Home loan questions, if you please...

In reply to frenchyd :

We've been through your personal history before, and I can understand how it would impact your perceptions of investing and the stock market in general. But you were holding stock for individual companies, which is more risk/reward than a low fee index fund for the entire market. They happened to be the wrong individual companies as you found out. Your asset allocation was likely too aggressive for your situation, and you chose to sell at/near the bottom rather than riding it out. Three strikes and you're out as they say.

The S&P 500 dropped 48% between May 2008 and March 2009 when it hit bottom.  That seems like a big drop when you're in the moment and looking at your 401k balance, so some concern is understandable. From that bottom, it's gained 300%, and made that 48% drop look pretty minor. It's gained 111% since that same May 2008 date including the 48% drop. I know that you had other personal issues at the time, but if you'd been invested in the entire market (not individual stocks), and held on, you would be up 111% from where you were before the market tanked.

The recipe is simple:

1- Invest in low fee index funds that track the entire market. The US economy has grown pretty consistently for 100 years, even through hiccups and the assumption is that trend is likely to continue.

2- Make sure your asset allocation fits your age and risk tolerance

3- Buy and Hold. Don't try to "time" the market and sell based on emotion. Have a long term plan and stick to it regardless of what the market is doing.

It seems like Wheelsmithy has gotten his questions answered, so I won't continue to bugger up his thread with stuff that's not entirely pertinent to his original topic. Sorry for the diversion.

In reply to STM317 :

Well my second go around with the stock market I did exactly as you suggested. I purchased low fee index funds.  I bought the Dow.  

When you buy in a 401K / IRA that’s about a buy and hold as it gets.  Yes I know, but I didn’t. I liked having every news report tell me how my investment  was doing.  Plus I was confident that management who got to the top of the heap pretty well knew how to run a business  OK  in the 2000’s I put a small  percentage in NASDEXand REITS. 

Yes on paper I made a profit.  But that’s like my mother telling me she won $65,000 on one hand of cards. 

The flaw in your statement is that life happens to all of us.  People get sick,   as you age the chances for a serious medical event  increases. People lose jobs even careers.  The market drops seriously.  

Finally the treatment of money in retirement accounts punishes early withdrawal even for the most dire reasons.  The penalty for early withdrawal removes even really good investments

frenchyd said:

In reply to STM317 :

Well my second go around with the stock market I did exactly as you suggested. I purchased low fee index funds.  I bought the Dow.  

When you buy in a 401K / IRA that’s about a buy and hold as it gets.  Yes I know, but I didn’t. I liked having every news report tell me how my investment  was doing.  Plus I was confident that management who got to the top of the heap pretty well knew how to ruin a business  OK  in the 2000’s I put a small  percentage in NASDEXand REITS. 

Yes on paper I made a profit.  But that’s like my mother telling me she won $65,000 on one hand of cards. 

The flaw in your statement is that life happens to all of us.  People get sick,   as you age the chances for a serious medical event  increases. People lose jobs even careers.  The market drops seriously.  

Finally the treatment of money in retirement accounts punishes early withdrawal even more the most dire reasons.  The penalty for early withdrawal removes even really good investments

 

 

But you never had to sell your 5000 sq ft house, or your boat, or your Jaaags, and you're still able to keep those things now while driving a school bus. 

Dude, stop trotting out your story. It doesn't help anyone and could be causing harm. It is bad advice.

frenchyd said:

The flaw in your statement is that life happens to all of us.  People get sick,   as you age the chances for a serious medical event  increases. People lose jobs even careers.  The market drops seriously.  

Finally the treatment of money in retirement accounts punishes early withdrawal even for the most dire reasons.  The penalty for early withdrawal removes even really good investments

Life happens whether you're invested in the market or not. That's not incentive to avoid investing. In fact, it should be the opposite. When you're poor, unexpected life events (job loss, car problem, medical issue, etc) become emergencies very quickly. Proper planning and some financial cushion can mitigate the impact of those things. A reasonable emergency fund, proper insurance, and backup plans are all critical to financial health.

There are fairly common and totally legal methods for pulling funds from retirement accounts early, and without penalty. Roth accounts can have contributions removed without penalty any time, and without taxes or penalty after age 59.5. A roth conversion ladder will do the same for 401k funds, but takes years of planning.

STM317 said:

frenchyd said:

The flaw in your statement is that life happens to all of us.  People get sick,   as you age the chances for a serious medical event  increases. People lose jobs even careers.  The market drops seriously.  

Finally the treatment of money in retirement accounts punishes early withdrawal even for the most dire reasons.  The penalty for early withdrawal removes even really good investments

Life happens whether you're invested in the market or not. That's not incentive to avoid investing. In fact, it should be the opposite. When you're poor, unexpected life events (job loss, car problem, medical issue, etc) become emergencies very quickly. Proper planning and some financial cushion can mitigate the impact of those things. A reasonable emergency fund, proper insurance, and backup plans are all critical to financial health.

 

There are fairly common and totally legal methods for pulling funds from retirement accounts early, and without penalty. Roth accounts can have contributions removed without penalty any time, and without taxes or penalty after age 59.5. A roth conversion ladder will do the same for 401k funds, but takes years of planning.

Proper planning and some financial cushion?  Is that another way of saying it’s your fault no matter what happens?  

Well I happen to agree with you on that. The individual has to take responsibility for any events in his life.  Including the decision to invest in the market. 

What no one except me seems to be saying is the boiler plate given when you invest. There is a risk of loss too.  Yield is not guaranteed.  

You don’t like my personal experience clouding up the comments. Fine then here are some other hypothetical. 

Surplus money used to purchase a business instead of investing.  A lot of people I know who retired comfortably did just that.  Often those business are started on a very tiny shoestring

Buying collector cars. Some people have done very well doing that. 

Both of those examples have the added benefit of the person being in complete control of something they are familiar with.  

In reply to frenchyd :

Of course there's risk in the stock market. I've mentioned it multiple times in this thread, so you're not the only one bringing it up. Everybody knows and understands that there's some risk involved. But you can't complain about risk in the stock market, and then suggest two riskier asset classes as a solution. The thing about index investing is that it's the "easy button". It's not guaranteed, but it's diverse enough that you won't lose big like you can when investing in a single stock, or property, or piece of art, or business. The drawback of not having all your eggs in a single company (or asset)'s basket is that massive gains are blunted, but the benefit is that so are the sharp drops.

Starting or investing in a small business can be lucrative, but has a higher failure rate than simple index investing and you'll likely run yourself ragged trying. Indexing doesn't take any extra work or time on a weekly/monthly basis. 50% Of new businesses fail within 5 years. 66% fail within 10 years. And that's supposed to be less risky? You think 2/3rds of index investors have nothing to show for their investment after 10 years? Same thing for vintage cars. The vast, vast majority of vehicles out there are depreciating assets. A few investors can do very well, but most don't. If you can get the right deal on the right vehicle and flip it for profit that's great. But there's still a lot more work there, and more carrying costs than just indexing. Real Estate is another option that can outperform indexing in some cases, but you've got to do the math, be comfortable with debt, and know your way around basic home repairs and again it takes time and effort from the investor, while having significant carrying costs and risk of bankruptcy that stocks don't have. All investments are some form of risk/reward. Index investing is likely to be the highest reward for the lowest risk for the average person.

I don't have a problem with you sharing your story, but I think your advice based on your experience is a bit misguided. You were burned by the stock market, but not because investing is inherently bad. You were burned because you were improperly invested and chose to pull your investment at the worst time. Telling people that investing is riskier than vintage cars or starting a business is like telling people not to drive because you were once in a wreck while acting foolish behind the wheel. You can invest in ways that reduce risk just as you can drive in ways that reduce the chance of an accident. There are certainly different skill levels for driving or investing, but decision making and situational awareness play a role too. You can have all the talent in the world and still screw either one up by not minimizing risk, or taking the wrong action at the wrong time. Indexing reduces the chances of the investor screwing up because you don't need any insider info, you don't need to try to time the market, you're just regularly investing in what is essentially the entire US economy. If that tanks, then everybody is screwed. It's not a perfect solution. Nothing is. But it being imperfect doesn't mean it's not the best available option for most people in most cases.

I feel bad to have hijacked Wheelsmithy's thread like this. If you want to continue the discussion please PM me, or start a new thread.

And, as usual, we're probably done here.

Duke said:

And, as usual, we're probably done here.

Which is super disappointing, because the actual home loan questions were valid and we could use a great discussion on regular old mortgage advice. 

Javelin said:

Duke said:

And, as usual, we're probably done here.

Which is super disappointing, because the actual home loan questions were valid and we could use a great discussion on regular old mortgage advice. 

Bam! I just caught back up with this, and all discourse is welcome. 

Astute points on goals, and timelines were mentioned above. My Special Lady Friend is 55, me 48, so we're nearing the end of our respective shelf lives. Moderate to Slightly risky investment suits me well, her, quite a bit less risk. We are hoping for a job for her soon, and for me to crawl back into a (lower) middle class income. Once we have two incomes, we'll be golden.

  So, after deliberation, we've decided, at least for the moment, to do nothing.

It's the common advice when you're lost in the wilderness. Do nothing. Don't make it worse.

We'll invest some in the house, put the lump sum in an interest bearing account, and see what happens. We are trying to avoid financial ruin, and as such, a BIG cushion is proper for us, for now. If she can't get a job in 6 months, or I can't step up, we'll still have options. So, yes, paying off the loan is out, and not the smartest move. We'll look at investment, but both agree, volatile times may be ahead. 

Discuss as seems proper, and, again, Thanks, All!

In reply to wheelsmithy :

Since you have already decided on a low-risk investment, look at a combo of a money market account and a CD. Figure out how much you do not want to touch no matter what and put that in a CD that nature's when you're ready to look at a decision again. Put the rest in a money market. 

It's not going to make you any profit, but it will keep your nest egg safe and allow you access if required.

Slippery introduced me to the Wealthfront cash account. It's a savings account that pays 2.57%, which is about as good or better than a CD, but you can add or remove funds at any time unlike a CD. The added flexibility can't hurt for uncertain times, and it's FDIC insured.

Javelin said:

In reply to wheelsmithy :

Since you have already decided on a low-risk investment, look at a combo of a money market account and a CD. Figure out how much you do not want to touch no matter what and put that in a CD that nature's when you're ready to look at a decision again. Put the rest in a money market. 

It's not going to make you any profit, but it will keep your nest egg safe and allow you access if required.

Alternatively you can mix and match Bonds & Stock (Market Index) to your desired level of risk.

In reply to STM317 :

Barclays is offering 2.57% on a 48 month CD and 2.42% on a 12.

I keep my emergency fund stashed in their savings account at between 2.1% and 2.6%

The0retical said:

In reply to STM317 :

Barclays is offering 2.57% on a 48 month CD and 2.42% on a 12.

So, what is the advantage of that over Wealthfront?

Yeah, in the current interest rate climate, there isn't that much to gain from putting money into a CD vs shopping around for a good interest rate on an Internet savings account.

The only reasons to go with a CD at the moment are IMHO the following:

• You're worried that the money gets turned into project cars otherwise, so you'd rather have it locked up in a CD
• You don't want to put the money into an Internet bank (even though they're usually FDIC insured or the CU equivalent) and your brick and mortar place is only paying 0.1% interest