Poll

How do you feel about dividend stocks as compared to non-dividend stocks, and should people pay off their mortgage early?

I prefer dividend stocks/funds, and I agree with paying off a mortgage early.
31 (13.1%)
I prefer dividend stocks/funds, and I do not agree with paying off a mortgage early.
45 (19%)
I do not prefer dividend stocks/funds, and I agree with paying off a mortgage early.
60 (25.3%)
I do not prefer dividend stocks/funds, and I do not agree with paying off a mortgage early.
101 (42.6%)

Total Members Voted: 237

Author Topic: Poll on the most controversial 2 subjects on the MMM forum  (Read 4370 times)

ChpBstrd

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Poll on the most controversial 2 subjects on the MMM forum
« on: February 25, 2019, 03:43:50 PM »
I want to see if people's preference for dividend stocks is related to their preference for paying off a mortgage early. If you do not have a mortgage, imagine you had a mortgage and pick what you would do. For these purposes, to "prefer" dividend stocks means you would rather buy a low-cost index fund comprised of companies paying above-average dividends, rather than a total market fund paying average dividends.

Edit: Assume today's available dividend yields and a 30Y mortgage at 4.8%.
« Last Edit: February 26, 2019, 03:29:05 PM by ChpBstrd »

dcheesi

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #1 on: February 25, 2019, 03:56:49 PM »
I'm in the camp where I think it's fine to pay off your mortgage in full (personal choice), but I wouldn't pay extra principal before I had the full amount saved up. Not sure how to answer here?

Stimpy

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #2 on: February 25, 2019, 04:13:35 PM »
I'd rather pay my mortgage off as intended as that is probably already in the budget.  Might change my mind later on, but at it stands now that's what I'd rather do.

As for the etfs.... If it's paying above average, assuming it's due to a dip and not being involved with high risk stocks.  Yes I'd rather compound my investment with dividends.

jc4

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #3 on: February 25, 2019, 05:20:19 PM »
I’d put a variation of “I’m not supposed to market time / stock pick but here’s why I think I should anyway” as a candidate top 2.

JAYSLOL

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #4 on: February 25, 2019, 09:13:58 PM »
Not sure how to answer this because while I don't prefer a dividend fund over a non-dividend fund, the mortgage payoff really depends on mortgage rate, and there are loads of other things you could consider despite what the math says.  I very likely wouldn't pay off a mortgage early myself, but I'm not against it outright

Stachless

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #5 on: February 25, 2019, 09:26:58 PM »
I don't always buy individual stocks, but when I do they are usually dividend growth stocks.

I have a 30 year mortgage at 3.625% and look forward to 29 more years of minimum payments.

Though I do look forward to my dividend income covering my mortgage, I would never kill my dividend laying geese to pay off that mortgage in a lump sum.  My plan is to watch one balance snowball whilst the other slowly withers away.  The PV of my very last and final mortgage payment is under $500!

frugledoc

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #6 on: February 26, 2019, 01:53:57 AM »
In the U.K. we do not get tax relief on mortgage interest payments so paying off the mortgage is generally a good investment for higher earners (my tax rate is 50% of everything I earn so I would have to earn 1000 to make the 500 mortgage payment)

Yes, UK tax for medium to high earners is eye watering and only set to get worse!

SubL stache

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #7 on: February 26, 2019, 11:52:32 AM »
Paying off the mortgage seems great to me but I haven't started yet because my rate is 2.625% 15YR fixed and I have not maxed out all tax-advantaged investment accounts yet. 

If my rate was 5 or 6% that would change my decision, I may start working on it before I go to taxable investment accounts.

ChpBstrd

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #8 on: February 26, 2019, 03:31:15 PM »
Good points about the mortgage rate. Let's assume a 4.8% 30-year mortgage (roughly what's available today). Also assume the dividend fund vs. total market fund decision is made based on today's prices.

Boofinator

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #9 on: February 26, 2019, 03:47:57 PM »
Dividends barely matter (I would prefer less in the accumulation stage and more in retirement, but it currently doesn't affect my investment strategy).

For the mortgage, there are numerous variables at play. If I was heading into retirement, I'd probably pay off 4.8% in this environment. If I was early in accumulation, I probably would not pay off that debt, but it is getting close.* Many 10-year forward predictions of U.S. stock market returns show lower returns than 4.8% (really you would need at least about 5.1% to overcome dividend tax drag and expenses).

So no, I didn't vote, as my answer is ambivalent to the first question and more nuanced for the second. Always good to bring up these two topics, though.

*This is comparing paying the mortgage debt to investing in taxable. I would max out tax-deferred investments no matter what the interest rate on my mortgage.

ETA: I would be remiss not to mention the benefits of tax loss harvesting, which should encourage at least some taxable investments each year during accumulation, even if mortgage rates are relatively high.
« Last Edit: February 26, 2019, 04:19:33 PM by Boofinator »

Dicey

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #10 on: February 26, 2019, 05:28:27 PM »
I voted so I could see the results. I am thrilled to be in the majority, even though I care more about the latter than the former subject. Since so many of you aren't concerned with early mortgage payoff, I'm here to invite you to play over on the DONT Payoff Your Mortgage Club[sic] thread. It's gotten kind of quiet over there since its founder, boarder42, got his badass self banned. There are new members joining every day and it's good to keep this thread from getting too buried so that others can learn and make the best possible decision for their own situation. Please consider this an invitation to amble on over any time.

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club

Fomerly known as something

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #11 on: February 26, 2019, 06:38:32 PM »
I don't seek out dividend paying stock/funds, I do like to compare the dividends from my index funds to my mortgage payment though.  But that is just a fun metric I watch not a goal.

Indexer

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #12 on: February 26, 2019, 06:57:30 PM »
I didn't vote because there wasn't an option for 'it depends on the rate' for the mortgage. My interest rate is 2.75%. You can get close to that in a money market and exceed it with very little risk. If rates go up one more time I'll be able to match/exceed it with a money market.

If my rate was 4.5% I would lean towards paying it down faster AFTER maxing out all tax deferred accounts.

Dividend VS index: My username answers this question.

Boofinator

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #13 on: February 26, 2019, 07:00:54 PM »
Dividends barely matter (I would prefer less in the accumulation stage and more in retirement, but it currently doesn't affect my investment strategy).

For the mortgage, there are numerous variables at play. If I was heading into retirement, I'd probably pay off 4.8% in this environment. If I was early in accumulation, I probably would not pay off that debt, but it is getting close.* Many 10-year forward predictions of U.S. stock market returns show lower returns than 4.8% (really you would need at least about 5.1% to overcome dividend tax drag and expenses).

So no, I didn't vote, as my answer is ambivalent to the first question and more nuanced for the second. Always good to bring up these two topics, though.

*This is comparing paying the mortgage debt to investing in taxable. I would max out tax-deferred investments no matter what the interest rate on my mortgage.

ETA: I would be remiss not to mention the benefits of tax loss harvesting, which should encourage at least some taxable investments each year during accumulation, even if mortgage rates are relatively high.

It's reasonable to conclude that many of the people on this forum who are paying off their mortgage early, are NOT maxing out their tax deferred investment vehicles.  (some can, but not most)  Their choice to prepay the mortgage requires that they are using post-tax money to do so. Prepaying their mortgage during a period when they are also earning a high income -- this is a very expensive option.   Why not do it AFTER you've left FT employment when your tax rates are lower? You're paying a lot of extra money to access that money at the height of your earned income.

Agreed 100%. If you are making any kind of decent earned income, investing with tax-deferred assets is like getting stocks on sale equal to your tax bracket. Nearly impossible to beat that over any medium term period by paying off a mortgage at today's interest rates.

harvestbook

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #14 on: February 26, 2019, 07:34:07 PM »
I paid off my mortgage early but at the time I didn't have a 401K or good tax-deferred account after IRA and HSA. I would probably do it different now, but it's really nice to be able to save more and have a lower emergency fund and be able to endure more risk, as well as knowing I have a place to live as long as I pay the county a little money each year. I'll not fight for either viewpoint, because people with the personal makeup to pay off a mortgage early are probably going to do okay in the long run even if the math isn't the most optimal.

Monkey Uncle

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #15 on: February 27, 2019, 04:41:11 AM »
I voted for the last option (don't do dividend stocks and don't pay off the mortgage).  I invest for total return, of which dividends are a part, but focusing too much on dividends reduces diversification too much, in my opinion.

I have less than 9 years left on a 15 year fixed mortgage at 3.125%, which is a pretty sweet deal.  If I had a 30 year at 4.8%, I'd be much more inclined to pay it off.  Not sure I actually would, though.  It would depend on whether I could do it without incurring too much of a capital gains hit.

BTDretire

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #16 on: February 27, 2019, 09:17:22 AM »
I checked the box for. "I prefer dividend stocks/funds, and I do not agree with paying off a mortgage early"

  That said I own mostly VTSAX and a few REITs, I also paid cash for the house I live in, about 24 years ago.

secondcor521

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #17 on: February 27, 2019, 10:26:48 AM »
Unfortunately, the poll won't tell the OP whether the answers are correlated.  You'd need the individual data points to be able to figure that out.

phildonnia

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #18 on: February 27, 2019, 12:01:18 PM »
Unfortunately, the poll won't tell the OP whether the answers are correlated.  You'd need the individual data points to be able to figure that out.

Can you explain?

I'm genuinely interested in statistical paradoxes, but I can't figure out what you mean here.  Can't the "data points" be reconstructed from the four choices offered?

phildonnia

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #19 on: February 27, 2019, 12:13:42 PM »
As for dividend vs. growth stocks:  I think the difference is minimal.  If you reinvest your dividends, you are essentially telling the company to keep its profits, and make capital investment.  So any dividend stock can be made to work like a growth stock.  Same thing in reverse for a growth stock that has buy-back option.  The only difference then, would be in what the shareholders expect, and how that influences the corporate direction.

About the early-mortgage payoff, my financial advisor put it this way: "No one ever got snippy with their spouse because they didn't have a mortgage payment hanging over their heads."  Yes, investing in stocks may be better than investing in home equity.  But investing in an end to all money worries is even better.

Shane

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #20 on: February 27, 2019, 12:42:08 PM »
As for dividend vs. growth stocks:  I think the difference is minimal.  If you reinvest your dividends, you are essentially telling the company to keep its profits, and make capital investment.  So any dividend stock can be made to work like a growth stock.  Same thing in reverse for a growth stock that has buy-back option.  The only difference then, would be in what the shareholders expect, and how that influences the corporate direction.

About the early-mortgage payoff, my financial advisor put it this way: "No one ever got snippy with their spouse because they didn't have a mortgage payment hanging over their heads."  Yes, investing in stocks may be better than investing in home equity.  But investing in an end to all money worries is even better.

It's interesting to me how some people seem to see owning a home outright as, "an end to all money worries." For me, owning my home, with no mortgage, felt super risky. At least, if you have a mortgage, the lender is carrying part of the downside risk, while the homeowner is still entitled to 100% of the upside potential for growth. When you own the home yourself, if something bad happens, the risk is all yours. I feel much safer as a renter.

Why Your House is a Terrible Investment

Boofinator

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #21 on: February 27, 2019, 01:02:41 PM »
As for dividend vs. growth stocks:  I think the difference is minimal.  If you reinvest your dividends, you are essentially telling the company to keep its profits, and make capital investment.  So any dividend stock can be made to work like a growth stock.  Same thing in reverse for a growth stock that has buy-back option.  The only difference then, would be in what the shareholders expect, and how that influences the corporate direction.

About the early-mortgage payoff, my financial advisor put it this way: "No one ever got snippy with their spouse because they didn't have a mortgage payment hanging over their heads."  Yes, investing in stocks may be better than investing in home equity.  But investing in an end to all money worries is even better.

It's interesting to me how some people seem to see owning a home outright as, "an end to all money worries." For me, owning my home, with no mortgage, felt super risky. At least, if you have a mortgage, the lender is carrying part of the downside risk, while the homeowner is still entitled to 100% of the upside potential for growth. When you own the home yourself, if something bad happens, the risk is all yours. I feel much safer as a renter.

Why Your House is a Terrible Investment

Typically insurance companies cover most of the downside risk.

secondcor521

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #22 on: February 27, 2019, 01:39:21 PM »
Unfortunately, the poll won't tell the OP whether the answers are correlated.  You'd need the individual data points to be able to figure that out.

Can you explain?

I'm genuinely interested in statistical paradoxes, but I can't figure out what you mean here.  Can't the "data points" be reconstructed from the four choices offered?

I can try.  I'm no statistics expert - I took a semester in college and got an A, but was a little unsure when it came to degrees of freedom and the more advanced distribution past the t-distribution.

That being said:

When establishing correlation between two variables, the usual way to do it is assign (x,y) coordinates to each data point and then calculate the r-squared value based on all of the data points.  An r-squared value of 1 represents all the data points being on a line and means perfect correlation, and an r-squared value of 0 represents the data points being scattered across the plane and represents no correlation.

So in this example, maybe the X variable represents dividend paying stocks and the Y variable represents paying off the mortgage.  Thus a point of (100, 4) would represent a person who really likes dividend paying stocks and is somewhat in favor of paying off a mortgage early but mostly ambivalent.  A point of (-100, -1000) would represent a person who hates dividend paying stocks and thinks paying off a mortgage is the dumbest idea on earth.

With the poll results, you're missing the degree to which each person feels positively or negatively about each variable, so all you know is that X people are in each quadrant on the plane.  Think about a simple case of eight people, two in each quadrant on the plane.  You could place those eight data points fairly close to a straight line (high correlation), or fairly close to a circle (low correlation).

To really figure out correlation, you'd have to know each (x,y) coordinate pair, which means you'd need to know how each person felt about the two variables and to what degree or extent they felt that way.

There's no paradox, there's just a lack of the information needed to assess the question.

ChpBstrd

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #23 on: February 27, 2019, 01:55:21 PM »
Unfortunately, the poll won't tell the OP whether the answers are correlated.  You'd need the individual data points to be able to figure that out.

Can you explain?

I'm genuinely interested in statistical paradoxes, but I can't figure out what you mean here.  Can't the "data points" be reconstructed from the four choices offered?

I can try.  I'm no statistics expert - I took a semester in college and got an A, but was a little unsure when it came to degrees of freedom and the more advanced distribution past the t-distribution.

That being said:

When establishing correlation between two variables, the usual way to do it is assign (x,y) coordinates to each data point and then calculate the r-squared value based on all of the data points.  An r-squared value of 1 represents all the data points being on a line and means perfect correlation, and an r-squared value of 0 represents the data points being scattered across the plane and represents no correlation.

So in this example, maybe the X variable represents dividend paying stocks and the Y variable represents paying off the mortgage.  Thus a point of (100, 4) would represent a person who really likes dividend paying stocks and is somewhat in favor of paying off a mortgage early but mostly ambivalent.  A point of (-100, -1000) would represent a person who hates dividend paying stocks and thinks paying off a mortgage is the dumbest idea on earth.

With the poll results, you're missing the degree to which each person feels positively or negatively about each variable, so all you know is that X people are in each quadrant on the plane.  Think about a simple case of eight people, two in each quadrant on the plane.  You could place those eight data points fairly close to a straight line (high correlation), or fairly close to a circle (low correlation).

To really figure out correlation, you'd have to know each (x,y) coordinate pair, which means you'd need to know how each person felt about the two variables and to what degree or extent they felt that way.

There's no paradox, there's just a lack of the information needed to assess the question.

With the information available from the poll, one could test for significant differences using a chi square test. But as you point out, the term correlation has a different meaning.

https://www.statisticssolutions.com/using-chi-square-statistic-in-research/

https://www.statisticssolutions.com/using-chi-square-statistic-in-research/

secondcor521

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #24 on: February 27, 2019, 02:12:23 PM »
Unfortunately, the poll won't tell the OP whether the answers are correlated.  You'd need the individual data points to be able to figure that out.

Can you explain?

I'm genuinely interested in statistical paradoxes, but I can't figure out what you mean here.  Can't the "data points" be reconstructed from the four choices offered?

I can try.  I'm no statistics expert - I took a semester in college and got an A, but was a little unsure when it came to degrees of freedom and the more advanced distribution past the t-distribution.

That being said:

When establishing correlation between two variables, the usual way to do it is assign (x,y) coordinates to each data point and then calculate the r-squared value based on all of the data points.  An r-squared value of 1 represents all the data points being on a line and means perfect correlation, and an r-squared value of 0 represents the data points being scattered across the plane and represents no correlation.

So in this example, maybe the X variable represents dividend paying stocks and the Y variable represents paying off the mortgage.  Thus a point of (100, 4) would represent a person who really likes dividend paying stocks and is somewhat in favor of paying off a mortgage early but mostly ambivalent.  A point of (-100, -1000) would represent a person who hates dividend paying stocks and thinks paying off a mortgage is the dumbest idea on earth.

With the poll results, you're missing the degree to which each person feels positively or negatively about each variable, so all you know is that X people are in each quadrant on the plane.  Think about a simple case of eight people, two in each quadrant on the plane.  You could place those eight data points fairly close to a straight line (high correlation), or fairly close to a circle (low correlation).

To really figure out correlation, you'd have to know each (x,y) coordinate pair, which means you'd need to know how each person felt about the two variables and to what degree or extent they felt that way.

There's no paradox, there's just a lack of the information needed to assess the question.

With the information available from the poll, one could test for significant differences using a chi square test. But as you point out, the term correlation has a different meaning.

https://www.statisticssolutions.com/using-chi-square-statistic-in-research/

https://www.statisticssolutions.com/using-chi-square-statistic-in-research/

I may be mistaken, but I thought that the original post used to use the word correlation.  It was edited yesterday (before my first post to this thread) and currently uses the word "related".  Maybe I made the jump from "related" to "correlation"... :shrug:.  Sorry for any confusion I may have caused.

Boofinator

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #25 on: February 27, 2019, 02:31:13 PM »
Unfortunately, the poll won't tell the OP whether the answers are correlated.  You'd need the individual data points to be able to figure that out.

Can you explain?

I'm genuinely interested in statistical paradoxes, but I can't figure out what you mean here.  Can't the "data points" be reconstructed from the four choices offered?

I can try.  I'm no statistics expert - I took a semester in college and got an A, but was a little unsure when it came to degrees of freedom and the more advanced distribution past the t-distribution.

That being said:

When establishing correlation between two variables, the usual way to do it is assign (x,y) coordinates to each data point and then calculate the r-squared value based on all of the data points.  An r-squared value of 1 represents all the data points being on a line and means perfect correlation, and an r-squared value of 0 represents the data points being scattered across the plane and represents no correlation.

So in this example, maybe the X variable represents dividend paying stocks and the Y variable represents paying off the mortgage.  Thus a point of (100, 4) would represent a person who really likes dividend paying stocks and is somewhat in favor of paying off a mortgage early but mostly ambivalent.  A point of (-100, -1000) would represent a person who hates dividend paying stocks and thinks paying off a mortgage is the dumbest idea on earth.

With the poll results, you're missing the degree to which each person feels positively or negatively about each variable, so all you know is that X people are in each quadrant on the plane.  Think about a simple case of eight people, two in each quadrant on the plane.  You could place those eight data points fairly close to a straight line (high correlation), or fairly close to a circle (low correlation).

To really figure out correlation, you'd have to know each (x,y) coordinate pair, which means you'd need to know how each person felt about the two variables and to what degree or extent they felt that way.

There's no paradox, there's just a lack of the information needed to assess the question.

I'm pretty certain you can calculate correlation between binomial variables in the same way as continuous variables. Let's say we have 20 respondents:

Dividends and no mortgage: 9
Dividends and mortgage: 1
No dividends and no mortgage: 1
No dividends and mortgage: 9

In this case, the correlation coefficient is calculated as 0.8 (or -0.8 if preferred).

If I'm wrong, I'd like to be educated. Thanks.

Shane

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #26 on: February 27, 2019, 03:12:03 PM »
As for dividend vs. growth stocks:  I think the difference is minimal.  If you reinvest your dividends, you are essentially telling the company to keep its profits, and make capital investment.  So any dividend stock can be made to work like a growth stock.  Same thing in reverse for a growth stock that has buy-back option.  The only difference then, would be in what the shareholders expect, and how that influences the corporate direction.

About the early-mortgage payoff, my financial advisor put it this way: "No one ever got snippy with their spouse because they didn't have a mortgage payment hanging over their heads."  Yes, investing in stocks may be better than investing in home equity.  But investing in an end to all money worries is even better.

It's interesting to me how some people seem to see owning a home outright as, "an end to all money worries." For me, owning my home, with no mortgage, felt super risky. At least, if you have a mortgage, the lender is carrying part of the downside risk, while the homeowner is still entitled to 100% of the upside potential for growth. When you own the home yourself, if something bad happens, the risk is all yours. I feel much safer as a renter.

Why Your House is a Terrible Investment

Typically insurance companies cover most of the downside risk.
Except when they don't.

-Where we live hurricanes and volcanoes are probably the two biggest risks to real property, but insurance that actually covers damage caused by natural disasters is either unavailable or unaffordable for most people.

-For 2.5 years, a property owner in our neighborhood "leased" his land to a "farmer" who never grew any crops, lived in a tent on the property and had 50+ dogs tied to trees all over the land. Adjacent property owners contacted police, building, planning and health departments, filed lawsuits, etc. It took them 2.5 years to get rid of the guy! During that entire time, it would've been close to impossible for any of the nearby landowners to have sold their properties. Even ~1/2 mile away where we live, the noise from the 50+ dogs barking was LOUD! Pretty sure a typical homeowners policy wouldn't cover that risk in any way.

From the article linked above:

"It should be subject to the fortunes of one country, one state, one city, one town…No! One neighborhood! Imagine if our investment could somehow tie its owner to the fate of one narrow location. The risk could be enormous! A plant closes. A street gang moves in. A government goes crazy with taxes. An environmental disaster happens nearby. We could have an investment that not only crushes it’s owner’s net worth, but does so even as they are losing their job and income!"

Boofinator

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #27 on: February 27, 2019, 03:42:25 PM »
Typically insurance companies cover most of the downside risk.
Except when they don't.

-Where we live hurricanes and volcanoes are probably the two biggest risks to real property, but insurance that actually covers damage caused by natural disasters is either unavailable or unaffordable for most people.

-For 2.5 years, a property owner in our neighborhood "leased" his land to a "farmer" who never grew any crops, lived in a tent on the property and had 50+ dogs tied to trees all over the land. Adjacent property owners contacted police, building, planning and health departments, filed lawsuits, etc. It took them 2.5 years to get rid of the guy! During that entire time, it would've been close to impossible for any of the nearby landowners to have sold their properties. Even ~1/2 mile away where we live, the noise from the 50+ dogs barking was LOUD! Pretty sure a typical homeowners policy wouldn't cover that risk in any way.

From the article linked above:

"It should be subject to the fortunes of one country, one state, one city, one town…No! One neighborhood! Imagine if our investment could somehow tie its owner to the fate of one narrow location. The risk could be enormous! A plant closes. A street gang moves in. A government goes crazy with taxes. An environmental disaster happens nearby. We could have an investment that not only crushes it’s owner’s net worth, but does so even as they are losing their job and income!"

Um, I grew up in Hurricane Paradise, my house has been destroyed, and I am quite certain that at least at that time (granted a generation ago) houses were covered for hurricane damage (with the exception of flood damage; don't buy in a flood zone). From some brief research, insurance is more expensive these days (to compensate for risk), but nonetheless covers hurricanes.

Volcanoes, I claim ignorance on.

Sorry about your friend's bad luck.

All of that said, the comparison in this thread isn't between owning versus renting, it is between keeping the mortgage to invest in stocks versus paying off the mortgage. The "location risk" which Collins (who I generally respect) fears so much is irrelevant, because you will still owe the bank the mortgage, even if you have to liquidate all of your valuable stock to cover it. The alternative (walking away) is generally not worth it for Mustachians.

effigy98

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #28 on: February 27, 2019, 05:07:42 PM »
Is this like a dividend stock?
I prefer non dividend stocks and selling covered calls to make my own dividends.

ender

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #29 on: February 27, 2019, 05:11:27 PM »
I like dividend funds in my index funds.

This poll is really confusing. It should just have been "I primarily invest in individual stocks" and not a convoluted thing for the first half.

v8rx7guy

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #30 on: February 27, 2019, 05:11:49 PM »
I voted, but I disagree with the 2nd most controversial topic being dividend funds vs. indexing.

ender

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #31 on: February 27, 2019, 05:34:15 PM »
I voted, but I disagree with the 2nd most controversial topic being dividend funds vs. indexing.

definitely blue vs gold

shinn497

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #32 on: February 27, 2019, 08:40:07 PM »
PAYOFF YOUR MORTGAE AND DIVIDENDS DONT MATTER @Me IF U DISAGREE

Also I'm so lonely ;_; ;_;

Dicey

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #33 on: February 27, 2019, 09:00:33 PM »
As for dividend vs. growth stocks:  I think the difference is minimal.  If you reinvest your dividends, you are essentially telling the company to keep its profits, and make capital investment.  So any dividend stock can be made to work like a growth stock.  Same thing in reverse for a growth stock that has buy-back option.  The only difference then, would be in what the shareholders expect, and how that influences the corporate direction.

About the early-mortgage payoff, my financial advisor put it this way: "No one ever got snippy with their spouse because they didn't have a mortgage payment hanging over their heads."  Yes, investing in stocks may be better than investing in home equity.  But investing in an end to all money worries is even better.
There is no such thing as a worry free house!

Do you ever see old, dilapidated houses and just know that an older person lives there? Owning a house is expensive, even without a mortgage. Taxes always go up, utilities as well. Maintenance can be crazy, especially when expensive things wear out. Anyone priced a water heater lately? In about a decade, they've nearly doubled in price. ANd if you're old, you'll have to pay someone to do it for you. It sucks to be an old person trapped in a moldering house. It's much better to accumulate a huge pile of money early in life, invest it well, and have enough to pay of the mortgage eventually AND have enough money to live on comfortably for the rest of your life.

Here's the problem: you're not going to feel the pinch until it's too late to do much about it. But don't take my word for it. Time will tell.


Dicey

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #34 on: February 27, 2019, 09:20:50 PM »
As for dividend vs. growth stocks:  I think the difference is minimal.  If you reinvest your dividends, you are essentially telling the company to keep its profits, and make capital investment.  So any dividend stock can be made to work like a growth stock.  Same thing in reverse for a growth stock that has buy-back option.  The only difference then, would be in what the shareholders expect, and how that influences the corporate direction.

About the early-mortgage payoff, my financial advisor put it this way: "No one ever got snippy with their spouse because they didn't have a mortgage payment hanging over their heads."  Yes, investing in stocks may be better than investing in home equity.  But investing in an end to all money worries is even better.

It's interesting to me how some people seem to see owning a home outright as, "an end to all money worries." For me, owning my home, with no mortgage, felt super risky. At least, if you have a mortgage, the lender is carrying part of the downside risk, while the homeowner is still entitled to 100% of the upside potential for growth. When you own the home yourself, if something bad happens, the risk is all yours. I feel much safer as a renter.

Why Your House is a Terrible Investment
I totally see your point, Shane, but I'm scratching my head at your Financial Advisor's comment. Huh?

Do you know that since he wrote that article, the esteemed jlcollins has purchased another house? Yup.

https://jlcollinsnh.com/2017/07/11/kibanda-mr-anti-house-buys-his-dream-house/

I love owning my own house. No one can give me thirty days notice. No one can jack up my rent at whim. I can paint anything any color I want. I can put nail holes anywhere I want. I can remodel or change anything I want to. I can have as many pets as I want. I can have a garden. I can remove the grass and put something more water-friendly in. I can add a fence, I can remove a fence, I can move a fence. I can play any kind of music at any volume at any time. Unless I'm the one making the noise, it is generally quiet. I have a huge garage and plenty of additional parking. I have room for guests. I don't have a lease. I can come and go as I please. If I want to move, I can sell or rent for a profit.

Yeah, it's expensive owning a house, and it can be a total pain in the ass, but it's totally worth it to me. JL Collins thinks so, too.

https://jlcollinsnh.com/2018/08/19/kibanda-part-5-pretty-and-pretty-much-done/


shinn497

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #35 on: February 27, 2019, 10:39:32 PM »
I think I am less anti mortgage and just anti home. I see it this way.  I go with Dave Ramsey's mortgage guideline (15 year at 25% of income) and or buy in cash. This forces you to buy small and buy reasonable. But stocks are so compelling compared to homes if you are a minimalism like me. The way I see it, if something goes wrong with a landlord, I'll just move. And eventually ill be able to live anywhere on my investments. Houses tie you down man. All that space....just to not be used most of the time :/. Tying you to a certain location. Sucking away your finances. Limiting your freedom. No waaaayyyy.

EscapeVelocity2020

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #36 on: February 27, 2019, 11:19:10 PM »
I look at total return (not one of the answers, but dividends are only part of an investment's return so does not skew my predilection) and in this current low yield / low mortgage rate environment, it's a toss up on paying off vs. investing.  But when I took out my mortgage initially, it was a great fixed payment to owe since I was expecting to make more on my investments (2009) and then refinanced lower (2011)to make life even better.  Nowadays it's not so easy to know what to think...

None of these options were on your poll, so I didn't vote.


Shane

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #37 on: February 28, 2019, 12:51:55 AM »
As for dividend vs. growth stocks:  I think the difference is minimal.  If you reinvest your dividends, you are essentially telling the company to keep its profits, and make capital investment.  So any dividend stock can be made to work like a growth stock.  Same thing in reverse for a growth stock that has buy-back option.  The only difference then, would be in what the shareholders expect, and how that influences the corporate direction.

About the early-mortgage payoff, my financial advisor put it this way: "No one ever got snippy with their spouse because they didn't have a mortgage payment hanging over their heads."  Yes, investing in stocks may be better than investing in home equity.  But investing in an end to all money worries is even better.

It's interesting to me how some people seem to see owning a home outright as, "an end to all money worries." For me, owning my home, with no mortgage, felt super risky. At least, if you have a mortgage, the lender is carrying part of the downside risk, while the homeowner is still entitled to 100% of the upside potential for growth. When you own the home yourself, if something bad happens, the risk is all yours. I feel much safer as a renter.

Why Your House is a Terrible Investment
I totally see your point, Shane, but I'm scratching my head at your Financial Advisor's comment. Huh?

Do you know that since he wrote that article, the esteemed jlcollins has purchased another house? Yup.

https://jlcollinsnh.com/2017/07/11/kibanda-mr-anti-house-buys-his-dream-house/

I love owning my own house. No one can give me thirty days notice. No one can jack up my rent at whim. I can paint anything any color I want. I can put nail holes anywhere I want. I can remodel or change anything I want to. I can have as many pets as I want. I can have a garden. I can remove the grass and put something more water-friendly in. I can add a fence, I can remove a fence, I can move a fence. I can play any kind of music at any volume at any time. Unless I'm the one making the noise, it is generally quiet. I have a huge garage and plenty of additional parking. I have room for guests. I don't have a lease. I can come and go as I please. If I want to move, I can sell or rent for a profit.

Yeah, it's expensive owning a house, and it can be a total pain in the ass, but it's totally worth it to me. JL Collins thinks so, too.

https://jlcollinsnh.com/2018/08/19/kibanda-part-5-pretty-and-pretty-much-done/

@Dicey Yeah, I took Jim's blog post against home ownership as more tongue in cheek than anything else. Jim says it's important to run the numbers to see if buying a property may be a good investment or if it's just an expensive indulgence. I know he bought a house on the lake a while back and has been fixing it up. Pretty sure Jim has clearly labeled his purchase of Kibanda, or whatever he calls it, as being an expensive luxury that he can afford but that he's under no illusions will, necessarily, ever pay off financially. Jim seems to be trying to keep costs down on the renovation to make it so, maybe, the place might not be a loss for him, but I've never read any claims that he's doing it because it will, for sure, be a moneymaking venture. Jim just likes living on the lake. He got what he thought was a good deal on a house in an area where he wanted to live, and he bought it, knowing it may end up just being an expensive indulgence.

I loved owning a house, as well, Dicey. I wouldn't trade those years of home ownership for anything, but I'm also happy, now, to not own a house. It feels great to be free from having to worry about big, unexpected expenses suddenly appearing out of nowhere. In retirement, I'm happy to have my expenses be more predictable. If a neighborhood starts to go downhill or taxes start going up, or whatever, we can easily just move somewhere else.

I realize this whole discussion of home ownership vs. renting is not, at all, the subject of this thread, and I apologize to anyone who is irritated by my bringing it up. The comment, above, attributed to somebody's financial advisor, that investing money in paying off a mortgage might lead to, "an end to all money worries," just seemed funny to me. If you own a property, there are always going to be expenses for predictable things like a new roof every so many years, repainting or whatever, but there are also going to be repeated unexpected expenses, like when your water heater starts leaking all over the floor and you suddenly have to replace it or when your aquarium gets a leak and the water damage costs $$ thousands to repair. Sometimes, insurance will cover unexpected expenses and sometimes not.

Mississippi Mudstache

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #38 on: February 28, 2019, 06:08:20 AM »
I think I am less anti mortgage and just anti home. I see it this way.  I go with Dave Ramsey's mortgage guideline (15 year at 25% of income) and or buy in cash. This forces you to buy small and buy reasonable. But stocks are so compelling compared to homes if you are a minimalism like me. The way I see it, if something goes wrong with a landlord, I'll just move. And eventually ill be able to live anywhere on my investments. Houses tie you down man. All that space....just to not be used most of the time :/. Tying you to a certain location. Sucking away your finances. Limiting your freedom. No waaaayyyy.

Fuck renting. My landlord probably wouldn't let me build workshops and treehouses like these on his property. Have to have my own place enjoy my hobbies.




shinn497

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #39 on: February 28, 2019, 07:44:07 AM »
I think I am less anti mortgage and just anti home. I see it this way.  I go with Dave Ramsey's mortgage guideline (15 year at 25% of income) and or buy in cash. This forces you to buy small and buy reasonable. But stocks are so compelling compared to homes if you are a minimalism like me. The way I see it, if something goes wrong with a landlord, I'll just move. And eventually ill be able to live anywhere on my investments. Houses tie you down man. All that space....just to not be used most of the time :/. Tying you to a certain location. Sucking away your finances. Limiting your freedom. No waaaayyyy.

Fuck renting. My landlord probably wouldn't let me build workshops and treehouses like these on his property. Have to have my own place enjoy my hobbies.





Oh am all for hobbies but just don't kid yourself with how much you are paying for the space to have them.

Mississippi Mudstache

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #40 on: February 28, 2019, 08:03:01 AM »
Oh am all for hobbies but just don't kid yourself with how much you are paying for the space to have them.

I'm not kidding anyone. I rented for three years before I bought this place, and I was miserable. There's nothing worse (for me) than living in someone else's home.

talltexan

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #41 on: February 28, 2019, 02:02:25 PM »
Posting to follow.

The two should be correlated, because certain tolerances for risk, etc., underly both decisions.

ChpBstrd

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #42 on: February 28, 2019, 02:42:03 PM »
Posting to follow.

The two should be correlated, because certain tolerances for risk, etc., underly both decisions.

My hypothesis was that you would see a "total return" grouping (#4) and an "enhanced certainty" grouping (#1). However the results have not turned out that way. Now I too am thinking this is more like a risk tolerance spectrum, and the respondents tend to accept the more risky-looking approach of borrowing against one's home to sustain a bigger stock portfolio.

phildonnia

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #43 on: February 28, 2019, 03:23:55 PM »
Unfortunately, the poll won't tell the OP whether the answers are correlated.  You'd need the individual data points to be able to figure that out.

Can you explain?

I'm genuinely interested in statistical paradoxes, but I can't figure out what you mean here.  Can't the "data points" be reconstructed from the four choices offered?

...

To really figure out correlation, you'd have to know each (x,y) coordinate pair, which means you'd need to know how each person felt about the two variables and to what degree or extent they felt that way.

There's no paradox, there's just a lack of the information needed to assess the question.

Thanks, that makes sense.  I wasn't thinking of it in terms of degree or extent of the opinion.

shinn497

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #44 on: February 28, 2019, 08:58:17 PM »
I think you could still do it with some uncertainty, though

steveo

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Re: Poll on the most controversial 2 subjects on the MMM forum
« Reply #45 on: March 01, 2019, 12:56:00 AM »
Indexer but pay off the mortgage. I'm Australian and our rates are about 4%-5% which I think is worth paying off as its a risk free return. If the rates get much lower than I'd retain the debt.