Author Topic: Mr. Math and paying off your mortgage  (Read 47819 times)

mr_orange

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Re: Mr. Math and paying off your mortgage
« Reply #50 on: April 14, 2017, 08:21:25 PM »
I do enjoy the charts and banter.  For those that are interested The Mortgage Professor has a gob of threads on this here:

https://www.mtgprofessor.com/ArticleCategories/Prepayment_of_Mortgage_Balance.html

This thread seems particularly relevant:

https://www.mtgprofessor.com/A%20-%20Early%20Payoff/another_look_at_mortgage_repayment_as_investment.htm

It is entertaining to see all the other variables and assumptions tuned, but to me it pretty well boils down to:

1.  If you can get more investing in other projects and your time horizon is longish the better financial decision is to invest in those projects assuming they have manageable amounts of risk

2.  If you can't get more investing in other projects you should pay down your mortgage.  With rates as low as they are right now this seems like it is very easy to do for most people with moderate timelines

3.  If your timeline is short for whatever reason you're unlikely to be able to stomach the extra risk and principal repayment or simply hoarding the cash may be better options depending on your situation

These threads are impossible to follow because this is a debate that is impossible to have in the abstract.  What is the owner's time horizon?  What is their tax situation?  How stable is their job?  How is the rest of their portfolio allocated?  How marketable are their skills on the open market in all market cycles?  Are they the only breadwinner in the family or does their spouse work?  Do they come from a wealthy family?  In short, what is their tolerance for risk? 

Completely rational beings can have very different answers to these questions.  Finance is SOCIAL science.  Saying that someone should "do the math" necessarily has to factor in a risk discussion.  There is generally data to describe observations of index funds or other homogeneous investment alternatives.  However, there isn't generally data in threads like this to describe the investor's risk tolerance.  This risk would necessarily involve quantifying many if not all of the items listed above and probably many more. 

It's fine to have useful guidelines here, but absent more precise data about one's personal situation I am not sure how anyone can prove anything. 

mizzourah2006

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Re: Mr. Math and paying off your mortgage
« Reply #51 on: April 14, 2017, 08:45:28 PM »
Correct. But one of the reasons the 70s appear to be better for pay offers in addition to paying insane amounts of taxes is when the inflation is factored into the real returns it makes them look like dog shit. If the market returns 100% and inflation is 200% you have a real return of around -100%. In the real world this helps the guy with a mortgage a shit ton more than the guy with a paid off house but the way op is using real returns it hurts the guy investing a ton. One reason why the 70s appear to be worse for. Investing than they truly were.

Agreed, real returns in an inflationary environment will always help the fixed rate scenario unless the assumption is investments will not keep up with inflation over an extended period of time.

bacchi

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Re: Mr. Math and paying off your mortgage
« Reply #52 on: April 15, 2017, 12:57:53 AM »
2. if you look at previous posts, the simulation was also run with a tax rate of 0%, 15%, and 30%. A reasonable tax rate and two absurd tax rates. The data did not show material divergence.

There's no material divergence between a realized yearly tax rate of 0% and a realized yearly tax rate of 30% on capital gains?

I think your formulas are off. Let's see the spreadsheet.

Dicey

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Re: Mr. Math and paying off your mortgage
« Reply #53 on: April 15, 2017, 07:50:02 AM »
1. How many people live where they can buy a house for 165,000?

2. Of those people, how many of them can actually manage to pay off their mortgage in just 7 years?

I wonder how those numbers look if the mortgage payoff takes more than 7 years?

OP, can we please see the calculations for 10, 20, or (gasp) 30 year mortgage payoff intervals?

maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #54 on: April 15, 2017, 08:04:45 AM »
The analysis does not use differing mortgage rates. It uses the same mortgage rate of 4% in all scenarios.
When I did my analysis which did try to vary mortgage rates based on projections of what a conventional 30 year mortgage rate would have been at different years in the past one of the questions that came up was whether that was realistic, since we know that today mortgages are going for ~4% so it is good to have both approaches represented.

That said, running the analysis out to 30 years, however fast the actual mortgage is paid off works out a lot better because until that point you still have different investment strategies for your two scenarios.

Reproduced below for comparison purposes.

Quote

All values assume a starting mortgage of $100k and $2k of monthly income that can either be thrown entirely at the mortgage until it is gone, and then invested in stocks, or used to make the minimum monthly payment on the mortgage and invest the difference in the stock market.

Out of 1391 start months with at least 30 years of stock market data, paying off your mortgage was the better outcome in 175 months (12.6% of the time). The average benefit of making only minimum mortgage payments for 30 years was ~$122k (in dollars inflation adjusted to the start of the 30 year period), and the median benefit was ~$82,700.

Adding in the assumption that our simulated person had already exceeded their standard deduction, that mortgage interest was tax deductible, and that their marginal tax rate was 25% produced more favorable results.
« Last Edit: April 15, 2017, 08:09:03 AM by maizeman »

Clean Shaven

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Re: Mr. Math and paying off your mortgage
« Reply #55 on: April 15, 2017, 08:07:38 AM »
^^^ Most people also don't live in the same place for 30 years or more, whether paying (or prepaying) a mortgage.

Many will also change their investment allocation over time (e.g. adding bonds in the preservation phase, as retirement time approaches).

Lots and lots of different factors that could be implemented...

I appreciate the efforts going into the graphs to try to compare prepaying a mortgage vs standard payments + investing. It may be helpful to some in deciding which path to follow. An interesting discussion, either way.

Cpa Cat

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Re: Mr. Math and paying off your mortgage
« Reply #56 on: April 15, 2017, 08:10:02 AM »

2. itemized deduction is often superior because you can itemize 2 of the biggest items - mortgage interest, and state / local taxes (income tax, property tax, etc).  Depending on how much Frank and his wife earn, and how much they pay in state taxes, it could result in a nice deduction from Federal income.


I think that people who itemize should do the math to figure out what their "real" interest rate is when factoring in that deduction. Then use their real, after-tax interest rate in their predictions. You can't really bake it into any assumptions though. And of course, when factoring in taxes, you also have to make sure you're using after-tax market returns.

Many of my clients don't itemize despite having a mortgage, because we live in a low income tax state which has a relatively low cost of living. Thus, property taxes and mortgage interest combined with the average family's income tax does not amount to enough to itemize.

It's one of the things I make sure to point out to them so that they can make appropriate decisions about mortgages. Too often, people assume they're getting a big tax deduction for their mortgage when they are actually getting none.

maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #57 on: April 15, 2017, 08:13:08 AM »

In general, high inflation tilts the argument much more strongly towards not paying off a house.  Mortgage payments are fixed, and thus are cheaper to pay off in the future.  In general, the stock market is a reasonable guard against inflation as your equity is in companies that rise in value with inflation (or much higher in economies of rapid growth).  Housing values mirror inflation as well, but you realize that gain regardless of whether or not you pay off the house early.

If you're comparing how much buying power you have at the end of the scenario, it doesn't really matter, since each final value will be scaled by
the same amount.

Agreed. In fact when carrying a fixed interest debt, deflation would be a lot more worrisome.

I agree as well. For the purposes of this discussion factoring in inflation does not make sense. (Also, if you did that, you'd have to calculate how your housing payments were decreasing each month in "nominal dollars" because of inflation which just gets messy and introduces a lot more potential for error.)

JLee

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Re: Mr. Math and paying off your mortgage
« Reply #58 on: April 15, 2017, 11:00:48 AM »
so we've really got

1. market timing at play here
2. grossly over estimated tax consequences when investing vs prepaying
3. a black box of data still that no one can replicate the OPs numbers.

You can manipulate math in any way to make it look like you come out ahead by changing variables but it still doesnt work out based on the common assumptions we make around here for FIRE.

1. Marketing timing? No, we have volatility.
2. if you look at previous posts, the simulation was also run with a tax rate of 0%, 15%, and 30%. A reasonable tax rate and two absurd tax rates. The data did not show material divergence.
3. I have provided the data I based the simulations on.

So basically your saying that you don't care what the math says you BELIEVE not paying-off the mortgage early will allow you to come out ahead. That's fine, you can believe what you want. I will do the math and make informed decisions.

You're saying that in certain periods of market volatility, prepaying a mortgage can be better than investing.  In order for that to be a reliable option, you need to know when that time is.  How is that not market timing?

rpr

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Re: Mr. Math and paying off your mortgage
« Reply #59 on: April 15, 2017, 11:12:27 AM »


@ maizeman -- Nicely done. I will go look for your thread with this simulation. In fact it is a lot more realistic than mine which assumed a fixed rate of 4%. Nonetheless there is reasonable agreement in the shapes of the curves -- especially the dip around the mid-1920s.

maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #60 on: April 15, 2017, 11:26:26 AM »
Oh I should have posted that! Here it is (in FrozenBits thread on mortgage payoffs): https://forum.mrmoneymustache.com/share-your-badassity/i-didn't-pay-off-my-mortgage-and-i-feel-fucking-great!/msg1451266/#msg1451266

Yes, I agree the shapes of our curves are quite similar, with the biggest difference likely being that difference between a fixed interest rate mortgage and a varying one over time (and almost always >4%). I'm using the shiller dataset for interest rates and stock market returns, which I think is the same dataset used by moneychimp. So definitely count me as yet another validation through independent re-implementation.

FIreDrill

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Re: Mr. Math and paying off your mortgage
« Reply #61 on: April 15, 2017, 01:04:03 PM »
Oh I should have posted that! Here it is (in FrozenBits thread on mortgage payoffs): https://forum.mrmoneymustache.com/share-your-badassity/i-didn't-pay-off-my-mortgage-and-i-feel-fucking-great!/msg1451266/#msg1451266

Yes, I agree the shapes of our curves are quite similar, with the biggest difference likely being that difference between a fixed interest rate mortgage and a varying one over time (and almost always >4%). I'm using the shiller dataset for interest rates and stock market returns, which I think is the same dataset used by moneychimp. So definitely count me as yet another validation through independent re-implementation.
Yeah, your dataset is very intriguing.  Is this an excel doc as well?  If so could I get me hands on it?

At this point I have several that I am digging into and looking for errors or anything that could be of use in factoring a multitude of scenarios.

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maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #62 on: April 15, 2017, 01:47:56 PM »
Oh I should have posted that! Here it is (in FrozenBits thread on mortgage payoffs): https://forum.mrmoneymustache.com/share-your-badassity/i-didn't-pay-off-my-mortgage-and-i-feel-fucking-great!/msg1451266/#msg1451266

Yes, I agree the shapes of our curves are quite similar, with the biggest difference likely being that difference between a fixed interest rate mortgage and a varying one over time (and almost always >4%). I'm using the shiller dataset for interest rates and stock market returns, which I think is the same dataset used by moneychimp. So definitely count me as yet another validation through independent re-implementation.
Yeah, your dataset is very intriguing.  Is this an excel doc as well?  If so could I get me hands on it?

At this point I have several that I am digging into and looking for errors or anything that could be of use in factoring a multitude of scenarios.

Sent from my SM-G935F using Tapatalk

I am not sure which dataset you're asking for. You can download the shiller data on the stock market, interest rates, and inflation as an excel sheet here (http://www.econ.yale.edu/~shiller/data.htm).

The graph above is based on some messy python code which I -- while being rather embarrassed by it -- would be willing to post if it is of interest/use. In the interim I've made an excel document with the final results from each starting month. Everything is based on a $100k mortgage. But if you live in a part of the country where house prices are higher, just multiply everything* and the pattern should stay the same. Let me know if the excel sheet doesn't make sense, has weird formatting issues (created it in LibreOffice), or if I've misunderstood your question.

*If one thinks an average mortgage is $400k then multiply the monthly payment and final net worth values by 4.

Tyson

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Re: Mr. Math and paying off your mortgage
« Reply #63 on: April 15, 2017, 01:56:47 PM »
I have a question about inflation as regards stocks and mortgage rates.  With stocks, their 'actual' return is 10% on average, but we subtract 3% because of inflation to get a 'real' return of 7%, correct?

If that's true, shouldn't we do the same with mortgage interest?  If your mortgage is 4% shouldn't you subtract 3% from it to get a 'real' return of 1%?

Am I wrong about this?

maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #64 on: April 15, 2017, 02:00:40 PM »
@Frozenbits, For easier comparisons, I'm also attaching (edit: a spreadsheet with) the outputs of my code with a hardwired 4% interest rate which should be more directly comparable to rpr's results. Graphical comparison below as well.



« Last Edit: April 15, 2017, 02:12:26 PM by maizeman »

FIreDrill

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Re: Mr. Math and paying off your mortgage
« Reply #65 on: April 15, 2017, 02:03:27 PM »
I have a question about inflation as regards stocks and mortgage rates.  With stocks, their 'actual' return is 10% on average, but we subtract 3% because of inflation to get a 'real' return of 7%, correct?

If that's true, shouldn't we do the same with mortgage interest?  If your mortgage is 4% shouldn't you subtract 3% from it to get a 'real' return of 1%?

Am I wrong about this?

You are correct, that is why anyone looking into this should be comparing our mortgage rates with non-inflation stock market returns.  So we would compare a 4% mortgage to a 9.6% average market return.

FIreDrill

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Re: Mr. Math and paying off your mortgage
« Reply #66 on: April 15, 2017, 02:05:24 PM »
@Frozenbits, For easier comparisons, I'm also attaching the outputs of my code with a hardwired 4% interest rate which should be more directly comparable to rpr's results. Graphical comparison below as well.



Nice!  Thanks for sharing.

MDM

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Re: Mr. Math and paying off your mortgage
« Reply #67 on: April 15, 2017, 02:29:26 PM »
You are correct, that is why anyone looking into this should be comparing our mortgage rates with non-inflation stock market returns.  So we would compare a 4% mortgage to a 9.6% average market return.
Probably missing "-adjusted" after "non-inflation" (see Inflation-Adjusted Return) but I think your intent is clear: don't subtract inflation when looking at market returns.

It depends on the decision you are trying to make.
What decision would be made better by ignoring inflation?  Because market returns are likely to be affected by inflation while a locked-in mortgage rate will not, it seems reality dictates the inclusion of inflation...?

maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #68 on: April 15, 2017, 02:29:59 PM »
Exactly. We are comparing a flow of cash that is certain, with a flow of returns that are uncertain.  Hence his analysis of the variations that historically occurred for the uncertain flow of returns is highly appropriate.

In fact, it is perfectly possible for market returns to be WORSE than any of the historic worst case scenarios.  If fact, if we used a broader set of global markets to drive the scenarios we would have a much larger range of possible outcomes.  For example, buy 100% Japanese equities in 1990 vs a fixed 4% mortgage payoff and run that one.

I see this point come up a lot. I will stipulate that if you look at the history of stock and bond returns over the last 150 years in different individual countries, a lot of them have much worse "worst case" scenarios than historical data for the USA. Those worst case scenarios almost all tend to start in years that span world war II and be in countries with significant on the ground fighting, civilian deaths, and destruction of infrastructure during the war. That's my personal benchmark for the type of scenario I cannot prepare for through FIRE.

For the specific scenario you mentioned, if someone bought a house in japan in 1991 they saw the house lose 2/3s of its value over the next twenty years.



I don't know what real estate laws are like in the Japan, but in the USA they would have been better off investing in stocks, taking the huge hit to their stock values (still down ~50% from 1991) and giving the bank keys in lieu of foreclosure than prepaying the mortgage and seeing every single dollar of their equity wiped out by the continued collapse in housing prices and having no net worth at all.

Edit to respond to your edit:

Quote
I can't imagine European stocks purchased in 1939 did well up to 1969, vs a fixed 4% return.  Maybe they did recover well.   Anyone have global equities data?

Sadly no. The datasets exist, but to get the needed raw numbers one would need to pay for them. Also, I don't know about you, but I certainly wouldn't have wanted my net worth tied up in house equity in Berlin or London from 1939-1945.
« Last Edit: April 15, 2017, 02:33:32 PM by maizeman »

maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #69 on: April 15, 2017, 02:52:10 PM »
All good points, however my main point stands.  We don't know the future and the US returns have been unusually stable and consistent over the last 100 years or so.
I think you're missing my main point, which is that extreme events outside the range of what the US has experienced over the last 150 years tend to mean there are enough other, bigger, societal problems going on that I'd generally be more concerned about the physical safely of myself and those I care about than my net worth.

Quote
You cant consider house values when comparing mortgage vs equities.  If you own the house, you eat the value losses regardless.
I certainly can consider housing values. If you don't want to factor them in to your own models that's your decision.

Quote

I had many friends 50% underwater in japan faithfully paying their mortgage at 0%.
As I said above, I don't know what real estate laws (or cultural practices) are like in Japan. I was talking about what options would have applied if something like the last 25 years in Japan happened here in the states. (And admittedly there are even some states where you'd be on the hook for lost equity if the bank short sells the house, but I believe they are the exception rather than the rule.)

Quote
You are changing the narrative to support a view.  In Japan, some mortgages are passed across generations.  The value of a foreclosure hedge against drops in home values are not part of our model, and should not be part of the argument, for the most part.  The home is a durable consumer good. The debt is debt.

You're making statements about which aspects of risk you do and don't want to consider. Your position above was that data from the USA didn't adequately capture the risk of investing in the stock market. My point was that a model where paying off the mortgage is a 100% safe return on investment doesn't adequately capture the risk of having more of your net worth tied up in home equity.*

*2/3s drop in housing prices where you can walk away from your home and mortgage. Having the house blown up by german or allied bombers.  Nuclear war. <-- have a look, the last one is almost certainly specifically excluded from your home owners insurance.

FIreDrill

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Re: Mr. Math and paying off your mortgage
« Reply #70 on: April 15, 2017, 02:58:22 PM »
You are correct, that is why anyone looking into this should be comparing our mortgage rates with non-inflation stock market returns.  So we would compare a 4% mortgage to a 9.6% average market return.
Probably missing "-adjusted" after "non-inflation" (see Inflation-Adjusted Return) but I think your intent is clear: don't subtract inflation when looking at market returns.

It depends on the decision you are trying to make.
What decision would be made better by ignoring inflation?  Because market returns are likely to be affected by inflation while a locked-in mortgage rate will not, it seems reality dictates the inclusion of inflation...?

The scenario I am thinking of, is the strategy of investing extra money until it equals the mortgage balance then pay-off the mortgage. In theory you could adjust your returns for inflation than back them out since you will be using the money to pay-off a loan that does not adjust for inflation. However, it would be much easier to just use nominal returns.
But that isn't the scenario you presented....

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maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #71 on: April 15, 2017, 03:22:38 PM »
A few things:

-Most states are recourse not non-recourse.

-Even if I lived in a non-recourse state I would still try to repay the loan. I value integrity over money.

-If you live in a recourse state and a nuke destroyed your house, you still owe your mortgage

-Home equity, legally speaking, is safer than index funds in a brokerage account. Look up home exemption.

- The idea of a risk-free-rate of return, was not made up by people arguing for paying-off the mortgage early. It is a widely recognized term used in the investing community. See below.

http://www.investopedia.com/terms/r/risk-freerate.asp

You are correct on the relative frequency of recourse vs non-recourse states. Apologies for my confusion on that bit. It seems a lot of our disagreements boil down to that point. For example, if my house was destroyed in a nuclear attack, the bank could certainly reclaim the land/ruins. I wouldn't be on the hook for servicing the mortgage on the destroyed home. I don't think that's a matter of integrity, it's a matter of following the terms of the contract and the laws governing that contract which both parties entered into with eyes open. But you're certainly welcome to your own opinion, and even to judge my integrity as lacking if you like.

I don't disagree that there is thing as a risk free rate of return. I do disagree with paying off ones mortgage being such a risk free return. Home equity is certainly safer than index funds (both in terms of fluctuation in value and in terms of protection from bankruptcy proceedings). But it is not 100% safe in extreme events.

It seems we've narrowed down the specific point where our world views diverge, which has been interesting, but I'm not sure what else there is to say on this topic.

MsFrugal

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Re: Mr. Math and paying off your mortgage
« Reply #72 on: April 15, 2017, 05:56:26 PM »
Ugh I don't care about the math..my mortgage is paid off, there's 25k in an emergency fund for any house repairs,and i don't have to work while living a very nice life in a great house in a great area..if shit hit the fan tomorrow i could live on next to nothing without any mortgage payments and not checking investments every day to see if they've gone up or down. That peace of mind should ensure that I don't die from a stress related illness. I hate math anyway..as long as i'm okay i really don't care.

MDM

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Re: Mr. Math and paying off your mortgage
« Reply #73 on: April 15, 2017, 06:27:00 PM »
I hate math anyway....
Might not be the thread for you, then. ;)

Unless you are trying to overcome that phobia. :)

JLee

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Re: Mr. Math and paying off your mortgage
« Reply #74 on: April 15, 2017, 08:18:14 PM »
so we've really got

1. market timing at play here
2. grossly over estimated tax consequences when investing vs prepaying
3. a black box of data still that no one can replicate the OPs numbers.

You can manipulate math in any way to make it look like you come out ahead by changing variables but it still doesnt work out based on the common assumptions we make around here for FIRE.

1. Marketing timing? No, we have volatility.
2. if you look at previous posts, the simulation was also run with a tax rate of 0%, 15%, and 30%. A reasonable tax rate and two absurd tax rates. The data did not show material divergence.
3. I have provided the data I based the simulations on.

So basically your saying that you don't care what the math says you BELIEVE not paying-off the mortgage early will allow you to come out ahead. That's fine, you can believe what you want. I will do the math and make informed decisions.

You're saying that in certain periods of market volatility, prepaying a mortgage can be better than investing.  In order for that to be a reliable option, you need to know when that time is.  How is that not market timing?

Market timing is: http://www.investopedia.com/terms/m/markettiming.asp

That's not what paying off the house early is. It is a risk-reward decision similar to selecting what percentage of your portfolio will be in stocks and bonds.

From your link:

Quote
Market timing is the act of moving in and out of the market or switching between asset classes based on using predictive methods such as technical indicators or economic data. Because it is extremely difficult to predict the future direction of the stock market, investors who try to time the market, especially mutual fund investors, tend to underperform investors who remain invested.

You're arguing that you should pay off a mortgage and then invest later (moving out of and into the market) because the market underperforms in selective 7-year periods.

Quote from: OP
However, there is a large variance in the outcomes that would have happened if Frank, at some point in the past, decided to Invest instead; he could have ended up $60K worse off by not paying off his mortgage early.

In conclusion, the choice between Pay-off and Invest is a risk-reward trade off.

It's a similar concept to just stockpiling cash until you feel the market is about to go up, except you're getting a 3-4% return instead of ~1% on a savings account.

TomTX

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Re: Mr. Math and paying off your mortgage
« Reply #75 on: April 15, 2017, 08:29:26 PM »

It absolutely is an ethical problem. In your mortgage contract, you are agreeing to do everything in your power to pay the mortgage payment. So when you don't pay your a mortgage you are breaking your word. I would call lying, an ethical problem.

You must have an interesting mortgage document. None of mine have ever said I agree "to do everything in my power to pay the mortgage payment."

Contracts are made and broken under the law. Rates offered reflect that fact. Consequences for breaking a contract reflect that fact. If I can walk away free from an underwater house - the mortgage company who wrote the documents by the way was certainly aware of that and charged an appropriate rate for their risk.

maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #76 on: April 16, 2017, 06:21:58 AM »
Hey Steve, it is obvious that you feel very strongly about this topic so as you requested I will drop it going forward.

If it makes you feel any better, yes I obviously agree that if we take the two assumptions of the original model I posted (US stock returns from 1871-present, treating a mortgage as a 100% safe investment), and break the first assumption to add additional risk but leave the second assumption unmodified and unquestioned, then yes it makes paying off a mortgage a more favorable choice than the 12.6% odds of paying off a mortgage early being the best choice financially that I found above.

Whether it is fair to reexamine one assumption of the model but not the other is where we're clearly never going to find common ground.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #77 on: April 16, 2017, 12:39:10 PM »
I hate math anyway....
Might not be the thread for you, then. ;)

Unless you are trying to overcome that phobia. :)

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How do you fire or retire with any confidence if you hate or don't understand math.

Hotstreak

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Re: Mr. Math and paying off your mortgage
« Reply #78 on: April 16, 2017, 08:02:29 PM »

It absolutely is an ethical problem. In your mortgage contract, you are agreeing to do everything in your power to pay the mortgage payment. So when you don't pay your a mortgage you are breaking your word. I would call lying, an ethical problem.

You must have an interesting mortgage document. None of mine have ever said I agree "to do everything in my power to pay the mortgage payment."

Contracts are made and broken under the law. Rates offered reflect that fact. Consequences for breaking a contract reflect that fact. If I can walk away free from an underwater house - the mortgage company who wrote the documents by the way was certainly aware of that and charged an appropriate rate for their risk.

Totally true.  Virtus and everyone else shouldn't infer anything from their mortgage documents.  Everything that needs to be in it, is in it in writing.  Nobody at the bank is upset with you or feels slighted if you do a strategic foreclosure or just stop making payments for some reason.  There is an expected % of mortgages that will default and you are one of them, it's not a big deal. 

Just speaking generally with regards to contracts, there are often cases where the loss or penalty you will incur by breaking a contract is less than the loss you would incur if you maintained the contract.  In that case it makes sense to break it, and everybody entering the contract understood that, and priced accordingly, including penalties or other consequences if any that will be imposed for the break.

rpr

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Re: Mr. Math and paying off your mortgage
« Reply #79 on: April 16, 2017, 08:34:25 PM »
Virtus -- Thanks for providing your spreadsheet. I have tested it for the case of nominal returns with no taxes and no inflation -- to keep things simple. And -- We get the exact same results for the Invest part. There seems to be a small difference in the prepayment calculation. I will investigate further. Here is both our data plotted. Virtus and my simulations lie on top of each other. For this case it does appear that invests beats prepay almost all of the time except for 1925.


brooklynguy

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Re: Mr. Math and paying off your mortgage
« Reply #80 on: April 17, 2017, 07:22:12 AM »
In general, high inflation tilts the argument much more strongly towards not paying off a house.  Mortgage payments are fixed, and thus are cheaper to pay off in the future.  In general, the stock market is a reasonable guard against inflation as your equity is in companies that rise in value with inflation (or much higher in economies of rapid growth).  Housing values mirror inflation as well, but you realize that gain regardless of whether or not you pay off the house early.

If you're comparing how much buying power you have at the end of the scenario, it doesn't really matter, since each final value will be scaled by
the same amount.

Agreed. In fact when carrying a fixed interest debt, deflation would be a lot more worrisome.

I agree as well. For the purposes of this discussion factoring in inflation does not make sense. (Also, if you did that, you'd have to calculate how your housing payments were decreasing each month in "nominal dollars" because of inflation which just gets messy and introduces a lot more potential for error.)

cFIREsim lets you factor in inflation in this manner (except I think you meant to say "real/inflation-adjusted dollars" instead of "nominal dollars").  The results reported in reply # 30 above show the portfolio ending values for Virtus' original scenarios in inflation-adjusted dollars (without accounting for any potential tax consequences, and using cFIREsim's assumptions and underlying data sources).

maizefolk

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Re: Mr. Math and paying off your mortgage
« Reply #81 on: April 17, 2017, 07:36:28 AM »
Thanks brooklynguy. Between that and the comparison rpr posted last night of not-inflation adjusted results, it seems like the unexpected results Virtus originally reported for mortgage payoff vs stock market returns have been narrowed down to something about how the inflation adjustment is being handled in their spreadsheet that is different from the cFIREsim approach.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #82 on: April 17, 2017, 08:13:23 AM »
Thanks brooklynguy. Between that and the comparison rpr posted last night of not-inflation adjusted results, it seems like the unexpected results Virtus originally reported for mortgage payoff vs stock market returns have been narrowed down to something about how the inflation adjustment is being handled in their spreadsheet that is different from the cFIREsim approach.

yes virtus's setup is only using inflation to be detrimental to the investor which in turn has produced better than normal results for the pay down guy in comparison to the investor. 

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #83 on: April 17, 2017, 09:31:47 AM »
1) I do not believe that buying or selling debt particularly a mortgage and government debt has the same risk profile as buying or selling equities.  Therefor those models are not fully accurate as they do not reflect that risk.  If equities are riskier than debt it would be pretty obvious that equities command a higher return.  Same could be said about junk bonds vs treasuries.  You expect higher return on junk bonds, but the return is not 100% guaranteed.

2) If you are at 100% equities than making those comparisons above are reasonable to your situation, but it is not everyone's scenario.  For example I am currently 67.5/32.5 on my asset allocation or 85%/15% if I consider my home as a negative bond.  Also, leveraging your home to increase your equities beyond 100% which is really what we are discussing here should theoretically increase returns but again at the cost of increasing risk.  Yes historically equities have worked out well and hopefully continue to do so, but again that comes with increased risk.

3) We have shown before that retiring with a mortgage puts you at higher risk for portfolio failure early on, but increases your chances of portfolio survival 10-25 years later.  That makes complete sense since having more equities and higher expenses increases your risk.  For those who are interested and capable of returning to work it might not be a big deal, but for others this may not be a reasonable option and maybe decreasing early portfolio failure is much more valuable than long term portfolio survival.  This is particularly true for certain specialties where being out of the game makes you un-hirable in the future.  This is why I will have my mortgage paid off when I fully retire and why a 15 year instead of a 30 year mortgage was the right choice for me.

4) Pre-paying your mortgage early on during your wealth building phase puts most of your wealth into 1 asset class (your home.)  This is poor diversification and likely increases your risk.  This becomes very true early in a career where you have a high likelihood of moving.  I am sure we have met many people who were forced to sell for a significant loss.

5) I fear that we have too many people on this forum who have not experienced a massive loss in their portfolio during a downturn.  I see it on bogleheads, these "100% equities threads" that pop up all the time now that times are good.  You wouldn't see them that often during 2009-2011. 

6) Risk is real and unfortunately it is understated in all these discussions.  We are not spreadsheets and our emotions do have some affect on our decision making.  This is especially true during catastrophic events.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #84 on: April 17, 2017, 10:13:10 AM »
1) I do not believe that buying or selling debt particularly a mortgage and government debt has the same risk profile as buying or selling equities.  Therefor those models are not fully accurate as they do not reflect that risk.  If equities are riskier than debt it would be pretty obvious that equities command a higher return.  Same could be said about junk bonds vs treasuries.  You expect higher return on junk bonds, but the return is not 100% guaranteed.

2) If you are at 100% equities than making those comparisons above are reasonable to your situation, but it is not everyone's scenario.  For example I am currently 67.5/32.5 on my asset allocation or 85%/15% if I consider my home as a negative bond.  Also, leveraging your home to increase your equities beyond 100% which is really what we are discussing here should theoretically increase returns but again at the cost of increasing risk.  Yes historically equities have worked out well and hopefully continue to do so, but again that comes with increased risk.

3) We have shown before that retiring with a mortgage puts you at higher risk for portfolio failure early on, but increases your chances of portfolio survival 10-25 years later.  That makes complete sense since having more equities and higher expenses increases your risk.  For those who are interested and capable of returning to work it might not be a big deal, but for others this may not be a reasonable option and maybe decreasing early portfolio failure is much more valuable than long term portfolio survival.  This is particularly true for certain specialties where being out of the game makes you un-hirable in the future.  This is why I will have my mortgage paid off when I fully retire and why a 15 year instead of a 30 year mortgage was the right choice for me.

4) Pre-paying your mortgage early on during your wealth building phase puts most of your wealth into 1 asset class (your home.)  This is poor diversification and likely increases your risk.  This becomes very true early in a career where you have a high likelihood of moving.  I am sure we have met many people who were forced to sell for a significant loss.

5) I fear that we have too many people on this forum who have not experienced a massive loss in their portfolio during a downturn.  I see it on bogleheads, these "100% equities threads" that pop up all the time now that times are good.  You wouldn't see them that often during 2009-2011. 

6) Risk is real and unfortunately it is understated in all these discussions.  We are not spreadsheets and our emotions do have some affect on our decision making.  This is especially true during catastrophic events.

Risk should be changed to volatile in almost every instance in your post.  Risk and volatility are not the same thing.  If you truly believe there is RISK in equities why do you hold any, why not hold only low volatility bonds and wait til those cover your FIRE needs. 

Most historic cFIREsim runs when holding a mortgage do show you run out of money faster if you happen to hit one of the worst times to retire.  But the same situation when presented with earning an extra 5k or the ability to withdraw 5k less in the early years on a 50k spend + mortgage creates a portfolio that almost never fails and increasing that to 10k makes it never fail.  You dont have to replace your entire income in FIRE you can use a variable withdrawal method and a mortgage.  And supplement your withdrawals with work or by cutting back spending.  I dont think stocks are risky ... they are just volatile.

mizzourah2006

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Re: Mr. Math and paying off your mortgage
« Reply #85 on: April 17, 2017, 11:19:55 AM »
The one thing that would be interesting to look at is tax consequences of needing more money in early retirement to pay on the mortgage. If you need XX/yr without a mortgage and XX + $15k with the mortgage, that's $15k less you can fit into your roth conversion ladder. Obviously this is only important to someone at the retirement phase, but could have implications on a 30 year mortgage for many, especially if they continue to refi @ 4% and put the equity into investments.

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #86 on: April 17, 2017, 11:23:18 AM »
Brooklyn has done that math. And it just doesn't come out ahead.  I'm sure he'll share links to his posts about it.

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #87 on: April 17, 2017, 12:20:15 PM »
1) I do not believe that buying or selling debt particularly a mortgage and government debt has the same risk profile as buying or selling equities.  Therefor those models are not fully accurate as they do not reflect that risk.  If equities are riskier than debt it would be pretty obvious that equities command a higher return.  Same could be said about junk bonds vs treasuries.  You expect higher return on junk bonds, but the return is not 100% guaranteed.

2) If you are at 100% equities than making those comparisons above are reasonable to your situation, but it is not everyone's scenario.  For example I am currently 67.5/32.5 on my asset allocation or 85%/15% if I consider my home as a negative bond.  Also, leveraging your home to increase your equities beyond 100% which is really what we are discussing here should theoretically increase returns but again at the cost of increasing risk.  Yes historically equities have worked out well and hopefully continue to do so, but again that comes with increased risk.

3) We have shown before that retiring with a mortgage puts you at higher risk for portfolio failure early on, but increases your chances of portfolio survival 10-25 years later.  That makes complete sense since having more equities and higher expenses increases your risk.  For those who are interested and capable of returning to work it might not be a big deal, but for others this may not be a reasonable option and maybe decreasing early portfolio failure is much more valuable than long term portfolio survival.  This is particularly true for certain specialties where being out of the game makes you un-hirable in the future.  This is why I will have my mortgage paid off when I fully retire and why a 15 year instead of a 30 year mortgage was the right choice for me.

4) Pre-paying your mortgage early on during your wealth building phase puts most of your wealth into 1 asset class (your home.)  This is poor diversification and likely increases your risk.  This becomes very true early in a career where you have a high likelihood of moving.  I am sure we have met many people who were forced to sell for a significant loss.

5) I fear that we have too many people on this forum who have not experienced a massive loss in their portfolio during a downturn.  I see it on bogleheads, these "100% equities threads" that pop up all the time now that times are good.  You wouldn't see them that often during 2009-2011. 

6) Risk is real and unfortunately it is understated in all these discussions.  We are not spreadsheets and our emotions do have some affect on our decision making.  This is especially true during catastrophic events.

Risk should be changed to volatile in almost every instance in your post.  Risk and volatility are not the same thing.  If you truly believe there is RISK in equities why do you hold any, why not hold only low volatility bonds and wait til those cover your FIRE needs. 

Most historic cFIREsim runs when holding a mortgage do show you run out of money faster if you happen to hit one of the worst times to retire.  But the same situation when presented with earning an extra 5k or the ability to withdraw 5k less in the early years on a 50k spend + mortgage creates a portfolio that almost never fails and increasing that to 10k makes it never fail.  You dont have to replace your entire income in FIRE you can use a variable withdrawal method and a mortgage.  And supplement your withdrawals with work or by cutting back spending.  I dont think stocks are risky ... they are just volatile.

Boarder42, I invest in equities because I am comfortable accepting the risk with my hope of expected returns. Frankly, I think you are delusional if you think there is 0 risk investing in equities.  The risk is real.  Re-read everything I wrote above.  It generally agrees with every one of your points but, I don't believe 100% in equities is right for me at this stage in my life, and believe it is safer for some to get rid of the mortgage when they retire.

The worst case scenario I can think of for me would be a great depression like event right as I retire. Which is why I fully agree with not paying down the mortgage until you are about to retire.  It covers the higher potential growth while you are still working with eventually the decreased risk of lower fixed expenses during retirement.  For me, it is the best scenario.  Others can choose differently for themselves.

I will leave you with this one quote by John Maynard Keynes (may be attributed to a few others)
"The Market Can Remain Irrational Longer Than You Can Remain Solvent"

mr_orange

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Re: Mr. Math and paying off your mortgage
« Reply #88 on: April 17, 2017, 12:39:17 PM »
The worst case scenario I can think of for me would be a great depression like event right as I retire. Which is why I fully agree with not paying down the mortgage until you are about to retire.  It covers the higher potential growth while you are still working with eventually the decreased risk of lower fixed expenses during retirement.  For me, it is the best scenario.  Others can choose differently for themselves.

Yup....this is pretty much my line of thinking too.  Use the early cash flows to invest and those closer to RE to pay down/off the mortgage to decrease risk. 

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #89 on: April 17, 2017, 12:40:59 PM »
1) I do not believe that buying or selling debt particularly a mortgage and government debt has the same risk profile as buying or selling equities.  Therefor those models are not fully accurate as they do not reflect that risk.  If equities are riskier than debt it would be pretty obvious that equities command a higher return.  Same could be said about junk bonds vs treasuries.  You expect higher return on junk bonds, but the return is not 100% guaranteed.

2) If you are at 100% equities than making those comparisons above are reasonable to your situation, but it is not everyone's scenario.  For example I am currently 67.5/32.5 on my asset allocation or 85%/15% if I consider my home as a negative bond.  Also, leveraging your home to increase your equities beyond 100% which is really what we are discussing here should theoretically increase returns but again at the cost of increasing risk.  Yes historically equities have worked out well and hopefully continue to do so, but again that comes with increased risk.

3) We have shown before that retiring with a mortgage puts you at higher risk for portfolio failure early on, but increases your chances of portfolio survival 10-25 years later.  That makes complete sense since having more equities and higher expenses increases your risk.  For those who are interested and capable of returning to work it might not be a big deal, but for others this may not be a reasonable option and maybe decreasing early portfolio failure is much more valuable than long term portfolio survival.  This is particularly true for certain specialties where being out of the game makes you un-hirable in the future.  This is why I will have my mortgage paid off when I fully retire and why a 15 year instead of a 30 year mortgage was the right choice for me.

4) Pre-paying your mortgage early on during your wealth building phase puts most of your wealth into 1 asset class (your home.)  This is poor diversification and likely increases your risk.  This becomes very true early in a career where you have a high likelihood of moving.  I am sure we have met many people who were forced to sell for a significant loss.

5) I fear that we have too many people on this forum who have not experienced a massive loss in their portfolio during a downturn.  I see it on bogleheads, these "100% equities threads" that pop up all the time now that times are good.  You wouldn't see them that often during 2009-2011. 

6) Risk is real and unfortunately it is understated in all these discussions.  We are not spreadsheets and our emotions do have some affect on our decision making.  This is especially true during catastrophic events.

Risk should be changed to volatile in almost every instance in your post.  Risk and volatility are not the same thing.  If you truly believe there is RISK in equities why do you hold any, why not hold only low volatility bonds and wait til those cover your FIRE needs. 

Most historic cFIREsim runs when holding a mortgage do show you run out of money faster if you happen to hit one of the worst times to retire.  But the same situation when presented with earning an extra 5k or the ability to withdraw 5k less in the early years on a 50k spend + mortgage creates a portfolio that almost never fails and increasing that to 10k makes it never fail.  You dont have to replace your entire income in FIRE you can use a variable withdrawal method and a mortgage.  And supplement your withdrawals with work or by cutting back spending.  I dont think stocks are risky ... they are just volatile.

Boarder42, I invest in equities because I am comfortable accepting the risk with my hope of expected returns. Frankly, I think you are delusional if you think there is 0 risk investing in equities.  The risk is real.  Re-read everything I wrote above.  It generally agrees with every one of your points but, I don't believe 100% in equities is right for me at this stage in my life, and believe it is safer for some to get rid of the mortgage when they retire.

The worst case scenario I can think of for me would be a great depression like event right as I retire. Which is why I fully agree with not paying down the mortgage until you are about to retire.  It covers the higher potential growth while you are still working with eventually the decreased risk of lower fixed expenses during retirement.  For me, it is the best scenario.  Others can choose differently for themselves.

I will leave you with this one quote by John Maynard Keynes (may be attributed to a few others)
"The Market Can Remain Irrational Longer Than You Can Remain Solvent"

the entire basis of most people's FIRE is on the fact that the market always goes up.  It may be volatile but it always goes up.  Even you are assuming that with your 60% equity allocation.  in your quote irrational is volatile.  Risk is not equivalent to volatility.  risk can be a by product of having no plan in place for volaitily but RISK is thrown around far too much in these forums as a reason for investing to be bad.  You increase your risk by not planning for volatility but in general i'm of the opinion that the market is not a risk over the long haul.

brooklynguy

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Re: Mr. Math and paying off your mortgage
« Reply #90 on: April 17, 2017, 12:41:39 PM »
The one thing that would be interesting to look at is tax consequences of needing more money in early retirement to pay on the mortgage. If you need XX/yr without a mortgage and XX + $15k with the mortgage, that's $15k less you can fit into your roth conversion ladder. Obviously this is only important to someone at the retirement phase, but could have implications on a 30 year mortgage for many, especially if they continue to refi @ 4% and put the equity into investments.

Brooklyn has done that math. And it just doesn't come out ahead.  I'm sure he'll share links to his posts about it.

I don't recall having done any modeling on this question for specific scenarios using specific tax rates, but the related point that I regularly (and possibly excessively) harp on is that retaining a mortgage loan does not necessitate having extra taxable income to cover the required mortgage payments on a dollar-for-dollar basis.  Ordinarily if you choose to retain your mortgage loan instead of paying it off you wouldn't need an extra $15k of annual taxable income unless the annual required mortgage payments were some large multiple of $15k. My most recent post on that point was this one.

mr_orange

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Re: Mr. Math and paying off your mortgage
« Reply #91 on: April 17, 2017, 12:44:50 PM »
the entire basis of most people's FIRE is on the fact that the market always goes up.  It may be volatile but it always goes up.  Even you are assuming that with your 60% equity allocation.  in your quote irrational is volatile.  Risk is not equivalent to volatility.  risk can be a by product of having no plan in place for volaitily but RISK is thrown around far too much in these forums as a reason for investing to be bad.  You increase your risk by not planning for volatility but in general i'm of the opinion that the market is not a risk over the long haul.

I think most people would agree with you that there isn't much risk over the long haul.  The trouble is that not everyone has a long haul horizon.  As you get closer to needing to live off your stash your long haul is much shorter and the downside from holding riskier assets increases.  Again, social sciences aren't hard sciences and you can't just "do the math."  One's ability to tolerate risk depends on a whole host of things that are somewhat hard to quantify precisely and make a math problem out of them. 

MDM

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Re: Mr. Math and paying off your mortgage
« Reply #92 on: April 17, 2017, 12:49:17 PM »
6) Risk is real and unfortunately it is understated in all these discussions.
Any suggestions on how to quantify a general process for choosing among options with unequal risk?  Or this specific "mortgage vs. invest" choice?

Seems wrong to say "I don't care about risk: investing is the choice for me."

Also seems wrong to say "Always take the safer route: investing has risk so mortgage payment is the choice for me."

Does seem reasonable to look at the "most likely" outcome, consider the likelihood and consequences of unfavorable events, and choose based on those results.  Other thoughts?

runewell

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Re: Mr. Math and paying off your mortgage
« Reply #93 on: April 17, 2017, 12:54:16 PM »
Again, social sciences aren't hard sciences and you can't just "do the math."  One's ability to tolerate risk depends on a whole host of things that are somewhat hard to quantify precisely and make a math problem out of them.

But research attempts to measure the amount of risk a person is comfortable with at a point in time in their life and set the asset allocation accordingly. 
« Last Edit: April 17, 2017, 01:00:49 PM by runewell »

boarder42

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Re: Mr. Math and paying off your mortgage
« Reply #94 on: April 17, 2017, 01:02:39 PM »
i'd really like to see the age demographic on the paydown vs invest side.  I'd tend to think the younger crowd falls on the invest side more than the older crowd.  The older people on these forums typically find this place trying to figure out how to retire on a much more standard age/schedule/asset allocation.  They are planning to have money only support them for 30 years and are only looking at a small picture.  While the younger generation finds this place looking for early retirement specifically and can step back and is more open to some of the more A typical ideas that float around here.

Maybe i'm an outlier as a younger person who feels that even more so than supporting my FIRE time line, the increase in automation and jobs moving away at what will become exponential in my childrens life time that even maximizing returns once FIREd makes much more sense to sustain my future family and charitable giving(b/c our society is gonna need it) than trying to be conservative and just make enough that i can get by.  keeping a 90/10 or even higher amount of stock to bond ratio is what we're planning for ... and greater than 60% of the time with a mortgage that money grows to ridiculous levels using the 4% rule.  and its safe with minor flexibility during the first 5 years 100% of the time using Variable withdrawal methods. 

Seradoc

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Re: Mr. Math and paying off your mortgage
« Reply #95 on: April 17, 2017, 01:08:29 PM »
We are flexible, so we can be evil and time the market.

I'd like to see what happens if, on any down month in the market I invest, and any up month in the market I decide to prepay.

EnjoyIt

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Re: Mr. Math and paying off your mortgage
« Reply #96 on: April 17, 2017, 01:16:40 PM »

the entire basis of most people's FIRE is on the fact that the market always goes up.  It may be volatile but it always goes up.  Even you are assuming that with your 60% equity allocation.  in your quote irrational is volatile.  Risk is not equivalent to volatility.  risk can be a by product of having no plan in place for volaitily but RISK is thrown around far too much in these forums as a reason for investing to be bad.  You increase your risk by not planning for volatility but in general i'm of the opinion that the market is not a risk over the long haul.

You are correct, we all hope markets produce some growth so that we can live on our wealth.  But there is no rule out there that says that markets will always grow.  I hate to throw out Japan at you since almost everyone would, but the reality is that it is a possibility.  Even if long term growth does occur having a huge downturn in equities that lasts a decade is a real possibility before markets return which is the basis for my quote.  I can easily survive a 1-3 year recession.  But can I survive a 10 year recession?  That is the real risk which is why when I retire I will not have 100% equities and I will not have a mortgage.  I would not be able to survive a 50% loss in my wealth if it is sustained for a prolonged period of time.  Lets say I have $1million and live on $40k.  If the markets collapse for a decade and I am able to be flexible and cut my spending by 25% my wealth is still $500k going down by $30k/yr over 5-10 years.  I would be devastated and be forced to go back to work which I have no intention of doing.  Yes this is hypothetical, but during the great depression equities dropped by 80% from 1929 to 1932 and believe me there was little chance of finding work.

Risk is not just about the volatility of your portfolio, the risk is real especially when you must survive off that portfolio.

mr_orange

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Re: Mr. Math and paying off your mortgage
« Reply #97 on: April 17, 2017, 01:52:23 PM »
Again, social sciences aren't hard sciences and you can't just "do the math."  One's ability to tolerate risk depends on a whole host of things that are somewhat hard to quantify precisely and make a math problem out of them.

But research attempts to measure the amount of risk a person is comfortable with at a point in time in their life and set the asset allocation accordingly.

Fair point....but the amount they're comfortable with and what ends up being "optimal" are probably two very different numbers.  If one comes from a wealthy family or has awesome job skills such that a layoff or loss of business income won't materially impact their bread winning capacity during a bad slump they're more likely to rationally take more risk. 

I have read about 10 of these long posts on this topic now and I can't help but think many of the posters are younger and haven't been through a lot of nasty cycles.  I too thought I was pretty invincible until the gnarly crisis of '09.

During the last several years I have secured a lot of extra resources (lines of credit, family commitments, platforms, alternative streams of income, etc.) that simply weren't available to me 10 years ago.  This allows me to be comfortable taking more risk.  I am not sure how I would ever really quantify this with any degree of accuracy though. 

Scortius

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Re: Mr. Math and paying off your mortgage
« Reply #98 on: April 17, 2017, 02:41:44 PM »
We are flexible, so we can be evil and time the market.

I'd like to see what happens if, on any down month in the market I invest, and any up month in the market I decide to prepay.

This would work horribly.  Just wait for a bull run like we're having now, you'll be putting all your money into your house while the market soars up and up. Strategies like these are no better than your average Las Vegas gambler's favorite "system".

Seradoc

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Re: Mr. Math and paying off your mortgage
« Reply #99 on: April 17, 2017, 03:37:27 PM »
We are flexible, so we can be evil and time the market.

I'd like to see what happens if, on any down month in the market I invest, and any up month in the market I decide to prepay.

This would work horribly.  Just wait for a bull run like we're having now, you'll be putting all your money into your house while the market soars up and up. Strategies like these are no better than your average Las Vegas gambler's favorite "system".

By work horribly you mean, work no worse than the worse of the other two systems being proposed... with possible upside.
« Last Edit: April 17, 2017, 03:40:35 PM by Seradoc »