Author Topic: question about vanguard how tos and math  (Read 3099 times)

dandypandys

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question about vanguard how tos and math
« on: May 12, 2015, 08:28:42 AM »
Hello
I had a couple of basic questions.. I've been reading a ton and am part 3 into http://jlcollinsnh.com on stocks. But i really am at entry level here.
Thanks in advance!!

I have 40k spare that is sitting in my savings account doing nothing, and have only just discovered this blog and had my eyes begun to be opened.
Do i pay off the rest of my mortgage over the next 3 years with this money and what i can save per month, the mortgage is apr at 5.9%
Or can Vanguard index beat that in 3 years? How can i find that out, what kind of sums should i do- or get the husband do do lol?
If 5.9% apr on 86k left on mortgage was paid off in 3 years would i save 5074$ Vanguard would be ?% on 40k adding at least 1500 a month, could i beat that number in 3 years then withdraw and dump it all into the mortgage? Maybe i am missing some things while trying to compare?
I get really confused thinking about it, I'm an artist and was crap at math in school.

The other Q is, how do i do this vanguard thing? Do i go to their website and register an account and just do it? Or since i already have a 403b with my work with Transamerica, do i do it through that? I am doing this because i want to make this 40k pay off the mortgage faster, so want to access it in 3 years perhaps (I've sent an email to Transamerica to ask, but worried they will just say yes of course as maybe they benefit somehow, fees etc)

ok those are my dumb dumb Qs that are bothering me while i start from scratch learning all this stuff :)
Thanks for a great forum btw~



dandarc

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Re: question about vanguard how tos and math
« Reply #1 on: May 12, 2015, 08:43:11 AM »
Generally, you shouldn't invest in anything you don't understand.  So finish the stock series first.

Why not refinance to a lower apr?  Seems like you can get 3-4% these days pretty easily if you've got decent credit.  Then the advice might tilt towards "don't pay the mortgage off early, and invest all you can".

If all you want to do is pay off the mortgage, throw whatever of the 40K you were going to at it today, and start making extra payments.  The quicker you get the balance down, the less interest you'll pay.  3 years is not long enough to be invested, particularly if said investments need to beat 5.9%.

nereo

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Re: question about vanguard how tos and math
« Reply #2 on: May 12, 2015, 08:47:07 AM »

I have 40k spare that is sitting in my savings account doing nothing, and have only just discovered this blog and had my eyes begun to be opened.
Do i pay off the rest of my mortgage over the next 3 years with this money and what i can save per month, the mortgage is apr at 5.9%
Or can Vanguard index beat that in 3 years?
How can i find that out, what kind of sums should i do- or get the husband do do lol?
If 5.9% apr on 86k left on mortgage was paid off in 3 years would i save 5074$ Vanguard would be ?% on 40k adding at least 1500 a month, could i beat that number in 3 years then withdraw and dump it all into the mortgage? Maybe i am missing some things while trying to compare?
I get really confused thinking about it, I'm an artist and was crap at math in school.

Hello dandypandys.  It sounds like you are just starting out, and I think it is great that you are trying to learn and do better.

First, there is no absolutely no way of determining what the market will do in 3 years time.  Historically it has average 7-8% per year after inflation, but there are years when it has dropped 40% and years when it has risen 40%.   Over three year time periods the SP500 has had positive returns about 75% of the time.
However, whats important is that you should be thinking longer than a 3 year time period.  HOpefully, this is money you intend to keep there for at least a decade.  If that's the case, then it's much more likely you will see positive returns with dividends reinvested. 
As for whether you should pay off your mortgage - that's a personal choice.  I'd start by asking why you have a 5.9% rate when prime right now sits at 3.9% for a 30 year mortgage.  Consider refinancing.  If that's not an option for you, then the 'safe' play here would be to pay down your mortgage, since that will give you a guaranteed 5.9% return, which isn't bad. 

Quote
The other Q is, how do i do this vanguard thing? Do i go to their website and register an account and just do it? Or since i already have a 403b with my work with Transamerica, do i do it through that? I am doing this because i want to make this 40k pay off the mortgage faster, so want to access it in 3 years perhaps (I've sent an email to Transamerica to ask, but worried they will just say yes of course as maybe they benefit somehow, fees etc)

Go to Vanguard's website and follow their step-by-step instructions for opening an account.  I am assuming you are in the US here.  Consider starting with a traditional IRA account, which will give you a lot of tax benefits.  You will need $1000 for most of their funds to start out, but afterwards you can contribute as little as $25 on whatever schedule you like (daily, weekly, monthly, quarterly...).  Since you have a chunk of cash you should have no problem with the minimum balances. 
You also have to give a little thought into what fund you want to invest in.  I really like their SP500 fund, which is very low cost and gives you exposure to the 500 largest US traded funds.  It's symbol is VFINX.  Others like the total-market fund, which has those same 500 companies plus about 2000 smaller ones.  It's symbol is VTSMX.  They also have 'blended funds' which include both stocks and bonds.  This gets into the question of Asset Allocation, which is another whole topic.

G'luck!

dandypandys

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Re: question about vanguard how tos and math
« Reply #3 on: May 12, 2015, 08:51:23 AM »
ah ok thank you.
I think you answered my Q which makes number 2 Q not needed to know yet.

I am really enjoying reading the series, we are doing it together as a couple, which is fun.
I want to pay the mortgage off because right now it is worth less than i owe, and i do want to sell and buy a home without HOA that doubled in 10 years, yikes.
So i figured i can hopefully still get a low APR in 3 years,but  the house prices are rising here too, but not my condo for some reason. It makes things complex, so i am trying to fathom it out as simply as i can.
I've never had to buy a house while owning one, and just presumed you need to buy one first so you can move out in order to sell so i guess i really need to have 86k to pay off this mortgage, and a further 50k for a downpayment on a house, so then i can sell this condo, and start the investing for real.
ok I'm confusing myself lol

thank you nereo
i am for sure starting out, i feel like a bit of a dumb dumb!

« Last Edit: May 12, 2015, 08:59:56 AM by dandypandys »

forummm

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Re: question about vanguard how tos and math
« Reply #4 on: May 12, 2015, 12:16:19 PM »
For me personally, I would pay off a 6% mortgage instead of buying stocks right now. But if I could I would instead refinance the mortgage to a more reasonable rate (like 3 or 3.5%). I have a 3% mortgage and could pay it off but have invested the funds instead. I encourage you to do more learning before making a move.

dandypandys

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Re: question about vanguard how tos and math
« Reply #5 on: May 12, 2015, 01:04:49 PM »
For me personally, I would pay off a 6% mortgage instead of buying stocks right now. But if I could I would instead refinance the mortgage to a more reasonable rate (like 3 or 3.5%). I have a 3% mortgage and could pay it off but have invested the funds instead. I encourage you to do more learning before making a move.

Will do, thanks, am just finished part 5 of the Stock series :) I also have emails to a couple of realtors to find out some details.

dess1313

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Re: question about vanguard how tos and math
« Reply #6 on: May 16, 2015, 08:24:26 PM »
Depending on if you can refinance, and how much you can prepay, why not do a bit of both? 

If you paid down your mortgage with even half the amount, how much of an interest savings would that be?  How many years would you remove from your mortgage life?  Once you get the principle lower, the interest penalty is so much lower each month. 

Then when the mortgage is done early, all those payments can go towards your investments.  this way you're guaranteed a good return on half your money of reduced mortgage interest, and the rest can start growing in which ever investments you choose.


86k at 5.9% means you're paying 422 in just interest every month
66k at 5.9% means you're paying 324
46k at 5.9% means you're paying 226.....almost half of what you will be paying now.....even better if you could refinance.  make any early prepayments before negotiating new rates, it should help reduce any penalties a bit


Me.....i'm a fan of paying down mortgage debt that's close to the end ASAP.  I was guaranteed a return even if it was smaller than the average market values and was unable to both invest AND do mortgage AND save for a car at the same time.  This way my mortgage payment will become my investment payments as of august 2015.  I had also been off work once, and the stress of having mortgage and other payments was hard.  I don't want to have to worry about payments and debts again if things ever were bad for a month or two or more


dandypandys

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Re: question about vanguard how tos and math
« Reply #7 on: May 17, 2015, 06:08:57 PM »
Depending on if you can refinance, and how much you can prepay, why not do a bit of both? 

If you paid down your mortgage with even half the amount, how much of an interest savings would that be?  How many years would you remove from your mortgage life?  Once you get the principle lower, the interest penalty is so much lower each month. 

Then when the mortgage is done early, all those payments can go towards your investments.  this way you're guaranteed a good return on half your money of reduced mortgage interest, and the rest can start growing in which ever investments you choose.


86k at 5.9% means you're paying 422 in just interest every month
66k at 5.9% means you're paying 324
46k at 5.9% means you're paying 226.....almost half of what you will be paying now.....even better if you could refinance.  make any early prepayments before negotiating new rates, it should help reduce any penalties a bit


Me.....i'm a fan of paying down mortgage debt that's close to the end ASAP.  I was guaranteed a return even if it was smaller than the average market values and was unable to both invest AND do mortgage AND save for a car at the same time.  This way my mortgage payment will become my investment payments as of august 2015.  I had also been off work once, and the stress of having mortgage and other payments was hard.  I don't want to have to worry about payments and debts again if things ever were bad for a month or two or more

Thank you for the math! :) Yes that really makes it clear, i think i might get it down to 66k straight away, and then really aggressively start paying it down so that it is gone asap. I bet you feel great about being so close to having it paid off, that is the other benefit of fast tracking the payments, it really will feel good!

dess1313

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Re: question about vanguard how tos and math
« Reply #8 on: May 17, 2015, 06:59:17 PM »
Do you have many years left on your mortgage contract?  What sort of repayments are you allowed?   some allow you a lot of adjustment, some lock you in and allow none

https://www.tangerine.ca/en/calculators/calculators.html#mpc 

They have a nice one.  take your current values and put it in there and see just how much interest you'll pay right now if you did not touch it.  Then tweak it with your repayment abilities and see what works best.  I ended up doing a spread sheet because i had several options and several years i was looking at for tweaking mine.  And yes it feels very very good!  Very glad to see the balance ticking down so far