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.
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!