AgeOfEnlightenmentSCP
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Post by AgeOfEnlightenmentSCP on Apr 26, 2011 23:42:48 GMT -5
A friend, who probably actually SHOULD read Dave Ramsey's book and I picked up "Total Money Makeover" (which really seems to be a single-issue book about how bad debt is, but I digress...). It's got a lot of get out of debt advice, and I don't necessarily disagree for the average person who doesn't have a business or other justification for using debt as a tool (which this book insists can't be done-- but again, I digress). So, here's the disconnect: At the start of the book there's a list of "What this book is not" items, and one of them is something to the effect of, "This book is NOT misleading on investment returns" and Mr. Ramsey goes on to describe three or four mutual funds he has owned for a number of years that get at least 12% a year on average- one of them for like 60 or 80 years or something like that. It isn't a full 10 pages later that Mr. Ramsey talks about the money you can save paying off your 30 year mortgage at something like 7%. Let's just take the 7% at face value and ignore the fact that if you've got good credit, you could probably refinance your 7% mortgage and get 4% right now... Does anyone else see the problem with paying off the 7% mortgage in "half the time"-- 15 years instead of 30 -- when you could put that money into that mutual fund you're getting 12% on? Shouldn't you put that "extra" mortgage payment in the mutual fund, and then in 15 years, write a check to pay off the house, and have money left over? It's just math-- 12% is more than 7%. Given the option, don't you just do the 12%
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RoadToRiches
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Post by RoadToRiches on Apr 26, 2011 23:51:05 GMT -5
...aaaannnnnddddd offf we go! lol
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azphx1972
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Post by azphx1972 on Apr 27, 2011 4:09:52 GMT -5
Mr. Ramsey goes on to describe three or four mutual funds he has owned for a number of years that get at least 12% a year on average- one of them for like 60 or 80 years or something like that.
I'm really curious as to what these funds are. Would anyone who has the book care to share?
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schildi
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Post by schildi on Apr 27, 2011 4:38:19 GMT -5
Finally, finally the day has come: a topic that has never been discussed here before. What a day!
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WannabeWealthy
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Post by WannabeWealthy on Apr 27, 2011 6:56:46 GMT -5
Past performance is not a guarantee of future results. You know what rate your mortgage is. You know when you pay it off you are essentially getting a "guaranteed rate". Most plans would involve doing both. But, for those who want to discuss why it doesn't make "sense" to pay off the mortgage, have it. My home is paid off and i am glad of it. This.
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busymom
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Post by busymom on Apr 27, 2011 7:05:28 GMT -5
If my 401K's & IRA's returns had been consistent over the years, I'd probably be swimming in money by now. ("Oh, pool boy!") However, 2 major drops in the market since I started putting money away have diminished my faith in investing. (I, too, would like to know where Dave Ramsey has been getting 12%, as I'm not even close.) A paid off house to me, is like my Dad's old saying, "a bird in the hand is worth two in the bush."
By the way, if anyone wishes to share where their money is at, getting great returns, I'm listening! ;D
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zibazinski
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Post by zibazinski on Apr 27, 2011 7:07:47 GMT -5
Me, too.
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Deleted
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Post by Deleted on Apr 27, 2011 7:25:08 GMT -5
I have not read the total money makeover (but I did buy it for my sister a few years ago). But from listening to his radio show, his big thing is that managing money is physiological. If managing money was pure mathematics we would all be smart about it, but that is not the case. So he does not always recommend the best mathematical solutions to problems.
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SVT
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Post by SVT on Apr 27, 2011 7:37:23 GMT -5
Past performance is not a guarantee of future results. You know what rate your mortgage is. You know when you pay it off you are essentially getting a "guaranteed rate". Most plans would involve doing both. But, for those who want to discuss why it doesn't make "sense" to pay off the mortgage, have it. My home is paid off and i am glad of it. This. LMFAO! YOu had to edit a post that consisted of one word.
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Deleted
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Post by Deleted on Apr 27, 2011 7:44:12 GMT -5
Dave Ramsey's TMM and working the steps is for people who want to get themselves into the most stable financial position possible. It's not a get rich quick scheme. Paying down your home is a guaranteed return and those without a mortgage over their heads are better able to weather job losses and other financial setbacks like the stock market tanking for years.
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SVT
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Post by SVT on Apr 27, 2011 7:46:35 GMT -5
If my 401K's & IRA's returns had been consistent over the years, I'd probably be swimming in money by now. ("Oh, pool boy!") However, 2 major drops in the market since I started putting money away have diminished my faith in investing. (I, too, would like to know where Dave Ramsey has been getting 12%, as I'm not even close.) A paid off house to me, is like my Dad's old saying, "a bird in the hand is worth two in the bush." By the way, if anyone wishes to share where their money is at, getting great returns, I'm listening! ;D There are a handful of Fidelity actively managed mutual funds that have long term annual returns of 12%-14%. The problem is, you don't know if you get in one of those funds NOW and invest for the next several years or so, if you'll get those same returns. At the same time, if you didn't get the 12%+/year but instead returned 10%/year, that's not exactly 'failing', is it? The funds are out there that get those returns. Just look at Fidelity and Vanguard and even other investment brokerages' websites for past returns. Almost every one of them seem to have at least 1 or 2 funds that have performed very well over the last couple decades. You're taking on more risk investing this way though. For example, a lot of the managed large cap mutual funds have a couple hundred holdings, versus the 500 that make up the S&P. The managers are picking the couple hundred out of the 500 that will out perform the average of all 500. I'm amazed at the numerous comments on this forum asking about returns like this, as if they don't exist.
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SVT
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Post by SVT on Apr 27, 2011 7:51:06 GMT -5
Dave Ramsey's TMM and working the steps is for people who want to get themselves into the most stable financial position possible. It's not a get rich quick scheme. Paying down your home is a guaranteed return and those without a mortgage over their heads are better able to weather job losses and other financial setbacks like the stock market tanking for years. I disagree. But we don't want to get into the paying off the mortgage vs. not paying it off argument. Or do we? ;D
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busymom
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Post by busymom on Apr 27, 2011 7:53:47 GMT -5
Keep track of the fees on the various funds too! At some places, the fees are growing more quickly than the returns!
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busymom
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Post by busymom on Apr 27, 2011 7:55:42 GMT -5
Let the pros & cons of prepaying begin!
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Post by Deleted on Apr 27, 2011 8:02:52 GMT -5
Dave Ramsey's TMM and working the steps is for people who want to get themselves into the most stable financial position possible. It's not a get rich quick scheme. Paying down your home is a guaranteed return and those without a mortgage over their heads are better able to weather job losses and other financial setbacks like the stock market tanking for years. I disagree. But we don't want to get into the paying off the mortgage vs. not paying it off argument. Or do we? ;D Speaking from personal experience. Had I started following Dave's advice 15 years ago instead of 5...heck 10 years ago. I would be so much better off now. In fact, it makes me kind of sick to think of it.
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Post by Savoir Faire-Demogague in NJ on Apr 27, 2011 8:19:12 GMT -5
I'm really curious as to what these funds are. Would anyone who has the book care to share?
Well the S&P Index has returned just under 12% since 1926.
Paying off one's mortgage does nothing for wealth building and your financial status. Tying up your liquidity in a fixed asset that does not necessarily depreciate severely reduces and limits your options. The individual with $100,000 in liquid assets and a $100,000 mortgage balance is much better off and has numerous options at their disposal than someone with no mortgage and no liquid assets.
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Post by Savoir Faire-Demogague in NJ on Apr 27, 2011 8:20:02 GMT -5
Had I started following Dave's advice 15 years ago instead of 5...heck 10 years ago. I would be so much better off now. In fact, it makes me kind of sick to think of it
Had you put that money into the equities markets the last few years you would have doubled your money.
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runewell
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Post by runewell on Apr 27, 2011 8:26:22 GMT -5
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Post by Deleted on Apr 27, 2011 8:30:19 GMT -5
Had you put that money into the equities markets the last few years you would have doubled your money.
And in 88 if I would have invested $1000 in the company NEXT DOOR to the one I actually did put the money in, I'd be rich now. Hindsight is awesome.
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runewell
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Post by runewell on Apr 27, 2011 8:32:44 GMT -5
And if you were in the S&P since 2000, you lost -0.8%/yr which is +1.0% after dividends. Now how are those mortgage payments looking?
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Deleted
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Post by Deleted on Apr 27, 2011 8:40:07 GMT -5
And if you were in the S&P since 2000, you lost -0.8%/yr which is +1.0% after dividends. Now how are those mortgage payments looking? This^^^ My investments were way, way down...like 30% or more, when I went through my divorce and was unemployed. It was horrible. I had a huge mortgage AND hardly any money in savings because I had been investing every dollar I could to get the "great returns". Heck, we had even drawn on the HELOC to fund our IRA's every year so even more of that cheap debt that was going to turn into gold. My investments are just finally starting to get back up to where they were 5 or 6 years ago and that's with contributing every year. I refinanced (AGAIN!) in 2009, and want this 30 year mortgage gone by 2020...somehow. Not sure I can do it, but I'm going to try. That will be the year my first goes to college and I'll be able to just cash flow it with what I was paying on the mortgage.
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SVT
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Post by SVT on Apr 27, 2011 8:48:55 GMT -5
Had you put that money into the equities markets the last few years you would have doubled your money. And in 88 if I would have invested $1000 in the company NEXT DOOR to the one I actually did put the money in, I'd be rich now. Hindsight is awesome. At the same time though, SF isn't quoting what you could have made in a single stock, as equivalent to your response. He, as well as many others here, advocate investing in broad based indexes and quote returns of such investments. The return is much better versus the risk being taken, in general. The risk is being spread through thousands of companies.
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so1970
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Post by so1970 on Apr 27, 2011 8:55:15 GMT -5
I refinanced (AGAIN!) in 2009, and want this 30 year mortgage gone by 2020...somehow. Not sure I can do it, but I'm going to try. That will be the year my first goes to college and I'll be able to just cash flow it with what I was paying on the mortgage.[/quote] i like this one that way if every thing else fails at least you have a home to live in.
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SVT
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Post by SVT on Apr 27, 2011 8:56:20 GMT -5
And if you were in the S&P since 2000, you lost -0.8%/yr which is +1.0% after dividends. Now how are those mortgage payments looking? This^^^ My investments were way, way down...like 30% or more, when I went through my divorce and was unemployed. It was horrible. I had a huge mortgage AND hardly any money in savings because I had been investing every dollar I could to get the "great returns". So you got greedy and/or didn't really factor in your total financial picture, by "investing every dollar" you could in the market? I noticed you didn't say you didn't have any savings because of the divorce but because you were investing every dollar in the market. It's good to take on risk but there's different types of risks. You want to have some liquid savings. If not, that increases the risk even more.
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SVT
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Post by SVT on Apr 27, 2011 9:02:07 GMT -5
I refinanced (AGAIN!) in 2009, and want this 30 year mortgage gone by 2020...somehow. Not sure I can do it, but I'm going to try. That will be the year my first goes to college and I'll be able to just cash flow it with what I was paying on the mortgage. i like this one that way if every thing else fails at least you have a home to live in.[/quote] That's fine but I wouldn't advocate putting "every dollar" everytime you get paid towards the mortgage, like she apparently did when investing in the stock market. At least have a balance, then once you get an amount in savings greater than the amount of the mortgage, you can pay it off in a lump sum if you must. You don't want be one year a way from completely paying off the mortgage putting every dollar towards it, have $0 in savings, then lose your job. The monthly payment will still be due.
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Deleted
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Post by Deleted on Apr 27, 2011 9:09:44 GMT -5
This^^^ My investments were way, way down...like 30% or more, when I went through my divorce and was unemployed. It was horrible. I had a huge mortgage AND hardly any money in savings because I had been investing every dollar I could to get the "great returns". So you got greedy and/or didn't really factor in your total financial picture, by "investing every dollar" you could in the market? I noticed you didn't say you didn't have any savings because of the divorce but because you were investing every dollar in the market. It's good to take on risk but there's different types of risks. You want to have some liquid savings. If not, that increases the risk even more. I had some savings, but with no job and a $1600/month house payment, it went fast. With no mortgage I could have temporarily made due on child support or a $7/hour McDonalds job. Water under the bridge...lesson learned. I don't advocate throwing every dollar at the mortgage either, but I do think paying it down and getting that monkey off my back is a good idea for me. I still max my Roth and contribute to my 401K and the kid's 529 plans, while making 2 house principle payments a month even though it's sometimes a struggle.
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Post by robbase on Apr 27, 2011 9:23:46 GMT -5
Windy- with the pending economic chaos that you predicted that is due to start showing symptoms in the next few days, wouldn't having a paid off house best prepare you for that?
that and zombie repellant?
also I thought you were hiding in your bunker?
ETA- have you added internet to your bunker?
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Deleted
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Post by Deleted on Apr 27, 2011 9:27:23 GMT -5
That's fine but I wouldn't advocate putting "every dollar" everytime you get paid towards the mortgage, like she apparently did when investing in the stock market. At least have a balance, then once you get an amount in savings greater than the amount of the mortgage, you can pay it off in a lump sum if you must. You don't want be one year a way from completely paying off the mortgage putting every dollar towards it, have $0 in savings, then lose your job. The monthly payment will still be due.[/quote][/b]
I have considered doing it this way. Right now I have pretty decent chunk of cash sitting in an ING savings account that I go back and forth on about dumping all or part of it on the mortgage. I plug it into the amortization spreadsheet and watch the years fall off my mortgage and it's very tempting, but I like the security having it there provides too. If anyone remembers me here from years ago, I went through several years of hell which have left me super gun shy and conservative now.
I'm remarried and our income is pretty low. I make 31K, and DH was layed off last summer. He started a temp job a few weeks ago, but takes home $11/week less than he was on unemployment, about 22K a year. Anyhow, what we'd LIKE to do is be able to live off of our income alone and all the child support for my oldest son ($1000/month) at the mortgage. Right now we're just doing an extra $350/month which is 2 principle payments.
My biggest fear with putting it in savings is that it will get used for other things instead. Things we could have done without. Even now we're considering putting a deck on the house this summer with some of the money I got from selling my truck. Paying down the mortgage would be better!
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fairlycrazy23
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Post by fairlycrazy23 on Apr 27, 2011 9:36:56 GMT -5
There is a fundamental difference between investments and obligations. Most likely if you are disciplined enough to invest the money to get a better roi than paying down your mortgage you are not Dave's target audience.
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runewell
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Post by runewell on Apr 27, 2011 9:53:42 GMT -5
Big red flag. Yes an emergency fund can be helpful when the transmission goes, but it sounds like you expect to spend the money and not save/invest.
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