Author Topic: Mr. Math and paying off your mortgage  (Read 47876 times)

Tyson

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Re: Mr. Math and paying off your mortgage
« Reply #150 on: April 19, 2017, 12:35:19 PM »
One other factor that plays into my own decision to save up enough $$ to pay off the mortgage before FIRE is that I have a high paying job ($120k/year) but it took me a good solid 20 years to get to this level.  And once I quit, that level of income won't be coming back.

So I'm OK using that firehose of $$ while I have it.  Is that OMY?  Yeah, probably.  Am I OK with that?  Yes, yes I am.

Oh, I should note that I'm a long way from FIRE, so I'm still very much in the accumulation phase. 

And I do dump all my extra $$ into stocks because stocks don't even have to hit 9% or even 7% to even out against my mortgage.  They just have to do 4% or better.  So the $$ goes to stocks.  If they hit 9%, great, nest egg gets big enough to pay off the mortgage sooner.  If they only do 4%, well, no real loss.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #151 on: April 19, 2017, 12:40:31 PM »
I'm just pointing out that "pay off the mortgage or invest in stocks" is not necessarily an either-or choice.  You could do both.

Optimal?  Depends on what 'optimal' means to you.  If it means 'retire as soon as possible', then it's not optimal. If it means 'have the least risk of running out of $$ and losing your home', then it is.

no b/c you can invest vs pay down your mortgage and satisfy both of those thats the common misconception being discussed here.
Statements like this are what i find so frustrating.  It is like the stock market is some kind of magic money machine.

Its not a misconception.  There is an important caveat.

You can satisy both only IF market returns meet your ASSUMPTIONS about future returns.  If markets do not meet your assumptions the leverage strategy INCREASES the risk of losing your home.  You can argue that the probability markets fail to exceed a certain level is zero, but that does not make it the truth.  Deflecting arguements that bring up the 'risk of not being able to retire as early as you want' is a distortion of the normal way of looking at investment and returns.  Financial products do not care about how you spend what they earn you or why you are investing.

To use your examples, saving money is guaranteed to help you get there faster, just as owning a boat is almost guaranteed to slow your progress.  Leveraged investing in stocks is not guaranteed to help accelerate towards FIRE.  A good idea, yes.  Likely, yes.  Guaranteed, no.

PS frankly, the flow of funds into Vanguard and the intensity of these comments assuring young people that index funds are the key to a work free life have me worried we just might be hitting Japan levels of exuberance.  I lived in TOKYO from 1989-1992.  One of my clients was selling golf memberships for millions. People believed real estate and stocks could only go up....

and by saving til youre at 50x you're assuming you wont be dead before then or the earth wont get hit by an asteroid.  asteroid is extreme.  but death is probably the same likelihood of the scenario people claim to be fearful of with stocks. 

brooklynguy

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Re: Mr. Math and paying off your mortgage
« Reply #152 on: April 19, 2017, 12:52:57 PM »
Deflecting arguements that bring up the 'risk of not being able to retire as early as you want' is a distortion of the normal way of looking at investment and returns.

When performing the cost-benefit decision-making analysis, all relevant risks should be taken into account, not only those that fit within the narrow scope of the term "risk" as it is traditionally defined in the field of finance.  For an aspiring early retiree, the risk of prolonging achievement of financial independence is, in my mind, one of the most salient risks worth considering.

MDM

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Re: Mr. Math and paying off your mortgage
« Reply #153 on: April 19, 2017, 12:54:09 PM »
Is there a reason we can't use industry standard markers for risk-adjusted returns?
Maybe because the main complaint is [the Sharpe] ratio relies on the notions that risk equals volatility and that volatility is bad?
The validity of those notions is part of the debate here.
And the Sortino ratio that describes downside volatility?

While the Sortino ratio addresses and corrects  some of the weaknesses of the Sharpe ratio,  neither statistic measures ongoing and future  risks; they both measure the past “goodness” of a  manager’s or investment’s return stream.

In other words - and this is a question to which I do not know the answer - for what specific value of any of these ratios would the invest/pre-pay choice be mathematically equivalent?  If that question is answerable, it would be interesting to understand the answer.  If that question is not answerable, then back to our regularly scheduled programming....

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #154 on: April 20, 2017, 11:36:23 AM »
I see all to often especially when times are good that people confuse real risk with volatility thinking they are the same thing when in reality they are not.  For me, my biggest risk comes when I retire and must live off my savings.  Finding work will not be an option. Therefor on my retirement I will try to minimize that risk by having lower fixed expenses.  Lower fixed expenses allows me more flexibility during bad times and therefor minimizes my risk.  Basically my plan is to keep my mortgage until I am ready to fire and then at that point aggressively pay it off.

I do not think there is a single person on this thread who can promise me that we will not have a 10+ year recession in the future.

For me the risk of having a prolonged recession as I retire is a real potential threat.  By cutting out a $25k/yr mortgage payment I am in much better shape to handle that risk.  Until retirement there is no need to eliminate that mortgage.

.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #155 on: April 20, 2017, 11:52:00 AM »
I see all to often especially when times are good that people confuse real risk with volatility thinking they are the same thing when in reality they are not.  For me, my biggest risk comes when I retire and must live off my savings.  Finding work will not be an option. Therefor on my retirement I will try to minimize that risk by having lower fixed expenses.  Lower fixed expenses allows me more flexibility during bad times and therefor minimizes my risk.  Basically my plan is to keep my mortgage until I am ready to fire and then at that point aggressively pay it off.

I do not think there is a single person on this thread who can promise me that we will not have a 10+ year recession in the future.

For me the risk of having a prolonged recession as I retire is a real potential threat.  By cutting out a $25k/yr mortgage payment I am in much better shape to handle that risk.  Until retirement there is no need to eliminate that mortgage.

.

how is finding work not an option?  there are millions of ways to make a dollar.  and typically you only need to make ~10% of your spending level to offset the downside historically.

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #156 on: April 20, 2017, 12:14:00 PM »
I see all to often especially when times are good that people confuse real risk with volatility thinking they are the same thing when in reality they are not.  For me, my biggest risk comes when I retire and must live off my savings.  Finding work will not be an option. Therefor on my retirement I will try to minimize that risk by having lower fixed expenses.  Lower fixed expenses allows me more flexibility during bad times and therefor minimizes my risk.  Basically my plan is to keep my mortgage until I am ready to fire and then at that point aggressively pay it off.

I do not think there is a single person on this thread who can promise me that we will not have a 10+ year recession in the future.

For me the risk of having a prolonged recession as I retire is a real potential threat.  By cutting out a $25k/yr mortgage payment I am in much better shape to handle that risk.  Until retirement there is no need to eliminate that mortgage.

.

how is finding work not an option?  there are millions of ways to make a dollar.  and typically you only need to make ~10% of your spending level to offset the downside historically.

My ego, and my skill level will not allow me to take a job paying so significantly less than what I make today.  Also, if/when I retire I will also let my license laps considering the many hours and dollars it costs to renew it.  Keep in mind boarder, not everyone is in the same situation as you.  I have a feeling you really believe that risk is only volatility when in reality it is much more than that.  We all hope that markets follow history, but that is also not guaranteed.  We accept that risk in order to get higher returns.  There is no guarantee that we will not be the next Japan or another Great Depression.  I hedge those risks by having a much lower fixed income when I retire.  Your confusion with everyones response is that you believe there really is no risk.  I hope you are right, but even history has proven you wrong.  I wonder, if you had a substantial loss during the 2009 recession, if you lived through having your investments cut in half, losing your job, and being forced to live off your devalued assets, selling every month for huge losses for the next 3-5 years while the markets recover and you maybe are able to find new work.  That is real risk and it will rattle most people.  Some people have nerves of steel and can handle that stress, but those are very rare people.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #157 on: April 20, 2017, 12:21:55 PM »
I see all to often especially when times are good that people confuse real risk with volatility thinking they are the same thing when in reality they are not.  For me, my biggest risk comes when I retire and must live off my savings.  Finding work will not be an option. Therefor on my retirement I will try to minimize that risk by having lower fixed expenses.  Lower fixed expenses allows me more flexibility during bad times and therefor minimizes my risk.  Basically my plan is to keep my mortgage until I am ready to fire and then at that point aggressively pay it off.

I do not think there is a single person on this thread who can promise me that we will not have a 10+ year recession in the future.

For me the risk of having a prolonged recession as I retire is a real potential threat.  By cutting out a $25k/yr mortgage payment I am in much better shape to handle that risk.  Until retirement there is no need to eliminate that mortgage.

.

how is finding work not an option?  there are millions of ways to make a dollar.  and typically you only need to make ~10% of your spending level to offset the downside historically.

My ego, and my skill level will not allow me to take a job paying so significantly less than what I make today.  Also, if/when I retire I will also let my license laps considering the many hours and dollars it costs to renew it.  Keep in mind boarder, not everyone is in the same situation as you.  I have a feeling you really believe that risk is only volatility when in reality it is much more than that.  We all hope that markets follow history, but that is also not guaranteed.  We accept that risk in order to get higher returns.  There is no guarantee that we will not be the next Japan or another Great Depression.  I hedge those risks by having a much lower fixed income when I retire.  Your confusion with everyones response is that you believe there really is no risk.  I hope you are right, but even history has proven you wrong.  I wonder, if you had a substantial loss during the 2009 recession, if you lived through having your investments cut in half, losing your job, and being forced to live off your devalued assets, selling every month for huge losses for the next 3-5 years while the markets recover and you maybe are able to find new work.  That is real risk and it will rattle most people.  Some people have nerves of steel and can handle that stress, but those are very rare people.

i understand sequence of returns risk and if your goal is to never make another dollar after you walk out the door then your plan is much more aligned with your situation and works and is a lump sum pay down after FI which eliminates the risks associated iwth gradual paydown while trying to reach FIRE.

Tyson

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Re: Mr. Math and paying off your mortgage
« Reply #158 on: April 20, 2017, 12:29:04 PM »
EnjoyIt and I have the exact same plan, nice!  :)  I would also like to point out an advantage for doing this - if you pay off the mortgage your costs go down in FIRE.  For me, my costs are:

$30k without mortgage
$60k with mortgage

If I pay off the mortgage and have 'only' $30k income, I get into a much better tax bracket and I also qualify for much better ACA subsidies (or whatever is in place at that time). 

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #159 on: April 20, 2017, 12:35:32 PM »
EnjoyIt and I have the exact same plan, nice!  :)  I would also like to point out an advantage for doing this - if you pay off the mortgage your costs go down in FIRE.  For me, my costs are:

$30k without mortgage
$60k with mortgage

If I pay off the mortgage and have 'only' $30k income, I get into a much better tax bracket and I also qualify for much better ACA subsidies (or whatever is in place at that time).

if the ACA is still in place or there is some monetary benefit to having my mortgage paid off i may pay it off as well but i dont think subsidies will be around .... i'm all for the best choices from a math to risk ratio and would gladly pay off my home if it made financial sense for the given situation.  i just dont think with even the current subsidies paying off my home wins when you consider the ACA still. and i dont plan ot do the math on something that will likely be changed in 3 months. and probably change 3 -4 more times before i FIRE in 5-7 years.  Healthshare is still the most affordable option for me if its still around.

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Re: Mr. Math and paying off your mortgage
« Reply #160 on: April 20, 2017, 12:51:38 PM »
I see all to often especially when times are good that people confuse real risk with volatility thinking they are the same thing when in reality they are not.  For me, my biggest risk comes when I retire and must live off my savings.  Finding work will not be an option. Therefor on my retirement I will try to minimize that risk by having lower fixed expenses.  Lower fixed expenses allows me more flexibility during bad times and therefor minimizes my risk.  Basically my plan is to keep my mortgage until I am ready to fire and then at that point aggressively pay it off.

I do not think there is a single person on this thread who can promise me that we will not have a 10+ year recession in the future.

For me the risk of having a prolonged recession as I retire is a real potential threat.  By cutting out a $25k/yr mortgage payment I am in much better shape to handle that risk.  Until retirement there is no need to eliminate that mortgage.

.

how is finding work not an option?  there are millions of ways to make a dollar.  and typically you only need to make ~10% of your spending level to offset the downside historically.

My ego, and my skill level will not allow me to take a job paying so significantly less than what I make today.  Also, if/when I retire I will also let my license laps considering the many hours and dollars it costs to renew it.  Keep in mind boarder, not everyone is in the same situation as you.  I have a feeling you really believe that risk is only volatility when in reality it is much more than that.  We all hope that markets follow history, but that is also not guaranteed.  We accept that risk in order to get higher returns.  There is no guarantee that we will not be the next Japan or another Great Depression.  I hedge those risks by having a much lower fixed income when I retire.  Your confusion with everyones response is that you believe there really is no risk.  I hope you are right, but even history has proven you wrong.  I wonder, if you had a substantial loss during the 2009 recession, if you lived through having your investments cut in half, losing your job, and being forced to live off your devalued assets, selling every month for huge losses for the next 3-5 years while the markets recover and you maybe are able to find new work.  That is real risk and it will rattle most people.  Some people have nerves of steel and can handle that stress, but those are very rare people.

Man that sucks. I had a girl in my cohort and when we were finishing up our PhDs we were at a conference, drinking a few beers and talking. We got to talking about making a living and getting jobs. I asked her what she would do if she didn't get a job in consulting or a job related to her PhD. I said if it came down to it I'd work at a grocery store, or a fast food restaurant for money if I needed to. She told me she would move back in with her mother because doing that type of work was beneath a person with a PhD. My dad retired with a full pension of $80k/yr and got bored so he decided to go work at a grocery store stocking shelves part time. He's a multi-millionaire with a pension of near 6 figures and he stocks shelves in a grocery store for $11/hr, lol.

AdrianC

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Re: Mr. Math and paying off your mortgage
« Reply #161 on: April 21, 2017, 11:08:05 AM »
There's an ongoing relevant thread at Bogleheads with a survey:

Anybody purposely loading up on mortgage debt?
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=110407

Survey says:
Yes, in the past 4 years, I have refinanced, taken significant money out, and put it into my asset allocation 10%
No, I have kept my mortgage as is 33%
No, I have paid off, or aggressively paid down my mortgage 57%

Interesting. Different crowd there, though. Older.


boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #162 on: April 21, 2017, 11:28:57 AM »
There's an ongoing relevant thread at Bogleheads with a survey:

Anybody purposely loading up on mortgage debt?
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=110407

Survey says:
Yes, in the past 4 years, I have refinanced, taken significant money out, and put it into my asset allocation 10%
No, I have kept my mortgage as is 33%
No, I have paid off, or aggressively paid down my mortgage 57%

Interesting. Different crowd there, though. Older.

yeah i think they're in line with what you'd expect.  older much more conservative crowd.  many of whom cant fathom retiring with a 4% SWR and will tell you you're bat shit crazy.

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #163 on: April 21, 2017, 04:45:52 PM »
Older and have lived through several recessions which make them risk averse. Some are the 3% and 2% SWR which is extreme and I agree with you. But calling them bat shit crazy is a bit out of line. Not everyone who pays off their mortgage is bat shit crazy.

Border, I asked you a question that I hope you could answer in some way please:

I wonder, if you had a substantial loss during the 2009 recession, if you lived through having your investments cut in half, losing your job, and being forced to live off your devalued assets, selling every month for huge losses for the next 3-5 years while the markets recover and you maybe are able to find new work.  That is real risk and it will rattle most people.  Some people have nerves of steel and can handle that stress, but those are very rare people.

« Last Edit: April 21, 2017, 04:48:20 PM by EnjoyIt »

FIreDrill

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Re: Mr. Math and paying off your mortgage
« Reply #164 on: April 21, 2017, 05:03:35 PM »
Older and have lived through several recessions which make them risk averse. Some are the 3% and 2% SWR which is extreme and I agree with you. But calling them bat shit crazy is a bit out of line. Not everyone who pays off their mortgage is bat shit crazy.

Border, I asked you a question that I hope you could answer in some way please:

I wonder, if you had a substantial loss during the 2009 recession, if you lived through having your investments cut in half, losing your job, and being forced to live off your devalued assets, selling every month for huge losses for the next 3-5 years while the markets recover and you maybe are able to find new work.  That is real risk and it will rattle most people.  Some people have nerves of steel and can handle that stress, but those are very rare people.



Pretty sure boarder was saying that certain Bogleheads think people are bat shit crazy for planning a 4% withdrawal rate.  I don't believe he was calling bogleheads bat shit crazy.....  Although if you are planning a 2-3% withdrawal rate I would call you bat shit conservative lol

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Re: Mr. Math and paying off your mortgage
« Reply #165 on: April 21, 2017, 05:14:49 PM »
Older and have lived through several recessions which make them risk averse. Some are the 3% and 2% SWR which is extreme and I agree with you. But calling them bat shit crazy is a bit out of line. Not everyone who pays off their mortgage is bat shit crazy.


I would call a 2% SWR bat shit crazy. It's not supported by anything but fear.

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #166 on: April 21, 2017, 06:46:18 PM »
Older and have lived through several recessions which make them risk averse. Some are the 3% and 2% SWR which is extreme and I agree with you. But calling them bat shit crazy is a bit out of line. Not everyone who pays off their mortgage is bat shit crazy.


I would call a 2% SWR bat shit crazy. It's not supported by anything but fear.

I fully agree that a 2% SWR is way way too conservative.  But that is not the norm over at Bogleheads.  The majority still subscribe to the 4% with a few people in the 3-3.5%  Personally I think 3% is extreme as well, but some of those people want to definitely leave a legacy to their kids and 3% will very likely do that.

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Re: Mr. Math and paying off your mortgage
« Reply #167 on: April 21, 2017, 06:56:40 PM »
Correct I was saying boggleheads consider 4% bat shit crazy. But anything under 3.5% is bat shit crazy imo as it's never happened before.

If 2009 happens right after I retire I follow my plan of variable withdrawal and drop my withdrawal by 10%. Not going to say I wouldn't be concerned. I'd likely also make some money to make up for more than that 10% I'm dropping.  But part time work for few years probably just buying and selling crap like I do anyways and the wife taking pictures which we'll do every year in fire will supplement all we would need historically if we hit something like the late 60s or 1929.

When you're old I get it  retirement is never making another dollar. When I'm 37 and can still wakeboard bc my knees aren't shot and do many other things a younger body can do. I'll try to get out as early as our lifestyle allows and tackle some extra dollars as needed. I will however use the shiller pe to help gauge my date bc I have some seriously golden diamond encrusted handcuffs with my company ESOP. That returns just insane returns that I can get by working just 6 months of any year so I may stretch it out a year extra with 6 months in sabbaticals.

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #168 on: April 21, 2017, 07:23:17 PM »
Correct I was saying boggleheads consider 4% bat shit crazy. But anything under 3.5% is bat shit crazy imo as it's never happened before.

If 2009 happens right after I retire I follow my plan of variable withdrawal and drop my withdrawal by 10%. Not going to say I wouldn't be concerned. I'd likely also make some money to make up for more than that 10% I'm dropping.  But part time work for few years probably just buying and selling crap like I do anyways and the wife taking pictures which we'll do every year in fire will supplement all we would need historically if we hit something like the late 60s or 1929.

When you're old I get it  retirement is never making another dollar. When I'm 37 and can still wakeboard bc my knees aren't shot and do many other things a younger body can do. I'll try to get out as early as our lifestyle allows and tackle some extra dollars as needed. I will however use the shiller pe to help gauge my date bc I have some seriously golden diamond encrusted handcuffs with my company ESOP. That returns just insane returns that I can get by working just 6 months of any year so I may stretch it out a year extra with 6 months in sabbaticals.

Actually the 4% withdrawal rate has failures in it. so 3.5% is indeed much safer that 4%.  But when you add in human nature of just spending less when times are tough 4% should survive 100% of the time historically.

So, Just to be clear, you have not experienced the 2009 recession with a significant loss while also losing your job in the process?  BTW, when no one has money, that means few are buying the stuff you are selling and most definitely even less are going to be paying cash pictures.

Boarder, your math is sound, your thinking is also sound, but I believe you undervalue real risk.  Maybe I am wrong and you have nerves of steal, but until you sustain that large lose, I don't think you will ever really know what your mind and emotions can tolerate.  Just imagine you have 20x expenses and within just a few months you are down to 10x.  Everywhere you turn the news and people around you are saying doom and gloom.  You think you know better, but the doom and gloom just keeps getting beat into you.  Everyone is talking about buying gold, houses around you are foreclosing, people all around you are losing their jobs and you don't know if you are next.  That is some serious shit and most people have a hard time handling it all and still staying the coarse.

Message boards like this and bogleheads are luckily there to hopefully keep you grounded.  My wealth has skyrocketed since 2009 and a 50% loss would be really tough on me.  That is the reason why I have 30% in bonds.  I know I can live off my bonds for many years and never have to sell equities if times are tough and I lose employment for a few years.
« Last Edit: April 21, 2017, 07:25:34 PM by EnjoyIt »

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #169 on: April 21, 2017, 08:16:18 PM »
Risk of working too long greatly out weighs fear of catastrophic failure based on historic returns. 2008 wouldn't have been catastrophic to a 4% swr. 

EscapeVelocity2020

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Re: Mr. Math and paying off your mortgage
« Reply #170 on: April 21, 2017, 09:55:56 PM »
Risk of working too long greatly out weighs fear of catastrophic failure based on historic returns. 2008 wouldn't have been catastrophic to a 4% swr.

You'll actually have to wait until 2037 or 2038 to definitively proclaim that 2008 was not catastrophic to 4% swr.  There has been a lot of speculation that a 2000 retiree will fail, and 2008 is a piece of that (along with a little bit of sequence risk).  The accumulation phase is totally different from withdrawal, market declines are much more permanently damaging.

MDM

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Re: Mr. Math and paying off your mortgage
« Reply #171 on: April 21, 2017, 10:12:54 PM »
There has been a lot of speculation that a 2000 retiree will fail....
A similar look four years later, while not wildly optimistic, posits that the 2000 retiree will succeed: 4% Rule Results Since The Tech Bubble & Financial Crisis?

Yes, it ain't over 'til it's over, so we don't know....

EscapeVelocity2020

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Re: Mr. Math and paying off your mortgage
« Reply #172 on: April 21, 2017, 10:32:21 PM »
It's definitely a mixed bag of comments dredged from the past, but this 2012 post at Early-Retirement.org has some good insight in to how folks felt about the ups and downs of the market.  Little did they know at the time, that the market was going on an unbroken tear that made all of them far more wealthy today than they were at the time they posted....  hopefully we all have this problem of being overly conservative and defensive, only to have excessive riches showered on us year after year....

At this point in the bull market run, I'm willing to bet most new FI dreamers are wondering how folks outspend a constantly rising market;  that 4% means the retirement portfolio rises more or less than 4% every year, but is always positive. 
« Last Edit: April 21, 2017, 11:02:35 PM by EscapeVelocity2020 »

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #173 on: April 22, 2017, 04:33:12 AM »
Personally I'd welcome a 2008 crash now. I have a very secure job. If it's going to happen I'd like it to happen earlier vs later since I'm still in accumulation.  By very secure I mean my company has only had 2 layoffs ever both sub 1% and they were more house cleaning efforts. If the market continues what is doing now for the next 4 -5 years I'll probably hit FiRE numbers early but I probably won't FiRE as the markets would be insanely overvalued.  But if we simply had a break even to down year. Or Trump taxes increase earnings substantially the shiller pe will fall right back around 25.  And In the next few years 2009 and 2008 will fall off the 10 year look back which should also help normalize the shiller.

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Re: Mr. Math and paying off your mortgage
« Reply #174 on: April 22, 2017, 05:10:08 AM »
Personally I'd welcome a 2008 crash now. I have a very secure job. If it's going to happen I'd like it to happen earlier vs later since I'm still in accumulation.  By very secure I mean my company has only had 2 layoffs ever both sub 1% and they were more house cleaning efforts. If the market continues what is doing now for the next 4 -5 years I'll probably hit FiRE numbers early but I probably won't FiRE as the markets would be insanely overvalued.  But if we simply had a break even to down year. Or Trump taxes increase earnings substantially the shiller pe will fall right back around 25.  And In the next few years 2009 and 2008 will fall off the 10 year look back which should also help normalize the shiller.
Ha!  Wouldn't everyone, with the benefit of hindsight?  Any crash would be life-altering when we know the depths and the duration. But how would you feel going into a Japan 30-year slump?  Especially if you don't know how long or how deep it goes?  Sorry my frien, no crystal ball available.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #175 on: April 22, 2017, 09:16:45 AM »
Personally I'd welcome a 2008 crash now. I have a very secure job. If it's going to happen I'd like it to happen earlier vs later since I'm still in accumulation.  By very secure I mean my company has only had 2 layoffs ever both sub 1% and they were more house cleaning efforts. If the market continues what is doing now for the next 4 -5 years I'll probably hit FiRE numbers early but I probably won't FiRE as the markets would be insanely overvalued.  But if we simply had a break even to down year. Or Trump taxes increase earnings substantially the shiller pe will fall right back around 25.  And In the next few years 2009 and 2008 will fall off the 10 year look back which should also help normalize the shiller.
Ha!  Wouldn't everyone, with the benefit of hindsight?  Any crash would be life-altering when we know the depths and the duration. But how would you feel going into a Japan 30-year slump?  Especially if you don't know how long or how deep it goes?  Sorry my frien, no crystal ball available.

Yep better save til your money can sit in the safe til you have enough that adjusted for the worst inflation. Better also add a safety factor to that bc you never know. Then you get to die working. FiRE success! 

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Re: Mr. Math and paying off your mortgage
« Reply #176 on: April 22, 2017, 09:35:13 AM »
Personally I'd welcome a 2008 crash now. I have a very secure job. If it's going to happen I'd like it to happen earlier vs later since I'm still in accumulation.  By very secure I mean my company has only had 2 layoffs ever both sub 1% and they were more house cleaning efforts. If the market continues what is doing now for the next 4 -5 years I'll probably hit FiRE numbers early but I probably won't FiRE as the markets would be insanely overvalued.  But if we simply had a break even to down year. Or Trump taxes increase earnings substantially the shiller pe will fall right back around 25.  And In the next few years 2009 and 2008 will fall off the 10 year look back which should also help normalize the shiller.
Ha!  Wouldn't everyone, with the benefit of hindsight?  Any crash would be life-altering when we know the depths and the duration. But how would you feel going into a Japan 30-year slump?  Especially if you don't know how long or how deep it goes?  Sorry my frien, no crystal ball available.

Yep better save til your money can sit in the safe til you have enough that adjusted for the worst inflation. Better also add a safety factor to that bc you never know. Then you get to die working. FiRE success!

I quoted you in full Boarder.  I am referring ONLY to your statement.  If you left an implication out of your statement, then I'm not responsible for the context.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #177 on: April 22, 2017, 09:50:32 AM »
What's your point then. My point wasn't hindsight after the 08 crash. That's what you inferred. I was specifically asked if I lived thru and what I did or would do.  You just posted straw man remarks to my statement. If you have a point make it.

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #178 on: April 22, 2017, 10:31:17 AM »
What's your point then. My point wasn't hindsight after the 08 crash. That's what you inferred. I was specifically asked if I lived thru and what I did or would do.  You just posted straw man remarks to my statement. If you have a point make it.

You never really answered my question.
Also, no business is outside of failure. New disruptive players will always come into the game and put your current corporation at risk.
I truly believe you misunderstand real risk and getting others on this board to follow. I think it is a little bit dangerous especially when you have never experienced a real life altering event.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #179 on: April 22, 2017, 11:40:44 AM »
What's your point then. My point wasn't hindsight after the 08 crash. That's what you inferred. I was specifically asked if I lived thru and what I did or would do.  You just posted straw man remarks to my statement. If you have a point make it.

You never really answered my question.
Also, no business is outside of failure. New disruptive players will always come into the game and put your current corporation at risk.
I truly believe you misunderstand real risk and getting others on this board to follow. I think it is a little bit dangerous especially when you have never experienced a real life altering event.

Thanks for your opinion on risk. Mine differs.

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #180 on: April 22, 2017, 12:20:35 PM »
What's your point then. My point wasn't hindsight after the 08 crash. That's what you inferred. I was specifically asked if I lived thru and what I did or would do.  You just posted straw man remarks to my statement. If you have a point make it.

You never really answered my question.
Also, no business is outside of failure. New disruptive players will always come into the game and put your current corporation at risk.
I truly believe you misunderstand real risk and getting others on this board to follow. I think it is a little bit dangerous especially when you have never experienced a real life altering event.

Thanks for your opinion on risk. Mine differs.

Your risk is definitely different.  But that is the point, people perceive risk very differently and not one answer should fit all people's situation.  Like I said, I fully agree with your math and your conclusions.  I just disagree with your definition of risk.  There is a reason why every financial advisor in the world recommends holding some percentage in bonds. There must be a reason for that.  It definitely isn't to garner more AUM fees since bonds underperform equities.

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Re: Mr. Math and paying off your mortgage
« Reply #181 on: April 22, 2017, 12:23:52 PM »
What's your point then. My point wasn't hindsight after the 08 crash. That's what you inferred. I was specifically asked if I lived thru and what I did or would do.  You just posted straw man remarks to my statement. If you have a point make it.

You never really answered my question.
Also, no business is outside of failure. New disruptive players will always come into the game and put your current corporation at risk.
I truly believe you misunderstand real risk and getting others on this board to follow. I think it is a little bit dangerous especially when you have never experienced a real life altering event.

I've seen this come up a lot and it's really starting to bother me.  I've had multiple people tell me my risk adverseness would be different if I was heavily invested through 2009.  Basically they tell me "well you don't get it because you haven't lived it".  While that statement has some truth, it's bullshit.  I've done hundreds of hours in researching investing and different strategies and I am personally fine with the amount of risk I am taking with a 100% equity portfolio.  We have multiple back up plans in place in case the economy goes to crap and even if the worse case scenario happens I know we will be fine.  It seems like certain members on this forum try to discredit the risk adverseness of others based just on the fact that they haven't experienced a "life altering event".

Yes, both my wife and I could lose our jobs tomorrow.  Then over next week the market could tank 50% forcing us to live off of half of our portfolio.  That would suck, but we would be totally fine.  We would start cutting expenses to the bare minimum and looking for work right away.  If our portfolio was slashed in half it would still be enough to survive on for 5 years.  This is in my mind our worse case scenario and it has probably a .05% chance of happening.  I would also like to speculate that any Mustachian in this scenario has a much better chance of getting by or even picking up work then the average co-worker.

While reading through some of these comments regarding risk, they tend to come off as fear mongering instead of actual risk awareness.  Very doom and gloom perspective which is just depressing.  "What if Japan happens to the US!"  Well, we would all be screwed and I would be worried more about the average persons basic needs being met than what my portfolio is doing.  Could this possibly happen? Yes, but it's outside of my control so there is no way in hell I'm going to worry about it.

Anyways, I wouldn't discredit the younger people on here when it comes to their personal risk adverseness.  We are pretty fucking smart compared to your average Joe...

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #182 on: April 22, 2017, 03:33:24 PM »
Boarder,
Your risk assessment for yourself is very likely solid and works for you. I highly doubt that everyone around you has done similar research and has a similar understanding as you. The reality is that I am not fear mongering. Losing half your wealth, losing your job, watching houses around you forclosing, and everyone around you talking about doom and gloom really happened. That was exactly what happened in 2009. Another example is 1929 markets tanked by 80%. Not only could these things happened, they actually happened. So please don't think this is fear mongering. This is reality.

Looks like you are very aware and comfortable with that risk. Others may be much more risk averse or simply have not made the same risk assessments as you have. For those people 100% equities may not be the right decision. Equally those people may need to have lower fixed expenses. This can be especially true if they work in a volatile industry where employment may cease relatively quickly. Risk is not just volatility which you claim it is. Risk is real and different people have different risk profiles based on their personal situation. You simply can't put your risk profile onto everyone.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #183 on: April 22, 2017, 06:53:44 PM »
After 1929 laws were changed to make sure that didn't happen again.

After 2008 laws were changed to protect against that happening again.

Could these things happen yes. Are they likely no.  You are betting on. Green. We are betting on the rest of the wheel. I am comfortable with that level of risk most here should be.

I mean really you're siting examples that are over 70 years apart and the worst example of all is the hyper inflation of the 70s that killed the 66 retirement.  Which again the fed has put laws and regulations in place to make sure it doesn't happen to that level again.

Will there be some correction again for some reason we can't predict. Most likely yes. How fast it will recover we won't know.

But I'll bet on statistical probability based on historic returns every day. And understand volatility will accompany that and plan for it to mitigate the risk you're all running from missing tons of gains in the wealth building stage by keeping insanely (imo) large piles of bonds. If the level of any doom and gloom happens you speak of the amount of bonds you have at 30% won't matter. Pizza Steve will be ok with his 2% swr but he'll have sacrificed​ years maybe a decade of extra work or more for that. Locking in the risk of years not fired.

EscapeVelocity2020

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Re: Mr. Math and paying off your mortgage
« Reply #184 on: April 22, 2017, 07:13:49 PM »
Also, long-time investors tend to remember the losses more acutely than the gains.  I still remember, in my 20's, that I should've taken some of that tech stock money out for an advanced degree or a better car, or maybe even some bonds (although I was only 26 and 30-year bonds at 6% seemed pretty lame - ha!).  I think I 'made' and lost about 200k (4 years of investing every extra penny and moving from hot stock to hotter stock, then about the same amount of months of gut wrenching declines starting around March 2000).  Didn't get burned too bad in 2008 because I was more defensive, but I got back in too soon and still lost ~300k (on a much bigger balance), before the rebound.  But you remember how you felt losing money on paper because it is traumatic, and there are plenty of folks that screw up the 'ignore the headlines / stay the course' advice.  There are also people that need the money and cannot simply tighten their belt forever (college, medical, family, etc.).

I think people have good intentions when they offer up their point of view on younger investors not understanding how investing in a market decline is more difficult than just 'getting stocks on sale'.  I also understand the 'working longer than necessary' is a risk if you hate your work and value the freedom - but that one is more easy to manage to be honest.  No-one can force an unwilling employee to work for a paycheck.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #185 on: April 22, 2017, 07:24:50 PM »
The advice I give will help more people retire sooner and successfully based on historic returns. Everyone should have contingency. And frozen and I have both spoken to flexibility we plan to use in fire to mitigate risk. We haven't said do this retire x times faster and 4% is guaranteed. 

Did I lose hundreds of thousands in 2008 no did I lose that in 2001 no. Was I investing on my own with money I saw drop substantially for me at my given place in life yes. I started actively trading stocks at 10. Took me over 17 years to find research and understand indexing was the way to go.


EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #186 on: April 22, 2017, 08:07:20 PM »
After 1929 laws were changed to make sure that didn't happen again.

After 2008 laws were changed to protect against that happening again.

Could these things happen yes. Are they likely no.  You are betting on. Green. We are betting on the rest of the wheel. I am comfortable with that level of risk most here should be.

I mean really you're siting examples that are over 70 years apart and the worst example of all is the hyper inflation of the 70s that killed the 66 retirement.  Which again the fed has put laws and regulations in place to make sure it doesn't happen to that level again.

Will there be some correction again for some reason we can't predict. Most likely yes. How fast it will recover we won't know.

But I'll bet on statistical probability based on historic returns every day. And understand volatility will accompany that and plan for it to mitigate the risk you're all running from missing tons of gains in the wealth building stage by keeping insanely (imo) large piles of bonds. If the level of any doom and gloom happens you speak of the amount of bonds you have at 30% won't matter. Pizza Steve will be ok with his 2% swr but he'll have sacrificed​ years maybe a decade of extra work or more for that. Locking in the risk of years not fired.

Some good points, but before 2008 there were laws that existed that people hoped would protect them and then 2008/2009 hit.  Also, not everyone is you, makes as much money as you, is in the same industry as you, and wants to retire exactly like you.  Maybe I want to live on $100k/yr, am 2-3 years away from having $2.5 million and simply not interested having my investments drop by 7 figures for the possible chance of making an extra 1% return during those 2-3 years.  The benefit does not outlay the risk.  Maybe I am in in the oil and gas industry working on a horizontal fracking field. And I know that if oil prices go down another 10% the fields will close down and I am out of work for god knows how long.  I currently make $120k/yr and I need to make sure that I have enough money to sustain myself for a reasonable length of time.  Maybe I can work at Walmart for minimum wage, but it doesn't cover all my costs.  I may want to keep some cash in CDs or bonds for that event.  Maybe I am an Engineer with a Down's syndrome child who requires special needs that I need help with.  I must make sure I have enough money on hand or the ability to work to pay for those needs on top of my own retirement savings.  Losing my job and having another 50% drop in my wealth can be devastating. Maybe I am a CEO of a medium company making $500k/yr and once I quite and out of work for a year I will never make that kind of money again.  Not everyone is you and thinking their actions are stupid or irrational is flat out wrong.  Teaching people about the mathematics is the right thing to do and allowing them to decide what their risk profile is with the new information is their best course of action.  Telling them that their risk profile is stupid or wrong provides little value since you simply can't judge that.

I agree that a 2% SWR is too extreme for me and can provide math that shows why, but if PizzaSteve can not enjoy life because all he does is worry and actually have the stress affect his wealth and well being, then maybe 2% is the right withdrawal rate for PizzaSteve. 2% is ridiculous for me, it is ridiculous for you, but it may just be the right answer for him.  Maybe his goal is to leave a huge pile of cash to his kids.  Who are we to judge what risk Steve is able to withstand?

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Re: Mr. Math and paying off your mortgage
« Reply #187 on: April 22, 2017, 08:09:04 PM »
@B42 - I'll gladly admit, I could be totally wrong.  The market could keep going up for 30 more years for all I know, but that's not a difficult thing to plan for IMHO.  The best part about a forum is that differences of opinions are shared in a respectful manner.  What happened in the past was very real for me, so I speak to that in what I hope is a helpful way, mostly to be a little 'counter-cultural' since I've had both good and bad experiences with employment, retirement (at least, having an on-again-off-again retired spouse), and investing.  I feel that most Mustachian's have had bad employment experiences, good investment experiences, and little to no retirement experience.  But that's why I like to be here as opposed to Bogleheads (lots of up and down market experience, which was helpful until I had my own), Early-Reirement.org (way too much positive retirement experience and poor employment experiences).  Mustachians seem to have a good mix (although I do miss some FI / non-ER, and non-FI / non-ER folks that seem to have dropped out).

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #188 on: April 23, 2017, 01:31:41 PM »
 
Not to rain on the parade, but some of my career experiences would curl Boarder42's hair i bet.


You were involved in Pizza Gate?  Just kidding.

This is a relatively new forum, but looking at Bogleheads that has been around much longer you can go back in time and read the threads on 100% equities right before 2008/2009 and how quickly the tune changed afterwards. You can even go back to 2011 and see how people responded when the market had a 15% correction.  It just go to show how new investors who never experienced real market turmoil perceive their own risk tolerance. The above comment is not a shot at Boarder who may very well understand his risk and have legit plans for himself.

Tyson

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Re: Mr. Math and paying off your mortgage
« Reply #189 on: April 23, 2017, 04:07:20 PM »
As long as you're still in earning/accumulation phase, why does it bother anyone what the market does?  I see it the same way I see my house value - whether it's up or down is really not material until I sell it. 

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #190 on: April 23, 2017, 04:40:35 PM »
As long as you're still in earning/accumulation phase, why does it bother anyone what the market does?  I see it the same way I see my house value - whether it's up or down is really not material until I sell it.

It may or may not.  It all depend also on how secure your job is.  The market going down should not matter to much in the long run if it rebounds.  The market going down and losing your job may force you to start selling equities at a depressed value so that you can afford your mortgage and food. I would assume this risk is much lower for mustachians who already live well below their means and can likely survive on the other spouses salary and just not make retirement contributions until the unemployed becomes employed again.  But if the family is a single earner the risk becomes more real. 

The other risk is actually emotional.  I know, emotions should not matter, but picture a world where all the markets are down.  Everyone around you talks about collapsing economies, homes are foreclosing everywhere you look, and there seams to be no way to find gainful employment.  For most people, psychologically, the world becomes very scary and it starts to make sense that pulling out of the market is the right decision. Right now we all know that historically staying the course is the right decision, but that decision really becomes much more difficult in that scenario.  This is exactly what happened in 2001 and 2009 for most investors.  I have not experienced other recessions but bet similar sentiment happened then as well.  Let me put it a different way.  If you have 5x your expenses saved and lost 2.5x the world is not too bad.  But picture you were at 20x and now your stache is 10x in the world I just described.  Size actually matters when it comes to how you react.

Lastly, history does not have to repeat itself exactly.

Luckily we have forums such as this and bogleheads that may help you stay the course in rough times.

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Re: Mr. Math and paying off your mortgage
« Reply #191 on: April 23, 2017, 04:52:16 PM »
As long as you're still in earning/accumulation phase, why does it bother anyone what the market does?  I see it the same way I see my house value - whether it's up or down is really not material until I sell it.

It may or may not.  It all depend also on how secure your job is.  The market going down should not matter to much in the long run if it rebounds.  The market going down and losing your job may force you to start selling equities at a depressed value so that you can afford your mortgage and food. I would assume this risk is much lower for mustachians who already live well below their means and can likely survive on the other spouses salary and just not make retirement contributions until the unemployed becomes employed again.  But if the family is a single earner the risk becomes more real. 

The other risk is actually emotional.  I know, emotions should not matter, but picture a world where all the markets are down.  Everyone around you talks about collapsing economies, homes are foreclosing everywhere you look, and there seams to be no way to find gainful employment.  For most people, psychologically, the world becomes very scary and it starts to make sense that pulling out of the market is the right decision. Right now we all know that historically staying the course is the right decision, but that decision really becomes much more difficult in that scenario.  This is exactly what happened in 2001 and 2009 for most investors.  I have not experienced other recessions but bet similar sentiment happened then as well.  Let me put it a different way.  If you have 5x your expenses saved and lost 2.5x the world is not too bad.  But picture you were at 20x and now your stache is 10x in the world I just described.  Size actually matters when it comes to how you react.

Lastly, history does not have to repeat itself exactly.

Luckily we have forums such as this and bogleheads that may help you stay the course in rough times.

I did live through the 2009 crash, and I do have job instability.  I did have investments, but I also pre-paid my mortgage, a lot.  The situation I found myself in was no job, not enough in savings/investments, and a mortgage that I had not been able to pay off before SHTF.  So, for me, paying down the mortgage only makes sense if you can do it very quickly and have it done fast.  Otherwise, it's better to invest.  Even selling off some stocks (or bonds) at lower prices is better than having it in the mortgage.  When the next payment was due, I couldn't say "hey, give me a 6 month break, I prepaid!"

For me, I ended up coming to the conclusion that I need more liquidity.  So I am aggressively saving.  I almost have more in savings than I have on the balance of my mortgage.  Once I get significantly more in savings/investments than the mortgage balance, I'll make the decision to pay it off (or not).  But I will definitely have it paid off before FIRE.  I can't imagine going into FIRE with a big expense like a mortgage payment every month. 

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #192 on: April 24, 2017, 04:32:59 AM »
As long as you're still in earning/accumulation phase, why does it bother anyone what the market does?  I see it the same way I see my house value - whether it's up or down is really not material until I sell it.

It may or may not.  It all depend also on how secure your job is.  The market going down should not matter to much in the long run if it rebounds.  The market going down and losing your job may force you to start selling equities at a depressed value so that you can afford your mortgage and food. I would assume this risk is much lower for mustachians who already live well below their means and can likely survive on the other spouses salary and just not make retirement contributions until the unemployed becomes employed again.  But if the family is a single earner the risk becomes more real. 

The other risk is actually emotional.  I know, emotions should not matter, but picture a world where all the markets are down.  Everyone around you talks about collapsing economies, homes are foreclosing everywhere you look, and there seams to be no way to find gainful employment.  For most people, psychologically, the world becomes very scary and it starts to make sense that pulling out of the market is the right decision. Right now we all know that historically staying the course is the right decision, but that decision really becomes much more difficult in that scenario.  This is exactly what happened in 2001 and 2009 for most investors.  I have not experienced other recessions but bet similar sentiment happened then as well.  Let me put it a different way.  If you have 5x your expenses saved and lost 2.5x the world is not too bad.  But picture you were at 20x and now your stache is 10x in the world I just described.  Size actually matters when it comes to how you react.

Lastly, history does not have to repeat itself exactly.

Luckily we have forums such as this and bogleheads that may help you stay the course in rough times.

I did live through the 2009 crash, and I do have job instability.  I did have investments, but I also pre-paid my mortgage, a lot.  The situation I found myself in was no job, not enough in savings/investments, and a mortgage that I had not been able to pay off before SHTF.  So, for me, paying down the mortgage only makes sense if you can do it very quickly and have it done fast.  Otherwise, it's better to invest.  Even selling off some stocks (or bonds) at lower prices is better than having it in the mortgage.  When the next payment was due, I couldn't say "hey, give me a 6 month break, I prepaid!"

For me, I ended up coming to the conclusion that I need more liquidity.  So I am aggressively saving.  I almost have more in savings than I have on the balance of my mortgage.  Once I get significantly more in savings/investments than the mortgage balance, I'll make the decision to pay it off (or not).  But I will definitely have it paid off before FIRE.  I can't imagine going into FIRE with a big expense like a mortgage payment every month.

I find your situation to be just one more reason why paying extra into a mortgage early in your career makes so little sense. By not having the mortgage paid off when SHTF you actually put yourself into increased risk by not having extra cash on hand.  The same scenario but instead of putting that extra cash into a mortgage you instead invested in equities and a small percentage in bonds.  Not only will your overall wealth be higher, you also had some bonds saved up to continue paying your mortgage until you were able to find another job.  I find that to be much less risky.


boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #193 on: April 24, 2017, 07:06:17 AM »
Thanks for the thoughtful response EnjoyIt. 

Not to rain on the parade, but some of my career experiences would curl Boarder42's hair i bet.  When you dig deep into modern corporate capitalism, and our governance institutions, one finds some scary ass skeletons.



deleted your personal part in case you decide to

your personal experiences are anecdotal.  you have to look at the whole history of everything IMO.  which has proven to be very risk free but volatile.  if you plan for the volatility you mitigage most of the risk there. i understand there are many ways to plan for volatility and if absolutely never making another dollar is the goal one way to do that is to hold more bonds and pay off your house.  but some of the cases you guys throw around are extreme and highly unlikely and in most cases will kill even the best laid over saved FIRE plans. 

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Re: Mr. Math and paying off your mortgage
« Reply #194 on: April 24, 2017, 07:22:43 PM »
Thanks for the thoughtful response EnjoyIt. 

Not to rain on the parade, but some of my career experiences would curl Boarder42's hair i bet.  When you dig deep into modern corporate capitalism, and our governance institutions, one finds some scary ass skeletons.



deleted your personal part in case you decide to

your personal experiences are anecdotal.  you have to look at the whole history of everything IMO.  which has proven to be very risk free but volatile.  if you plan for the volatility you mitigage most of the risk there. i understand there are many ways to plan for volatility and if absolutely never making another dollar is the goal one way to do that is to hold more bonds and pay off your house.  but some of the cases you guys throw around are extreme and highly unlikely and in most cases will kill even the best laid over saved FIRE plans.

The examples I describe are real life examples.  I did not invent anything.  These are examples of real people from our past. Real people's lives don't fit so neatly on a graph of volatility.  I keep telling you that not everyone is you.  Not everyone out there has exactly the same goals and life expectations.

Do you know there are members on this board making well over $250k/yr.  I bet there are some members here making over $500k/yr.   These same people plan on retiring on well over $24k/yr and a massive downturn on lost wages will not be easily replaced with a $7.50/hr Walmart job.


Please share the math behind paying down debt or 100% equities, but don't fool others into thinking there is no risk in their own lives.  You may actually be harming as opposed to helping them.

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Re: Mr. Math and paying off your mortgage
« Reply #195 on: April 25, 2017, 04:54:30 AM »
I plan on retiring on well over 24k. You obviously haven't read in detail any post on the plans I've made. You don't have to replace your full income. Being flexible with 10% either by earning that or reducing your spend historically is all that is needed. And if you're not barebones. A 10% reduction is probably quite easy. If you're bare bones on 100k for whatever reason you need to come up with 10k a year in the worst case scenario.  Which a Walmart job at 7.50 an hour replaces easily.  Odds are you can do better than that and or reduce lifestyle on a 100k per year fire at least in the event of worst case. Which is highly unlikely.

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Re: Mr. Math and paying off your mortgage
« Reply #196 on: April 26, 2017, 06:15:34 AM »
I plan on retiring on well over 24k. You obviously haven't read in detail any post on the plans I've made. You don't have to replace your full income. Being flexible with 10% either by earning that or reducing your spend historically is all that is needed. And if you're not barebones. A 10% reduction is probably quite easy. If you're bare bones on 100k for whatever reason you need to come up with 10k a year in the worst case scenario.  Which a Walmart job at 7.50 an hour replaces easily.  Odds are you can do better than that and or reduce lifestyle on a 100k per year fire at least in the event of worst case. Which is highly unlikely.

Your missing the point boarder. People who are used to make high incomes won't come running to work at Walmart or McDonalds. When times are tough people lose their jobs and available jobs dwindle therefor you may not be able to find minimum wage employment. Also, not all corrections last 1-3 years. Some last longer. Lastly, I keep saying it, but I think you underestimate risk for other people. I think we need to agree to disagree on what risk really is. I think we will just need to reconvene after our next recession and see how everyone thinks at that point. Can we agree on that?

BFGirl

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Re: Mr. Math and paying off your mortgage
« Reply #197 on: April 26, 2017, 07:05:20 AM »
As long as you're still in earning/accumulation phase, why does it bother anyone what the market does?  I see it the same way I see my house value - whether it's up or down is really not material until I sell it.

It may or may not.  It all depend also on how secure your job is.  The market going down should not matter to much in the long run if it rebounds.  The market going down and losing your job may force you to start selling equities at a depressed value so that you can afford your mortgage and food. I would assume this risk is much lower for mustachians who already live well below their means and can likely survive on the other spouses salary and just not make retirement contributions until the unemployed becomes employed again.  But if the family is a single earner the risk becomes more real. 

The other risk is actually emotional.  I know, emotions should not matter, but picture a world where all the markets are down.  Everyone around you talks about collapsing economies, homes are foreclosing everywhere you look, and there seams to be no way to find gainful employment.  For most people, psychologically, the world becomes very scary and it starts to make sense that pulling out of the market is the right decision. Right now we all know that historically staying the course is the right decision, but that decision really becomes much more difficult in that scenario.  This is exactly what happened in 2001 and 2009 for most investors.  I have not experienced other recessions but bet similar sentiment happened then as well.  Let me put it a different way.  If you have 5x your expenses saved and lost 2.5x the world is not too bad.  But picture you were at 20x and now your stache is 10x in the world I just described.  Size actually matters when it comes to how you react.

Lastly, history does not have to repeat itself exactly.

Luckily we have forums such as this and bogleheads that may help you stay the course in rough times.

I did live through the 2009 crash, and I do have job instability.  I did have investments, but I also pre-paid my mortgage, a lot.  The situation I found myself in was no job, not enough in savings/investments, and a mortgage that I had not been able to pay off before SHTF.  So, for me, paying down the mortgage only makes sense if you can do it very quickly and have it done fast.  Otherwise, it's better to invest.  Even selling off some stocks (or bonds) at lower prices is better than having it in the mortgage.  When the next payment was due, I couldn't say "hey, give me a 6 month break, I prepaid!"

For me, I ended up coming to the conclusion that I need more liquidity.  So I am aggressively saving.  I almost have more in savings than I have on the balance of my mortgage.  Once I get significantly more in savings/investments than the mortgage balance, I'll make the decision to pay it off (or not).  But I will definitely have it paid off before FIRE.  I can't imagine going into FIRE with a big expense like a mortgage payment every month.

I agree with this.  I think it is pointless to throw more than the required payment at the mortgage, unless you can pay it  in full. The mortgage payment is due whether or not you have prepaid part of it and if you get into a cash flow problem, you can still lose the house.   IMO, it is best to keep those funds liquid and when you have enough to pay the mortgage in full, then decide if it is the best thing to do in your personal situation.

BFGirl

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Re: Mr. Math and paying off your mortgage
« Reply #198 on: April 26, 2017, 07:14:46 AM »
Thanks for the thoughtful response EnjoyIt. 

Not to rain on the parade, but some of my career experiences would curl Boarder42's hair i bet.  When you dig deep into modern corporate capitalism, and our governance institutions, one finds some scary ass skeletons.



deleted your personal part in case you decide to

your personal experiences are anecdotal.  you have to look at the whole history of everything IMO.  which has proven to be very risk free but volatile.  if you plan for the volatility you mitigage most of the risk there. i understand there are many ways to plan for volatility and if absolutely never making another dollar is the goal one way to do that is to hold more bonds and pay off your house.  but some of the cases you guys throw around are extreme and highly unlikely and in most cases will kill even the best laid over saved FIRE plans.

These situations are not merely "anecdotal" or "extreme" and I think you do people a disservice when you dismiss situations that differ from yours.  If the goal is to educate people, then you should make sure that they have all the information available to them in order to make an informed decision in their particular situation. 

Wise Virgin

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Re: Mr. Math and paying off your mortgage
« Reply #199 on: April 26, 2017, 07:40:57 AM »
"The Great Depression: A Diary" by Benjamin Roth is a good read to show how a prolonged financial crisis affects investors. Roth was an educated professional man and he was barely making it... year after year. Every day he would read the news or look at stock prices, see notices of foreclosures or liquidations, hear about bankruptcies, and every day he would write the same thing: "If only I had a little money!"

But he didn't. Nobody he knew had any money. Landlords lost their properties because their tenants couldn't pay rent. Investors had to sell stock just to pay daily expenses, stock which would have made them rich if only they could've held on for a little while longer - and they knew if they could only hold out, the price would recover. Agonizing, to have to sell under those conditions.

It was enlightening to see how all aspects of people's lives were affected by the depression: brilliant kids who were in college had to leave, women advertised themselves in the newspaper for marriage. Really. Talk about risk.

The next crisis won't look like 1929, and it won't look like 2008, because it's true the financial world is on guard against what has already happened. So it will look different. It will still come though, don't you think? Human nature and all.