Paying off debt vs Investing

[mdjohnson18]

All

I’m 39 years old and trying to figure out the next step in my journey. Do I maximize my 403b and Roth IRA contributions every month and allocate the remaining money to paying off my debt, which includes:

Car payment - $35,000 (I know, much too high)
Mortgage $245,000


Or, do I just contribute 10% (or some other %) to my 403b and nothing to my Roth IRA until I have paid off all debt? Or some combination of the two?

I’m just nervous about not maximizing my retirement vehicles, especially since I got started somewhat late in investing.

Between my wife and I we have around $280,000 in retirement accounts

Any help here is greatly appreciated

Cheers
Matt

[Capt j-rod]

I'm the same age with less debt. I still do both. Interest rates help to guide your money. If your mortgage is 4.5% and your car is 0.9% then the money earns more going to the house. How many miles on the car and how fast is it depreciating? My answer is both. I max out all of the retirement vehicles through my wife's work, and try to buy a rental property each year for cash. I live in a low COL area with a high income which allows this. I usually put everything that is left against my wife's student loan and the house, My only two loans. No payments=more flexibility and less dependence on the paychecks. There's no wrong way and it can change month to month.

[NoStacheOhio]

What's the current value on the car? What vehicle is it? Have you considered switching to something more frugal?

What's the current value of the house? Are you planning to stay there long term?

To answer the question you asked, I would split the difference between car and investments and just pay the normal mortgage payments. But that car loan is pretty nutso.

[Proud Foot]

Matt,

I will link MDM's Investment Order for you to read.  This should help you out a lot as it not only gives you a suggested order, it also explains the why behind each item.

As far as your debts, what are the rates and how much is left on the term?

[Laura33]

First, sell the damn car.

Second, math says to maximize your tax-sheltered investments, unless your loans are at usurious interest rates.*  The money you put in your 403(b) is pre-tax, which means that you pay less in taxes, which means that you can put a lot more into savings than towards your debt for the exact same hit to your budget.  This also means traditional IRA instead of Roth for most people (if your income is low enough that you are allowed to deduct those IRA contributions).

The other thing is that those tax-sheltered opportunities are limited:  you get a certain amount every year, and if you don't take full advantage of that now, you can't "make it up" in future years once your debt is paid off.  So you want to take full advantage of that every year that you possibly can, or you're leaving money on the table.

Finally, the amount of time you have money in the market has a massive effect on your results.  I will use the same example I have used elsewhere:  Rule of 72 says that if you get a 7% return, your money will double every 10 years.  So if you have $50K invested now, in 30 years, it will be worth $400K.  But if you wait 10 years to start investing that money, at the 30-year mark you will only have half as much, because you miss that last doubling.  Think about that:  same amount of money, same investments, and you lose half your gains, because you wanted to do something else with that money for the first ten years. 

So for most people (at least those without massive CC debt), the best financial option is to throw as much money into investments as early as possible and let time and compounding do the work for you.  Since you are getting started later, that is even more important for you. 

*Given that we are talking about a car loan and a mortgage, I am assuming they are not.

[mdjohnson18]

Thanks to all for responding so quickly on this.  Below is some additional information.

I literally just got the car in November.  It is a 2016 Honda Pilot (had 11,000 miles on it when I got it).  I will drive this vehicle to over 200,000 miles (hopefully for the next 12 years).  Our other car is paid off.  The interest rate on the car loan is 3.3%.

The interest rate on our mortgage is 3.5% and we still have 25 years left on a 30 year mortgage. Yes, we plan on this being our house long term. 

[Jeff K]

Nothing's really going to beat the tax deferred investments for pumping up your net worth so if that's your goal, that's the way you need to go.  But, you'll also need to factor your mortgage payments into your FI number since you plan on living in the house long term.  From what I've read on a number of the FI sites, the people that reach FI at early ages generally either own the house they're in or move around (correct me if I'm wrong on this).  It seems that paying down the mortgage will help avoid a lot of tax burden down the road and keep your actual FI number down.  As for the car, while you plan on keeping it for 200,000 miles, a lot can happen to that car in the 189,000 miles you plan on driving it.  If a vehicle like the Pilot is what you want, it may be worth considering selling the car and picking up an older model so you spread the risk of those miles across a couple cars instead of one.  It'll probably cost less too since SUVs depreciate so much.

[mathlete]

Planning on living in that house (25 years left) long term + got a late start on savings = probably going to work another 20 or so years.

I say invest. CAGR of the stock market almost always beats ~3.5%, and you get tax advantages.

[mdjohnson18]

Thanks to all for the advice.  I just submitted the paperwork to max out my 403b starting this month.  In April, we will receive our tax refund and I will max out the Roth IRA contribution this year.  Then moving forward I will max out both of these (403b and Roth IRA).  When all is said and done, I should still have around $500 each month that I can apply to debt (above and beyond monthly payments).  I'm assuming I should start paying the car loan off first so that it will free up another $550 to apply towards the mortgage in a couple of years?  Thanks again for the help. 

I'm also going to look into trying to reduce expenses in some other areas as well. 

[Dicey]

Thanks to all for the advice.  I just submitted the paperwork to max out my 403b starting this month.  In April, we will receive our tax refund and I will max out the Roth IRA contribution this year.  Then moving forward I will max out both of these (403b and Roth IRA).  When all is said and done, I should still have around $500 each month that I can apply to debt (above and beyond monthly payments).  I'm assuming I should start paying the car loan off first so that it will free up another $550 to apply towards the mortgage in a couple of years?  Thanks again for the help.

I'm also going to look into trying to reduce expenses in some other areas as well.

Close, but not quite. Go back and re-read @Laura33's excellent response. Then follow @Proud Foot's link. There are more effective ways to deploy those 550 soldiers than throwing them at your mortgage like Redcoats.

As for the car, I have no opinion. Up to you. DH bought his F150 brand new in 2002 (no hate, he's a contractor). It still looks awesome and has less than 100k miles on the odo.

[Leisured]

I also acclaim the contrib by Laura33. You do need to consider how stable your income is, that is if you pay down debt first you are less vulnerable to being laid off.

[gggggg]

I took the opposite route and paid my home and car off. No regrets. The math doesn't work out as well this way, but it is a strange freeing feeling, not having any debt at all. You almost feel like you're in a different dimension from most folks, or "out of the Matrix"; hard to describe. I will agree the math works out doing as the others suggested.

[Radagast]

Those rates are low enough you will be better investing. Inflation is getting close to 3% right now.

Your car is too expensive to own and operate. You cannot own a car worth more than your largest single day "paper" loss in the stock market.

[Dicey]

I took the opposite route and paid my home and car off. No regrets. The math doesn't work out as well this way, but it is a strange freeing feeling, not having any debt at all. You almost feel like you're in a different dimension from most folks, or "out of the Matrix"; hard to describe. I will agree the math works out doing as the others suggested.

Here's the thing: you have no fucking idea how amazing it feels when your investment account balances require two commas. Problems literally melt away when you know they can be solved with a bit of money and that you have plenty of it. Sure, having no mortgage feels nice, but more money than you ever imagined is an order of magnitude better. Having achieved both*, I say this not to brag, but to say that if it can happen to us, and you're following this forum, it can happen for you, too.

Maybe more than one order of magnitude. Still blows us away.

Here's another example: Apparently the stock market's been quite a roller coaster in the first six weeks of 2018. This stresses me exactly zero percent. I haven't even looked at our balances since whenever the slide began. It doesn't matter because there's still plenty there. We are so far past "enough", that we still feel we must be dreaming. We never earned particularly high salaries and have always lived in a HCOLA. Mortgages, sequencing, and staying the course played a huge role in our success.

*Technically, we have never prepaid a mortgage. But we did pay close to $1M cash for our current home. We had that much because we always paid our previous mortgages as scheduled and invested the rest. And no, we did not cash out investments to buy this home. We sold two properties that had lots of equity, primarily due to appreciation. In fact, both still had mortgages when we sold them.

[mdjohnson18]

Thanks again to all for responding to this thread. 

I have read "Proud Foots" link (MDM Investment Order) but am still a little unclear as to what my next investment option should be.

If I am maxing out my 403b and Roth IRA contributions, what would be the next order of business from an investing standpoint, a mega backdoor roth?

I don't believe contributing to an HSA is an option for me as I am not in a high deductible health plan. 

So it sounds like most people think it makes more sense to put all remaining money into investment accounts and just keep paying the regular mortgage payments on the house?  I know most feel that I should sell the car and purchase a vehicle at a much more modest price. 

Or should I set some money aside for other options (i.e. rental properties)?

It's very hard to sort through the advice on all of these financial websites.  Some suggest that you only contribute 10% into investments accounts and use the other as active capital to make money in other ways (i.e. real estate - rental properties or other ventures). 

I guess there's no "right way", just the way that makes the most sense for each person/family. 

[NoStacheOhio]

I guess there's no "right way", just the way that makes the most sense for each person/family. 

Don't be surprised if people start to get face-punchy, you're pushing back on some pretty basic stuff here. So far it's been pretty gentle.

There's no reason to have a $35k truck. There just isn't. Why do you think you need a truck in the first place? I'm assuming you put $0 down. Because if not, holy shit. Also, how the hell did you end up with a 3.3% interest rate? That seems high for a loan on a late model, low mile car.

Secondly, have you read the main MMM blog? If you haven't, go do that. Then read this: http://jlcollinsnh.com/stock-series/ You may be reading too many different sites with different viewpoints, or MMM may not be for you. If you want to invest in rentals, that's fine, but it's work. Either you have to do it yourself, or pay someone else to do it.

Third, are you eligible for a deductible traditional IRA? If so, give your Roth contributions some long hard thought.

[frompa]

Given your relative youth, you may want to throw some money toward building a post-tax stache -- in other words, invest in index funds or some such for a pile of money that you can access without penalty long before retirement age.  This means having investment accounts that are NOT tax-advantaged.  This will be useful when and if you retire EARLY, to bridge the years (you can always hope) between your leaving paid employment and when you are old enough (currently 59 1/2 Y.O. under U.S. law) to access your retirement accounts without penalty.  (There are ways to get to retirement accounts without penalty prior to that age, but they require a committed steady draw that is a bit complex and not as flexible as many of us require.)  I agree with those who say investment properties come with some work, and are therefore not for everyone.  You already have a pile of your net worth tied up in your residence, so before you purchase more real property, consider whether doing so would mean you have too many eggs in one basket.
     Also, while investing 10% of your income is more than many people put away, such a percentage is pretty low for the MMM crowd.  If you really aim to retire before you are in your sixties, up that percentage, or throw away any percentage perspective and throw every penny you can into investments.  Investing more will help you develop the discipline and pleasure of living on much less.
    I encourage you to keep reading.  Read everything you can get your hands on. This is complicated, but.... Pretty soon these concepts will start to make sense to you, and you'll be able to read more critically and come up with plans that best suit your circumstances and temperament.  Good luck.
 

[mdjohnson18]

I'm certainly not trying to push back, just looking for advice.  I don't disagree about the vehicle.  I'm honestly not sure why the rate is 3.3%, my wife and I both have excellent credit. 

I think you are definitely right with regards to me having read too many sites with different viewpoints. 

Just trying to get things in order now, again, not at all trying to push back.  I appreciate all of the opinions/advice. 

[slappy]

I guess there's no "right way", just the way that makes the most sense for each person/family. 

Secondly, have you read the main MMM blog? If you haven't, go do that. Then read this: http://jlcollinsnh.com/stock-series/ You may be reading too many different sites with different viewpoints, or MMM may not be for you. If you want to invest in rentals, that's fine, but it's work. Either you have to do it yourself, or pay someone else to do it.

Haha. Nothing against you OP (I, too have a 2016 Honda Pilot, although I paid less than 35K) but I have been wondering this lately with some of the posts I have seen on the forum. 

[Capt j-rod]

People quickly lose sight of what that car and overall cash really cost. For every $100 in your hand you have to earn $130 and pay taxes on it. The pre-tax investments will grow faster, but you will pay taxes on them when you draw them back out. The strategy is to invest while you are in a higher tax bracket and draw them out after your income drops when you retire and your tax bracket drops. So that $35000 pilot? You need to make $45,500 to buy that. This does not include any interest on a loan. I always have wished that on pay day that every American got their gross paycheck and had to write the check for taxes so they were more aware of the true costs. The government would never allow this obviously. Depending on where you live some states charge personal property taxes where you are taxed on the value of that vehicle annually. Nice ain't it?

[ReadySetMillionaire]

I'm certainly not trying to push back, just looking for advice.  I don't disagree about the vehicle.  I'm honestly not sure why the rate is 3.3%, my wife and I both have excellent credit. 

I think you are definitely right with regards to me having read too many sites with different viewpoints. 

Just trying to get things in order now, again, not at all trying to push back.  I appreciate all of the opinions/advice.

I think you're missing the point here--the criticism isn't that you're paying 3.3% interest on a car loan, it's that you bought a $35,000 car that you didn't need.

[Cycling Stache]

I took the opposite route and paid my home and car off. No regrets. The math doesn't work out as well this way, but it is a strange freeing feeling, not having any debt at all. You almost feel like you're in a different dimension from most folks, or "out of the Matrix"; hard to describe. I will agree the math works out doing as the others suggested.

Here's the thing: you have no fucking idea how amazing it feels when your investment account balances require two commas. Problems literally melt away when you know they can be solved with a bit of money and that you have plenty of it. Sure, having no mortgage feels nice, but more money than you ever imagined is an order of magnitude better. Having achieved both*, I say this not to brag, but to say that if it can happen to us, and you're following this forum, it can happen for you, too.

Maybe more than one order of magnitude. Still blows us away.

Here's another example: Apparently the stock market's been quite a roller coaster in the first six weeks of 2018. This stresses me exactly zero percent. I haven't even looked at our balances since whenever the slide began. It doesn't matter because there's still plenty there. We are so far past "enough", that we still feel we must be dreaming. We never earned particularly high salaries and have always lived in a HCOLA. Mortgages, sequencing, and staying the course played a huge role in our success.

*Technically, we have never prepaid a mortgage. But we did pay close to $1M cash for our current home. We had that much because we always paid our previous mortgages as scheduled and invested the rest. And no, we did not cash out investments to buy this home. We sold two properties that had lots of equity, primarily due to appreciation. In fact, both still had mortgages when we sold them.

@Dicey I know you're a big proponent of investing in the market over paying off debt, but you have a couple of additional facts that I think should be disclosed when giving that advice that make your situation different than most people's.

First, aren't you 59, net worth between $2 million and $3 million, plus husband still working, plus husband gets a pension?  You have zero financial risk, so your ability to be unaffected by the market movements is not relevant to most people.

Second, you paid for your $1 million house entirely with cash?  That's the exact opposite of investing over paying down debt.

Third, don't you have a bunch of cash sitting on the sidelines right now, waiting to time the market?  That doesn't demonstrate a committed trust in the market and how it will perform.

I say that not to be critical, but to point out that the key question is not whether it's mathematically advantageous to invest in the market, but whether people are going to make sound decisions when market volatility arises.  If not, they either need to take steps to learn the "correct" answer to the point that they feel like they will act on it no matter what, or take steps to minimize the risk of mistake (paying down debt, shifting to a more conservative asset allocation, etc.).

Your advice is technically correct, but I think it's helpful for people to see why you're able to give that advice with less concern about how the market performs, and that you don't even follow the advice completely.  That's the behavioral economics side of things, where we believe we will act rationally even though we often in fact don't.

OP, for the record, I too have an investment portfolio with two commas, but I did pay off all debt, including house.  Knowing that I don't have debt is what has made me able to make the "rational" decision to continue to invest every extra dollar in the market now notwithstanding concerns about the market dropping, etc..  But it has had a significant opportunity cost in terms of missing out on market gains that I could have made off the money that went into the house (and those are large dollars).  It's a balance of understanding the true benefit of investing and the cost of paying down low-interest debt, and then deciding what risk you can handle.  For me, even though I understand the math, I still haven't been tempted to take out a mortgage on my house to invest the money.  I take that as a sign of the risk I'm willing to tolerate.

[Dicey]

 @Cycling Stache ,
Thanks for the great questions! I'll be happy to elaborate,  but I have a hard stop due to a volunteer gig + DH and I are playing with grandbaby when I get back, while her mommy's at a wedding. Hint: She's teething. We're braced for a bumpy ride.

I realize my story is more "If I can do it, you can to" than a textbook How-To. I'm willing to share my story in hopes of encouraging others, particularly single women, since I was one for flipping ever.

[Cycling Stache]

@Cycling Stache ,
Thanks for the great questions! I'll be happy to elaborate,  but I have a hard stop due to a volunteer gig + DH and I are playing with grandbaby when I get back, while her mommy's at a wedding. Hint: She's teething. We're braced for a bumpy ride.

I realize my story is more "If I can do it, you can to" than a textbook How-To. I'm willing to share my story in hopes of encouraging others, particularly single women, since I was one for flipping ever.

Write whenever you have time.  OP, we had a discussion in another thread about whether people would be able to do the "math," or whether they would make behavioral economics errors when the markets got volatile.  I think that ties into the questions you've raised, and I felt like there was an uptick in posts about what to do when the market dropped a couple weeks ago.  I wanted to make sure you were aware of those issues in deciding what to do.

Good luck!

[MDM]

I have read "Proud Foots" link (MDM Investment Order) but am still a little unclear as to what my next investment option should be.

If I am maxing out my 403b and Roth IRA contributions, what would be the next order of business from an investing standpoint, a mega backdoor roth?

Yes, you are reading that correctly.

So it sounds like most people think it makes more sense to put all remaining money into investment accounts and just keep paying the regular mortgage payments on the house?

Yes, provided you invest in something with an expected after-tax return higher than the 3.5% mortgage's after-tax cost (depends on your marginal rates and mortgage interest deductibility).

Or should I set some money aside for other options (i.e. rental properties)?

It's very hard to sort through the advice on all of these financial websites.  Some suggest that you only contribute 10% into investments accounts and use the other as active capital to make money in other ways (i.e. real estate - rental properties or other ventures). 

I guess there's no "right way", just the way that makes the most sense for each person/family.

Yes, your answer to the question implied in the last sentence should inform your self-response to question in the first sentence.

[Dicey]

I took the opposite route and paid my home and car off. No regrets. The math doesn't work out as well this way, but it is a strange freeing feeling, not having any debt at all. You almost feel like you're in a different dimension from most folks, or "out of the Matrix"; hard to describe. I will agree the math works out doing as the others suggested.

Here's the thing: you have no fucking idea how amazing it feels when your investment account balances require two commas. Problems literally melt away when you know they can be solved with a bit of money and that you have plenty of it. Sure, having no mortgage feels nice, but more money than you ever imagined is an order of magnitude better. Having achieved both*, I say this not to brag, but to say that if it can happen to us, and you're following this forum, it can happen for you, too.

Maybe more than one order of magnitude. Still blows us away.

Here's another example: Apparently the stock market's been quite a roller coaster in the first six weeks of 2018. This stresses me exactly zero percent. I haven't even looked at our balances since whenever the slide began. It doesn't matter because there's still plenty there. We are so far past "enough", that we still feel we must be dreaming. We never earned particularly high salaries and have always lived in a HCOLA. Mortgages, sequencing, and staying the course played a huge role in our success.

*Technically, we have never prepaid a mortgage. But we did pay close to $1M cash for our current home. We had that much because we always paid our previous mortgages as scheduled and invested the rest. And no, we did not cash out investments to buy this home. We sold two properties that had lots of equity, primarily due to appreciation. In fact, both still had mortgages when we sold them.

@Dicey I know you're a big proponent of investing in the market over paying off debt cheap-ass, affordable fixed rate mortgages, but you have a couple of additional facts that I think should be disclosed when giving that advice that make your situation different than most people's. Gee, thanks, but I'm not so special. If I can do it, Dog knows others who aren't high wage earning engineers can too.

First, aren't you 59, net worth between $2 million and $3 million, plus husband still working, plus husband gets a pension? My age is in my profile which appears on every single post, so no secret there. In fact, I'll be 60 very soon. Watch for birthday cake. I'm a cancer survivor, so I appreciate every single birthday I get to celebrate on this earth. DH is still working because his mother has fucking Alzheimer's and lives with us. We are the only ones in the family who can take care of her. DH would go insane if he was trapped at home, unable to travel, with nothing to do. He loves his work, so he might as well keep on doing it until the situation with his mother is resolved. Yes, he has a Defined Benefit Pension coming. What is relevant about that is at some point, he realized he was making a lot of money, but didn't have a ton to show for it. He took a huge pay cut (and did side work) in order to qualify for his firm's lucrative benefits, limited working hours, generous vacation and DB Plan. It was before I knew him, but I'm damn proud he figured it out and made the change of his own volition. Do you think that any of this is somehow a bad thing? I think life gave us some big-ass lemons and we're making fucking lemonade out of them and having fun doing it together.

You have zero financial risk, so your ability to be unaffected by the market movements is not relevant to most people. This doesn't compute for me. Our account balances go up and down, the same as anyone else's. Our risk is hardly zero. If you mean potential failure rate (a la Trinity Study and the 4% rule), you may be on to something, but that's not the same as zero risk.

Second, you paid for your $1 million house entirely with cash?  That's the exact opposite of investing over paying down debt. We don't have any other non-mortgage debt, so no, I did make the choice you think I did. If you are referring to consumer debt, yes, I believe that is a hair on fire emergency, which should be tackled before mortgage paydown, but that was not our situation. As explained previously, we each sold our highly appreciated houses for shocking amounts of money after we wed. We were literally rolling in cash.

Third, don't you have a bunch of cash sitting on the sidelines right now, waiting to time the market? That doesn't demonstrate a committed trust in the market and how it will perform.   Yes, we have a ton of cash on the sidelines. It is earmarked for one of two purposes, neither of which has to do with the stock market directly. First, you may recall that DH and I flipped a house for fun and profit a couple years ago. We are still actively looking for our next one. In fact, we spent Valentine's Day 2017 at a foreclosure auction with an obscene amount of cashier's checks stuffed in our pockets. The house we wanted was pulled at the last minute and we returned the cashier's checks to the bank the same day. Fun, free, memorable Valentine's Day. Despite hours spent combing the market, a second flip prospect has failed to materialize. BTW, we cleared about $75k on the last one. The payoff for keeping a hunk of cash out of the stock market to do something we enjoy doing together is sufficient for our purposes. Second, we own several single family homes that are close to one another, but not close too our primary home. We are looking to acquire one or two more in the same area. We BRRR them. (Buy, Rehab, Rent, Repeat) The available inventory has been extremely limited since we bought our last one, (right after the flip) so we have not found our next BRRR project, despite a lot of trying, but we're still looking. We figure with our luck, both will fall into our laps at the same time and we want to have enough cash on hand to take on both if the deals are right.

I say that not to be critical, but to point out that the key question is not whether it's mathematically advantageous to invest in the market, but whether people are going to make sound decisions when market volatility arises.  If not, they either need to take steps to learn the "correct" answer to the point that they feel like they will act on it no matter what, or take steps to minimize the risk of mistake (paying down debt, shifting to a more conservative asset allocation, etc.). These are your questions, not mine. I do not necessarily agree with what you are putting forth, except that we know exactly how we will respond personally to market volatility, because we're old enough to have lived through this a number of times before and our time horizon is loooong. And you are totally being critical, but if it helps others learn, I'm cool with that, no worries.

Your advice is technically correct, but I think it's helpful for people to see why you're able to give that advice with less concern about how the market performs, and that you don't even follow the advice completely.  That's the behavioral economics side of things, where we believe we will act rationally even though we often in fact don't. As far as I am concerned, when the market (equities, real estate, shoes, whatever) dips, it's an opportunity to buy at reduced prices. It has nothing to do with prepaying a cheap-ass, affordable, fixed-rate mortgage. We have a plan and we follow it. Not sure what advice you're referring to that I don't follow completely. We have a multi-faceted plan and we're working it. I'm also interested in helping others learn. There are lots of paths to FIRE.

OP, for the record, I too have an investment portfolio with two commas, but I did pay off all debt, including house.  Knowing that I don't have debt is what has made me able to make the "rational" decision to continue to invest every extra dollar in the market now notwithstanding concerns about the market dropping, etc..  But it has had a significant opportunity cost in terms of missing out on market gains that I could have made off the money that went into the house YES! You get it. Hooray! (and those are large dollars).  It's a balance of understanding the true benefit of investing and the cost of paying down low-interest debt, and then deciding what risk you can handle.  For me, even though I understand the math, I still haven't been tempted to take out a mortgage on my house to invest the money.  I take that as a sign of the risk I'm willing to tolerate. Nor have we, but all of our rentals have 30 year fixed mortgages that we have no plans to prepay those. Also, it sounds like our plans are sort of similar to yours, even if our motivations are different. Good for you for having a plan and executing it. But if you are anyone else reading along and you're prepaying your mortgage before investing in the market (which it sounds like you, Cycling Stache, did not), you would not be optimizing your little green soldiers to best effect. Read anything by @Laura33 about the rule of 72, and study these links before making a decision and you'll be fine. https://forum.mrmoneymustache.com/investor-alley/investment-order/

If you have any more questions, feel free to ask. Virtually all of what I've outlined here has been published elsewhere on the forum or in my journal, so this is not new information.

[/size]

[Cycling Stache]

you are totally being critical, but if it helps others learn, I'm cool with that, no worries.

This post missed the point I was making, so I'll reframe it for the benefit of other posters.

Behavioral economics says that most people act irrationally even though they think they act rationally, and they weigh loss as twice as great as gain, so they are more likely to buy when stocks are high and sell when stocks are low, the exact opposite of what they should do.

The issue I raised for you is that because of your financial situation, you're less affected by the outcome of the stock market (i.e., your financial well being won't depend on it), so therefore it's easier for you to be rational about investing.

The average person does not think like that, and that is likely to be exacerbated by large stock swings involving money that people need for their retirement portfolio.  The problem then is that the person who diligently saves $300k in their stock portfolio in lieu of paying down the $200k mortgage may panic when the market drops 50% and then sell for fear of losing even more when they could have paid off their house. 

The "math" approach is contradictory to the way people actually operate.  One possibility is that people can so internalize the point that they will act correctly in the future when their instincts tell them to do the opposite.  That's what you advise, and it's definitely the preferred first choice.  Along with that is the possibility that individuals will develop an investor policy statement that they will try to stick to even though their instincts tell them something different.  But a third possibility is that they need something more conservative to help them be more immune to their instincts and therefore not make bad decisions in the face of market volatility.

It doesn't do people any good to tell them just to do math if they don't fully internalize it and will then mess it up later.  When you make that point--without acknowledging the data on how people actually act, and without acknowledging the way in which it's significantly easier for you to be risk neutral than other people--I believe it does people a disservice.

After all, if you have $10 million and only need $1 million to live, you don't really care all that much if you could potentially lose $1 million.  If you have $1 million and need $1 million to live, you care very much, and the normal instincts to try to protect against loss are going to kick in much harder.

It's the same reason that I find it easy to put $5k in the market every couple weeks even when the market seems overvalued, but someone investing their first $5k finds it much, much harder.  It's why you and I can have over $1 million in the market without selling each day even though the market could drop 20% tomorrow, but the person who just got a windfall or sold a house is so much more hesitant to lump sum the money into the market because of the same fear.

People need to understand those dynamics when developing an investment strategy.  And we need to account for those dynamics in the advice that we give.   

I'm not sure the other points need a response to be constructive, but just in case, here are the quick answers.

(1) I mentioned your financial situation--including husband working--because it shows that your financial well-being does not hinge on market fluctuations, which makes it easier for you to react rationally to the market.  There is zero real risk that you will ever run out of money, and that makes rational investing much easier to do.  Not everyone is in the same boat.

(2)  I mentioned the paid off house because it runs counter to the standard "math" advice that all money should be invested earning the highest rate of return it can, which is not being done if you don't currently have a mortgage on your property given the interest rates.   It also plays into the idea that it's easier to be a rational investor when your debts (including mortgage) are paid off.

(3)  You had claimed elsewhere that you had money sitting on the sideline waiting to buy if the market dropped.  Another key "math" point (that's my shorthand for rational analysis) is not to time the market, and to trust it to perform over the long haul consistent with average returns.  That's the whole basis for why someone should invest in the market rather than get a guaranteed 3% or 4% by prepaying their mortgage.  If we're going to allow for market timing, then we have to also allow for the belief that people should pre-pay a mortgage "for now" because the market seems really over-valued, etc., and there's no way that is going to lead to consistent, rational performance.