weirdly short window to do so).  Rationally, I know this is not something I should care about.  Things will move up and down and I just need to deal with it.  On the other hand, I am glad that I have the psychological safety of the mortgage so I can feel like it was not a wasted opportunity since I was able to kick my principal between the legs.

Part of me wants to ride out this whole "correction-no correction" moment and work instead on killing the mortgage.  Once that happens, then I won't really have an alternative - I'll have to just close my eyes and click the "buy" button.  Alternatively, I can try again next month and retire to the psychological safety of my mortgage if I get spooked.

Does anyone have any wise words for me? This is absolutely a first-world problem to have, but even first-world kids need love and advice. 

marty998

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Re: Please Help Me Think Through This Investing Thing
« Reply #1 on: March 12, 2018, 03:39:49 AM »
Would it be different if you put your money in a managed fund instead of direct in the stockmarket? Appreciate it may cost a little more, but at least you are invested.

I also work in financial services, but our company policy exempts index funds from the trading policy.

Linea_Norway

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Re: Please Help Me Think Through This Investing Thing
« Reply #2 on: March 12, 2018, 04:00:17 AM »
If you get so nervous from investing in the stock market, I suggest you pay down mortgage first. If you don't, you are investing with borrowed money. That is not for everyone.

frugaliknowit

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Re: Please Help Me Think Through This Investing Thing
« Reply #3 on: March 12, 2018, 04:10:57 AM »
Stop trying to time the market, that includes trying to buy dips.  If we knew how to time the market, we wouldn't need to work.

Long term money has short term risk which we need to ride out.  If this is long term money, don't worry about the ups and downs.  If this is short/intermediate term money, then it should be in lower risk investments (balanced fund, c/d s, short term bond fund, etc.).

Rob_bob

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Re: Please Help Me Think Through This Investing Thing
« Reply #4 on: March 12, 2018, 03:21:40 PM »
Paying off the mortgage feels good but when it's done how do you use it to pay bills?  Sell it and downsize, borrow against it (go back in debt), sell a bedroom?  And while you are paying it off you are losing the time needed for compounded growth of your investments so you end up house rich and cash poor.

Now if you are maxing out every retirement account available to you then pay the house down.

WalkaboutStache

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Re: Please Help Me Think Through This Investing Thing
« Reply #5 on: March 12, 2018, 08:00:59 PM »
Thanks, everyone.  This helps.

@Rob_bob and @Linda_Norway, the house produces AirBnB income and pays for its mortgage (makes about 2x mortgage after all expenses), so on the one hand, if I pay it off that would be free cash in my hands and no more interest, but on the other I will need to get used to market oscillations sooner or later since I won't want that income just sitting at the bank doing nothing.

@frugaliknowit, you are absolutely right.  This is long term money, so I'll just close my eyes and pull the trigger next month.

@marty998, good call on the firm policy issue.  It is possible that I don't need approval, so I'll ask today. If I don't need it, the plan is to push most of my salary into the investments as soon as it hits my account next month.


Rob_bob

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Re: Please Help Me Think Through This Investing Thing
« Reply #6 on: March 13, 2018, 09:59:06 AM »
That's great that the house is generating the income to pay for itself.  Over the long term investing the excess will produce greater returns than the mortgage interest rate (past performance does not guarantee future returns  :) ) as long as you can ignore the volatility and not shoot yourself in the foot by trying to time the market.

koshtra

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Re: Please Help Me Think Through This Investing Thing
« Reply #7 on: March 13, 2018, 10:19:16 AM »
You know, you're overthinking it on both sides :-)

Over 4 1/2 percent guaranteed return (which is what you get by paying off the mortgage) is nothing to sneeze at. A good solid return.

On the other hand, you gotta back off from thinking about timing the market AT ALL. Just drive that thought out of your brain. It will end up making you do something stupid, sooner or later. Trust me on this one :-)

WalkaboutStache

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Re: Please Help Me Think Through This Investing Thing
« Reply #8 on: March 13, 2018, 07:16:59 PM »
It will end up making you do something stupid, sooner or later.

Ain't that the truth..

Laura33

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Re: Please Help Me Think Through This Investing Thing
« Reply #9 on: March 14, 2018, 10:37:13 AM »
Try focusing on the fact that the first investments in the market are most valuable.

You work in financial services, so you clearly know the basics.  So Rule of 72 says a 7% return will double every decade.  How old are you?  I'm going to assume 30.  Say you have $100K to invest right now, today.  By the time you are 60, that $100K will double three times, so now it's worth $800K. 

But now let's assume you spend the first decade paying off the mortgage, and you then put the same $100K in the market at 40.  Now you get only two doublings.  But because we're talking doublings, that means you have half the money as in the first scenario -- $400K vs. $800K.  So you lose fully half your gains in the market, simply because you waited 10 years to start -- same amount of money, same investments.

Now, obviously, since you are putting that $$ toward a mortgage, you get the benefit of avoiding interest on that 4 1/2% or whatever.  But that's going to be worth a damn sight less than $400K, right?

Finally, for the perspective:  over 30 years, you are looking at an 800% increase.  How significant is that one-day 3% blip by comparison? 

I have used ridiculously high numbers to make the illustration more clear.  The problem is that in the day-to-day, when you are talking about a couple hundred or a couple thousand dollars, it is very easy to lose track of the cumulative impact over time.  The only way to manage your fears is to keep your eyes focused on the long game.  It's not just the current dollar -- it's every penny that current dollar will earn you to reinvest over the rest of your life. 

WalkaboutStache

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Re: Please Help Me Think Through This Investing Thing
« Reply #10 on: March 14, 2018, 09:30:35 PM »
Thanks, @Laura33!

I'll take 30 for the age!  Must have been my boyish disposition that fooled you.


I have used ridiculously high numbers to make the illustration more clear.  The problem is that in the day-to-day, when you are talking about a couple hundred or a couple thousand dollars, it is very easy to lose track of the cumulative impact over time.  The only way to manage your fears is to keep your eyes focused on the long game.  It's not just the current dollar -- it's every penny that current dollar will earn you to reinvest over the rest of your life. 

This was particularly helpful.  My timeline is shorter, since I am coming to the FIRE endgame in 3 years or so, but your point is still very valid.  I am just waiting for the date where I become a permanent resident in Hong Kong in order to retain access to health insurance and to be able to come and go even more freely.  I got lucky with my real estate investments (even if one was a little dumb) and since reading MMM I became more deliberate in my financial decisions.  I could probably pull the plug this December (0 debt by then + income producing assets), but will probably just downshift since I need to stay employed until permanent residency kicks in.

Laura33

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Re: Please Help Me Think Through This Investing Thing
« Reply #11 on: March 15, 2018, 07:09:31 AM »
Thanks, @Laura33!

I'll take 30 for the age!  Must have been my boyish disposition that fooled you.


I have used ridiculously high numbers to make the illustration more clear.  The problem is that in the day-to-day, when you are talking about a couple hundred or a couple thousand dollars, it is very easy to lose track of the cumulative impact over time.  The only way to manage your fears is to keep your eyes focused on the long game.  It's not just the current dollar -- it's every penny that current dollar will earn you to reinvest over the rest of your life. 

This was particularly helpful.  My timeline is shorter, since I am coming to the FIRE endgame in 3 years or so, but your point is still very valid.  I am just waiting for the date where I become a permanent resident in Hong Kong in order to retain access to health insurance and to be able to come and go even more freely.  I got lucky with my real estate investments (even if one was a little dumb) and since reading MMM I became more deliberate in my financial decisions.  I could probably pull the plug this December (0 debt by then + income producing assets), but will probably just downshift since I need to stay employed until permanent residency kicks in.

Hey, congrats on being so close to the end game!  But remember, those investments still have to support you for another 30-60 years (you hope!).  So whether your current dollar is going to be worth $4 or $8 in 30 years still matters.  But, yes, if you are going to need these investments to live on within a few years, you should be more conservative in how you invest them.  Now is a good time to start thinking of how you will draw the cash you need, and what pots of money you will be able to access over time.