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Old 11-12-2015, 03:46 PM   #1
sneaky98gt
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Investing Advice

Alright junkies, I know some of y'all are smart with money and investing. Got a few questions concerning getting started. Sorry for the long read.

Long story short: after my work 401k, house payment, extra towards the house payment, and bills, I've got around $300 leftover that I'm willing to put towards a somewhat risky investment.

So, take me to school on what you'd do with $300 a month. Better yet, give me some literature to read or websites to research so that I can make up my own mind. I've done a little looking around at basic stuff like Vanguard mutual funds and such, but even that tends to get overwhelming for a newbie like me. Where do I start?

A couple things I do know:
-If I were to take that $300 and put it towards my house, I'd get roughly a 5% ROI over the remaining 11 years on the interest I'd save. So the investment needs to get at least that much.

-I need to be able to access the money in the investment without penalty. I'm ok paying the taxes on it, but not a penalty. I might want to use this money to put towards real estate in the future.

-And lastly, I'm not looking for a "set it and forget it" investment, but I'm also not looking to spend tons of time or money dealing with it either. I don't mind paying an adviser, especially in the beginning, but I'd rather keep the fees as low as possible in the long term.

Thanks guys!
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Old 11-12-2015, 05:27 PM   #2
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Old 11-12-2015, 05:42 PM   #3
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I don't have advice for a specific investment, but it looks like you are already ahead of most people by realizing that any investment must yield more than what you are paying in interest on your debt, otherwise you are still coming out in the red. For me, I have little debt tolerance. I put every spare penny I have into paying off my mortgage, then when I'm debt free I'll think about investing in something.
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Old 11-12-2015, 08:39 PM   #4
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tag. Where are you working at now?
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Old 11-13-2015, 06:12 AM   #5
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I discovered dividend reinvestment programs (DRIPs) many years ago. Unwittingly, I stumbled into one of the all-time great wealth builders.



I have stocks that are now paying annually in dividends about a half of what I paid for them 30 years ago. That's an annual return of 50% in income on my initial investment plus the fact that they are worth several times what I paid for them initially. For example, I paid around $5.00 (split-adjusted) per share for Exxon/Mobile (XOM) in the mid-'80s. Today it's worth $82.00 per share, or a 1600% gain. It yields 3.55%, or $2.92 per share, more than half what I paid for it 30 years ago. I'll post more about how to do this later.
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Old 11-13-2015, 06:51 AM   #6
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Originally Posted by jcsperson View Post
I discovered dividend reinvestment programs (DRIPs) many years ago. Unwittingly, I stumbled into one of the all-time great wealth builders.



I have stocks that are now paying annually in dividends about a half of what I paid for them 30 years ago. That's an annual return of 50% in income on my initial investment plus the fact that they are worth several times what I paid for them initially. For example, I paid around $5.00 (split-adjusted) per share for Exxon/Mobile (XOM) in the mid-'80s. Today it's worth $82.00 per share, or a 1600% gain. It yields 3.55%, or $2.92 per share, more than half what I paid for it 30 years ago. I'll post more about how to do this later.
Yea but what's your CAGR?

OP: I believe right now it is Schwab and Vanguard who have the lowest fees, and have many many ETFs that they allow you to trade free. I'd get you a couple Gs together and drop by your nearest investment center and open an account. From there, just do your research. I think gold and silver are a good investment right now (both can be bought in an ETF) since the Fed just basically said they are going to raise interest rates, we are coming up on an election cycle (read: lots of uncertainty for many folks) and both metals are at historic lows.
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Old 11-13-2015, 07:05 AM   #7
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i would never invest in gold/silver unless you can actually put your hands on it. And i would only by gold from a VERY reputable place....would suck to get a peppered bar since that seems to be the hot topic as of late
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Old 11-13-2015, 07:16 AM   #8
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Interested as well. I currently put $250 into a "high-risk" Roth monthly (been doing this 10 plus years), so you can do the math and see what I have in it. Unfortunately, I have only made a few thousand in my 10 years of investing.


JCSPerson, I'm interested in learning more for sure.....
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Old 11-13-2015, 07:29 AM   #9
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Quote:
Originally Posted by sneaky98gt View Post
Long story short: after my work 401k, house payment, extra towards the house payment, and bills, I've got around $300 leftover that I'm willing to put towards a somewhat risky investment.

-I need to be able to access the money in the investment without penalty. I'm ok paying the taxes on it, but not a penalty. I might want to use this money to put towards real estate in the future.

Thanks guys!
If you want to invest in somewhat risky, you have to be willing to have times of negative growth and even be okay with the idea that your money, when you might want it later, may not be there at all. Think about what you really want to do with the money later and that will help formulate a plan.

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Old 11-13-2015, 07:47 AM   #10
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I would start with clearly outlining your goals. Why are you paying more towards your house? A house is a dead asset, meaning once you put the cash into it the only way to get it out is to sell it or borrow the funds from a bank, all of which cost money. What is your loan interest rate on your home? How much are you saving in your 401k? Do you have credit card debt? What tax bracket are you in? These are just a few questions of many that would need to be answered in creating a workable plan. Defining the end result and backing into what you should be doing now is a lot more accurate and yields better results.

If you do not want to take the time to create a plan then my advice to you is open a Roth IRA at Scottrade, systematically invest the 300 per month in a vanguard target date retirement fund (example ticker: VFIFX). Why do this? Most people do not know that you can access your money WITHOUT penalty in a Roth IRA anytime you want, its the EARNINGS you can not touch until you are 59.5. Since you have already paid taxes on the money going into a Roth IRA you can always access the PRINCIPAL without penalty/taxes if needed. As long as you leave the EARNINGS in the account they will grow tax free and when you turn 59.5 you can pull the earnings/principal out tax free. I wouldn't pay the gov't anymore than I had too. Why the target date fund? Because it is a fully diversified portfolio that you would have to pay a guy like me to create and manage which costs money, this is a low cost way to get it done. It may not be fancy but it will work. PM me if you have other questions.....I don't mind helping
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Old 11-13-2015, 08:40 AM   #11
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My opinion.

Quote:
-If I were to take that $300 and put it towards my house, I'd get roughly a 5% ROI over the remaining 11 years on the interest I'd save. So the investment needs to get at least that much.
this. pay off your house. Get debt free. I'm assuming you have no others debts but your house.

Quote:
-I need to be able to access the money in the investment without penalty. I'm ok paying the taxes on it, but not a penalty. I might want to use this money to put towards real estate in the future.

-And lastly, I'm not looking for a "set it and forget it" investment, but I'm also not looking to spend tons of time or money dealing with it either. I don't mind paying an adviser, especially in the beginning, but I'd rather keep the fees as low as possible in the long term.
Roth IRA if you can let it go and forget about it. But again, I would rather pay off my house. Pay off your house, then pay cash for some rentals could be good long term goal. Manage some rentals when you retire.

If you want it on standby without penalties/hassle, then money market making nothing.
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Old 11-13-2015, 09:59 AM   #12
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Quote:
Originally Posted by 1SC View Post
I don't have advice for a specific investment, but it looks like you are already ahead of most people by realizing that any investment must yield more than what you are paying in interest on your debt, otherwise you are still coming out in the red. For me, I have little debt tolerance. I put every spare penny I have into paying off my mortgage, then when I'm debt free I'll think about investing in something.
I don't like debt either. This house is the first thing I've EVER borrowed money on, and while I don't like the whole debt thing, it's a necessary evil.

But, as I mentioned, I can see that there are opportunities to potentially make more money than I would be saving by paying off the house even earlier than I already am.

Quote:
Originally Posted by Djstorm100 View Post
tag. Where are you working at now?
Hey man, long time, no see. I'm working for a company out in Burlington that sells and services precision measurement systems. I'm part of a small engineering group that designs and builds custom projects for those systems. Pretty much, I get to design, build, and install stuff that everyone else deemed too difficult to do. It's awesome. I love it.

I got an offer from Cat back before I graduated, but decided not to take it on the basis of the potential volatility, especially after what happened back in '08-'09. Looking at what has happened here in the last couple of months with them, I feel like I made the right decision.

Quote:
Originally Posted by jcsperson View Post
I discovered dividend reinvestment programs (DRIPs) many years ago. Unwittingly, I stumbled into one of the all-time great wealth builders.

I have stocks that are now paying annually in dividends about a half of what I paid for them 30 years ago. That's an annual return of 50% in income on my initial investment plus the fact that they are worth several times what I paid for them initially. For example, I paid around $5.00 (split-adjusted) per share for Exxon/Mobile (XOM) in the mid-'80s. Today it's worth $82.00 per share, or a 1600% gain. It yields 3.55%, or $2.92 per share, more than half what I paid for it 30 years ago. I'll post more about how to do this later.
I've never even heard of this. I'm gonna have to look into that for sure. Although it looks like success here involves choosing good, long term companies, which I'm probably not very good at.

Quote:
Originally Posted by Crackerballer View Post
I think gold and silver are a good investment right now (both can be bought in an ETF) since the Fed just basically said they are going to raise interest rates, we are coming up on an election cycle (read: lots of uncertainty for many folks) and both metals are at historic lows.
I actually already have a few thousand in physical silver, although it's less of an investment and more "I just want something other than cash to have on hand physically". Call me paranoid.

Quote:
Originally Posted by DSM Turbos View Post
If you want to invest in somewhat risky, you have to be willing to have times of negative growth and even be okay with the idea that your money, when you might want it later, may not be there at all. Think about what you really want to do with the money later and that will help formulate a plan.
I'm ok with that. I've already got over 10% combined going towards my 401k, and I'm putting quite a bit towards a general savings account so as to just have a nice bit of cash on hand in maybe 8-10 years. I figured I'd take a leap with this last little bit. If it grows well, maybe I take it in 10 years and add to that cash on hand to buy some real estate, or maybe I just leave it a while longer to go towards retirement. Of, if it loses every penny, while I'd prefer it not, it's not going to bankrupt me or anything.

Quote:
Originally Posted by Shatisfaction View Post
I would start with clearly outlining your goals. Why are you paying more towards your house? A house is a dead asset, meaning once you put the cash into it the only way to get it out is to sell it or borrow the funds from a bank, all of which cost money. What is your loan interest rate on your home? How much are you saving in your 401k? Do you have credit card debt? What tax bracket are you in? These are just a few questions of many that would need to be answered in creating a workable plan. Defining the end result and backing into what you should be doing now is a lot more accurate and yields better results.

If you do not want to take the time to create a plan then my advice to you is open a Roth IRA at Scottrade, systematically invest the 300 per month in a vanguard target date retirement fund (example ticker: VFIFX). Why do this? Most people do not know that you can access your money WITHOUT penalty in a Roth IRA anytime you want, its the EARNINGS you can not touch until you are 59.5. Since you have already paid taxes on the money going into a Roth IRA you can always access the PRINCIPAL without penalty/taxes if needed. As long as you leave the EARNINGS in the account they will grow tax free and when you turn 59.5 you can pull the earnings/principal out tax free. I wouldn't pay the gov't anymore than I had too. Why the target date fund? Because it is a fully diversified portfolio that you would have to pay a guy like me to create and manage which costs money, this is a low cost way to get it done. It may not be fancy but it will work. PM me if you have other questions.....I don't mind helping
Good call on the goals. I have actually thought about that and done it a good bit. Just didn't include it in the OP because I figured the novel I wrote would scare folks off.

I'm on a 4.125% interest conventional loan, putting roughly an extra $400 towards the house each month. That $400 will allow me to pay it off in 15 years, and I would have paid about $65k in interest at that point. If I wouldn't put that $400 extra towards it, and just paid the mortgage, I would have paid right at $100k in interest at the 15 year mark, and another $40k in interest from years 16 to 30. So that's a guaranteed 5% ROI over the next 15 years on my extra $400, plus the $40k saved after that (not exactly sure how to figure that in). Even though the house is indeed a dead asset, I figure a guaranteed 5% plus being completely out of debt with a quarter million+ dollar house before I turn 40 is a very solid way to spend $400 a month, especially when I still have plenty left over for other investments (and hence the reason for this thread). And looking forward at my inclination to get into real estate / rental properties, I figure a paid off rental (or enough cash on hand to outright buy one) is a great way to generate some cash flow / income later on towards retirement. If you see an error in my logic, or a better way to go about it, I'm all ears.

Concerning the 401k, I'm putting the percentage to get the full employer match. Both together, it comes to about $600 / month pre-tax.

I have 0 debt other than the house, and I don't care very much for having that.

I'm single and in the 25% bracket. Good Lord willing and the creek don't rise, I hope to be in the 28% area within a few years. Generally speaking, from the research I've done, I prefer a traditional IRA over a Roth for long term retirement savings, as the marginal tax rate I save today with a traditional will almost certainly be more than the effective tax rate I'd save 30+ years from now with the Roth. Once I get my cash savings account (outside of my emergency fund) to a comfortable level, I may move that income over towards a traditional IRA. BUT, for this $300 we're talking about now, you bring up a good point about being able to pull the earnings out without penalty. I did not know that; I knew there is a penalty for doing that with a traditional, and assumed it was the same for the Roth. That would definitely be a nice benefit. Although being able to cash out the full balance would be nice, too. What's the downside to setting it up independently, outside of an IRA? Have to pay capital gains taxes?

You say open an account with Scottrade, and then invest in a Vanguard target date fund. Why not just open the account with Vanguard directly? These are the things I still don't clearly have my head around.

I sure appreciate the help.
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Old 11-13-2015, 10:23 AM   #13
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Quote:
Originally Posted by DansTransAM View Post
My opinion.

this. pay off your house. Get debt free. I'm assuming you have no others debts but your house.
After my last reply, I realized I made a math mistake in figuring out that ROI. If I keep like I'm doing, and don't put the $300 towards the house, at year 11 I would have paid $62k in interest to date, and at payoff at year 15, I would have paid $65k total interest. If I put the $300 towards it now, when I pay it off at year 11, I would have paid $51k in total interest. So I'd save $11k over 11 years with $300 a month, which comes to just less than 4% ROI, plus the $3k over years 11 to 15.

So yea, one part of me says to take the guaranteed 4%, but the other part says that I should be able to easily get more than that elsewhere, and have a lot more liquidity with it to put towards something like a cash payment on a rental.

Quote:
Originally Posted by DansTransAM View Post
Pay off your house, then pay cash for some rentals could be good long term goal. Manage some rentals when you retire.
That's pretty much what I'm looking to do. I'm all for investing a good bit towards the stock market and all that, but at the same time, I think there's something to be said about a physical, tangible asset / investment. And that's kinda where I'm going with this. If I could get a good return and double-ish this $300 over the next 15 years, I could have a paid-off house AND over $100k to put towards a rental property before I even turn 40. Combine that with my 401k and(?) another retirement account, and I shouldn't have a problem retiring at a decent age.
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Old 11-13-2015, 10:46 AM   #14
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Originally Posted by Snowman View Post
Interested as well. I currently put $250 into a "high-risk" Roth monthly (been doing this 10 plus years), so you can do the math and see what I have in it. Unfortunately, I have only made a few thousand in my 10 years of investing.

JCSPerson, I'm interested in learning more for sure.....
Chris, we should hit the Nickel or Mystery for a beer some time.

BTW, do you come out of New Hope Elementary every morning? I see a gen 4 Camaro come out of there almost every day on my way to Chapel Hill.
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Old 11-13-2015, 10:51 AM   #15
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Quote:
Originally Posted by Crackerballer View Post
Yea but what's your CAGR?
I ran it on my biggest positions...about 12.8%.

Quote:
Originally Posted by sneaky98gt View Post
I've never even heard of this. I'm gonna have to look into that for sure. Although it looks like success here involves choosing good, long term companies, which I'm probably not very good at.
I chose common sense things from a variety of industries. I figured we'd need gas, electrical power, banking, pharmaceuticals, etc. Stuff that's not subject to fads.
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Old 11-13-2015, 12:28 PM   #16
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Originally Posted by sneaky98gt View Post
After my last reply, I realized I made a math mistake in figuring out that ROI. If I keep like I'm doing, and don't put the $300 towards the house, at year 11 I would have paid $62k in interest to date, and at payoff at year 15, I would have paid $65k total interest. If I put the $300 towards it now, when I pay it off at year 11, I would have paid $51k in total interest. So I'd save $11k over 11 years with $300 a month, which comes to just less than 4% ROI, plus the $3k over years 11 to 15.

So yea, one part of me says to take the guaranteed 4%, but the other part says that I should be able to easily get more than that elsewhere, and have a lot more liquidity with it to put towards something like a cash payment on a rental.



That's pretty much what I'm looking to do. I'm all for investing a good bit towards the stock market and all that, but at the same time, I think there's something to be said about a physical, tangible asset / investment. And that's kinda where I'm going with this. If I could get a good return and double-ish this $300 over the next 15 years, I could have a paid-off house AND over $100k to put towards a rental property before I even turn 40. Combine that with my 401k and(?) another retirement account, and I shouldn't have a problem retiring at a decent age.
Reading this seems like you are thinking it's a done deal that you're going to double your money investing in stock mutual funds. The stock market is high right now, but investing a set amount every month is dollar cost averaging, and will help.

T. Rowe Price or Janus are a couple of good funds to get into. I DO NOT recommend the target date funds, 2035, etc. They have always underperformed for me, when compared to hand picked funds from the same company.

Pick a ratio of stocks/bonds/cash, like 60/20/20 and go with it. Oh yeah, don't expect to have access to the money, unless you like taking a loss. If you have $300 extra, maybe only invest $200 each month, so you will have extra money parked in cash that is available. That could be your "cash" holdings, and put the investment money in stocks and bonds.

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Old 11-13-2015, 12:36 PM   #17
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Chris, we should hit the Nickel or Mystery for a beer some time.

BTW, do you come out of New Hope Elementary every morning? I see a gen 4 Camaro come out of there almost every day on my way to Chapel Hill.

Sure. I'd like that. Really want to see if this money could be doing more than it is!

No, I see the purple Camaro all the time as well. I'm usually in my blue 4 door Silverado or my new purchased G8 GT(also blue)
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Old 11-13-2015, 12:54 PM   #18
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Sure. I'd like that. Really want to see if this money could be doing more than it is!

No, I see the purple Camaro all the time as well. I'm usually in my blue 4 door Silverado or my new purchased G8 GT(also blue)
Actually, some place with Wifi would be best so we could look at real info. Mystery's never seems to work. Never tried at the Nickel.
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Old 11-13-2015, 12:58 PM   #19
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Reading this seems like you are thinking it's a done deal that you're going to double your money investing in stock mutual funds. The stock market is high right now, but investing a set amount every month is dollar cost averaging, and will help.

T. Rowe Price or Janus are a couple of good funds to get into. I DO NOT recommend the target date funds, 2035, etc. They have always underperformed for me, when compared to hand picked funds from the same company.

Pick a ratio of stocks/bonds/cash, like 60/20/20 and go with it. Oh yeah, don't expect to have access to the money, unless you like taking a loss. If you have $300 extra, maybe only invest $200 each month, so you will have extra money parked in cash that is available. That could be your "cash" holdings, and put the investment money in stocks and bonds.

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I don't think it's a done deal at all. But I think there's a fairly decent chance at it, or even 1.5x, and I'm finally in a financial position to be able to take that chance.

If/when I do it, I doubt I'll back off at all. A good friend of mine who happens to be quite well off gave me some advice a while back: he said that while everyone always says "buy low, sell high", all I should be worried about until I'm at least halfway to retirement is buying. My motto should be "buy low, buy high", and not worry about the selling until later. I tend to think that's pretty decent advice for a 25 year old like me.

I don't know much anything at all about the different funds (would definitely like to learn), but I do know that my target fund from my last job's 401k with Merrill Lynch sucked it up big time. In 2014, I think the stock market gained something like 10-11% (?), and my 401k, which was supposed to be like 80% in "high risk investments", gained a whopping 1.8%. I was beyond pissed.

So you're pretty much saying to either put it in a tax advantaged account and leave it be, or put it in cash to have access to it. Makes sense. I was kinda wanting at least some of both, but I admittedly haven't done much research on how much taxes eat into it.
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Old 11-13-2015, 02:16 PM   #20
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I would put $200 into standard stock and bond mutual funds (75/25 split), and keep the other $100 in cash. Janus is a good fund company with no-load funds.

The cash won't earn anything in this market, but it sounds like you may need to get to it. I never messed with any tax advantaged funds. If you have a good year, you will have to pay some taxes on the mutual fund capital gains/dividends.

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Old 11-13-2015, 03:05 PM   #21
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Actually, some place with Wifi would be best so we could look at real info. Mystery's never seems to work. Never tried at the Nickel.


Hmm, I'm not sure how the wifi is there either(or if they even have wifi for my laptop)
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Old 11-14-2015, 11:14 AM   #22
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You might want to check what current market rates are for mortgages. 4% is a great mortgage rate, but if you get the opportunity to drop it 1% or more it is typically worth doing a refi. All depends.

Good luck and investing in the Roth in an aggressive fund like suggested would be a good idea. Individual stocks can be good as well, but who knows what will happen in the future with said stocks.

What happens to exxon when we are all driving electric cars?? Just saying.

Debt is a personal decision, some accept it some hate it. Whichever way you choose is great for you. Obviously debt free is great, however some people would say that if they could have a $300,000 mortgage at 4% and earn 10% on an investment that would be a better deal. Maybe - there is no guarantees on that investment and puts more stress having a mortgage. What if you lose your job? Sounds like you got a good head on your shoulders. Good luck and congrats on being where you are at, at your age.
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Old 11-14-2015, 03:58 PM   #23
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Viper, borrowing money is essentially free right now. At 3-4% and inflation only slightly less, each year you're paying back 2015 dollars with 2016-17-18 etc. dollars that are worth less. If you're getting any kind of cost of living raises, you're ahead. You got maximum use out of someone else's money when it was worth more than it will ever be worth again.

Most stocks that pay dividends increase their dividend over time. Meanwhile, your mortgage interest or payments do not increase over time. For instance, here's Bristol Myer's dividend increases over just 20 years:



They're paying almost double in dividends what they paid in 2000. If you had purchased $10K worth of BMY in 2000 and it was yielding 2.5%, today it would be yielding 5% and the value of the stock has increased from $13 to $64, or $49,000, in the meantime.

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Old 11-14-2015, 04:51 PM   #24
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Viper, borrowing money is essentially free right now. At 3-4% and inflation only slightly less, each year you're paying back 2015 dollars with 2016-17-18 etc. dollars that are worth less. If you're getting any kind of cost of living raises, you're ahead. You got maximum use out of someone else's money when it was worth more than it will ever be worth again.

Most stocks that pay dividends increase their dividend over time. Meanwhile, your mortgage interest or payments do not increase over time. For instance, here's Bristol Myer's dividend increases over just 20 years:



They're paying almost double in dividends what they paid in 2000. If you had purchased $10K worth of BMY in 2000 and it was yielding 2.5%, today it would be yielding 5% and the value of the stock has increased from $13 to $64, or $49,000, in the meantime.

Trust me I agree with that. I am WAY more aggressive on my investments. But not everyone wants to invest that way. I love what you are doing and would actually like to learn more about that. All of my investments have been in high risk things. I am looking to sock a bunch away and eventually live off the dividends someday.
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Old 11-14-2015, 07:08 PM   #25
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I am looking to sock a bunch away and eventually live off the dividends someday.
I'm not sure I'll quite get to that point, but with two pensions, two SS accounts, two IRAs, and two 401Ks, and no debt, we'll be very comfortable. Right now, we reinvest all our dividends, but in the future dividend income from our stocks will be "fun money" for travel and track days.

Every year my travel bucket list gets longer as does the list of tracks I've yet to drive; Watkins Glen, Road Atlanta, Road America, Mid-Ohio, Lime Rock, COTA, Sebring, etc.
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