Just so everyone knows, I’ve been following along with my thread and as soon as I have the time (hopefully after work tonight) I’ll go through and reply to all the questions and suggestions. I just don’t have a half hour to sit and give everything the time it deserves right now. So far nothing is so far off the rails that I’ve felt the need to drop everything and interject right away.
Okay, here goes, I think I’m going to do these one at a time for my own ease, but also to make them easier for others to respond too.
Regarding investing before paying off debt. The only debt I have is the mortgage and the LOC. Like I said in the OP, I have no revolving debt. I understand what you’re saying, it makes sense. I suppose I could have taken the money that I put into my investment account and put it towards the LOC, but it was just a ‘fun’ thing. It was about as much money as I would have spent on a new TV or home improvement project. Like I said, it wasn’t ‘nothing’ but it was enough that I could afford to lose it if I completely screwed up.
Also, since I forgot to mention it in the OP, since I have no revolving debt, my tax refunds get split between my savings and my LOC. So that will accelerate both of them. Yes, I know, I can adjust my withholding, but I like it this way.
I’m pretty patient. The reading I’ve done says the index funds are the way to go, so why is that I hear ‘mutual funds’ at every turn? Is that starting to become an old school thing? Is that why when ever I talk to an uncle or older friend it’s just automatically what they suggest since it’s what they’ve always done?
Perhaps I’ll look into that. I just refi’d about two years ago at 4.95 (just checked online, that’s what I’m at). It looks like my bank is advertising 3.5% (fixed) right now. Maybe I’ll call my mortgage person on Monday and see if it’s worth pursuing. Maybe it is, maybe it’s not.
Okay, to sum up the rest. As you can see upthread a few of you went back and forth between the what exactly a Roth IRA was. All that kind of stuff is where my head starts to spin and I say ‘the hell with it, I’ll pay the taxes now and the money is mine free and clear’. You have to remember, at the moment, I’m making a few dollars, literally on my investments. It just doesn’t seem worth it to dick around with that stuff yet. I don’t want my money tied up for 30 years to shelter $20 a year from the IRS. When there’s more to worry about, it’ll be different.
As for my daughter’s savings account. I think it’s funny when I tell people I plan to have $15K in there in they tell me that’ll barely cover anything. My usual response is 'so…what, should I just not bother saving any money for her then?" Even if all I have saved up for her is $15K, I’ll be 15K ahead of a lot of other people. Machine Elf, you mentioned an Index Fund for her money. Right now the little bit of money I’ve had in an Index Fund for a few month is currently down about 3%. Yes, I’m sure it’ll bounce back up, but I’d like to see the money I’m testing the waters with grow before I but my daughters life savings into one. At the moment more comfortable with it at ING where the priciple is guaranteed.
Regarding an adviser. I think I’ll pass at the moment. All I would really need advice on is investing and I really don’t have enough money to play with right now. Other then that, I’m pretty damn good with general finances. I’ve never made a late payment on anything, I don’t bounce checks, I can tell you, to the penny, where I stand financially at any minute (how much I owe on my house, credit cards, HELOC, what I have in my savings accounts etc).
Even when I was running several thousand in revolving debt, I always had in under control. I know that sounds odd, but I knew where I stood, it was never more then I could handle, the payments I made where usually five or six hundred dollars a month. I was spending a lot, but I was making big payments as well.
I’d love to need one, but I don’t think I’m ready for that yet. Maybe I’m wrong though.
Okay, depending on how accurate the online calculators are, I could possible save about $150 a month by refiing. But depending on what kind of fees there are, that could take quite a while to recoup. It might just be more worth while to wait and see. OTOH, even if it’s, say, a thousand dollars, that would take less then 10 months. I could pay it out of my savings account and use the extra savings for the first few months to pay myself back and then pay the HELOC faster after that.
Probably not worth worry to much about until I can call my mortgage person on Monday. Part of it my depend on if they can re-use my appraisal from the last time I refi’d in 2010. If they can, that’ll save some money.
An index fund is just a special type of mutual fund which tracks a stock market index (like the S&P 500 index.) The main difference between index funds and non-index mutual funds is that the latter are actively managed by a human who picks which stock to buy, and you have to pay this guy in the form of management fees, which can eat into your profits.
To expand on this a bit, there is growing evidence that mutual fund managers are not typically able to pick stocks which beat the general market return. I’ve seen the argument that you’re better off choosing which stocks to buy by throwing a dart blindly at a list of the NYSE than by paying a fund manager, because you’ll be exactly as likely to beat the general market and you won’t have to pay management fees.
Of course, choosing an index fund is even better, because actively managed funds and individual stock picks don’t beat the general market on average, and if you’re not going to beat the market on average you might as well pick the option with the lowest fees.
the reason people are telling you that it isn’t much is that you should prioritize this pretty highly and work to have more. That is sort of what financial planning is,
In a nutshell for most middle class Americans with kids the order of savings should be
- Pay off consumer debt (check this one off, good job)
- 10% to retirement
- Save for college until you have about $100k per child.
- Pay down the mortgage
- Worry about investing.
If you can’t get to more than $15k, it’s better than nothing, but then you don’t need any more investment advice because the answer to “what to do with this money” is “more funding for college.”
I’ve had our college accounts invested in an aged based fund pool, and about 30% is gains. I started about five years ago, and did throw a large contribution that direction when the market was down in 2009. Some days it’s down, some days it’s up. But you can’t look short term.
Yeah - the fees can make the payback time a lot longer.
I looked at current rates, and if we were to refinance to a 20-year loan, we’d be paid off in 20 years, paying the same figure we’re paying now (200+ more than the minimum). If we pay the 200+ extra on the current loan, we’d be done in about 23 years. Not sure it’s worth the hassle for 3 years shorter time, plus we’d have to make the 200+ higher payment (now, we can cut back slightly if we need to).
I doubt they’d use the same appraisal. I wish banks had reduced fees for refinancing when you’re already with them, a lot of it is tax filing etc. and seems redundant.
I’m no expert, but your plan sounds good to me. Especially realizing that, since you can draw on your HELOC in an emergency, paying it off is equivalent to putting money into an emergency fund, but with a guaranteed 4% return.
The only thing I don’t see is a retirement savings plan. If your employer has a 401(k) or equivalent with matching, then immediately (as in yesterday) sign up for whatever will get you the maximum matching from your employer (that’s just free money!). And either way, it’s worth sitting down and figuring out what you want to have when you retire and how much you need to save right now to get there. There are various on-line calculators that can do a quick back-of-the-envelope estimate. Better to do that now that when it’s too late.
You should be able to refinance your mortgage with no closing costs. I am refinancing to a 15-year fixed mortgage at 3% with no closing costs. This is a true no-closing-cost loan - they aren’t adding the closing costs to the mortgage. Instead, they are giving me a credit that covers the costs. I am paying a slightly higher rate than I would if I paid closing costs, but odds are that I will refinance this loan again (rates keep going down, no matter how many times someone says “rates can’t go any lower”) so it doesn’t make sense to pay closing costs since I may not have time to recoup them. Do not pay closing costs.
If your “mortgage person” doesn’t offer competitive rates with no closing costs, find a new mortgage person. The rates should be competitive with what Amerisave.com offers.
You won’t be able to reuse an appraisal from 2010. Appraisals are only good for a few months. The exact length is determined by law and lender policies, but nobody will accept an appraisal from a couple of years ago.
Your last sentiment (“I’d like to see [it] grow [before I invest]”) belies the one before it (“I’m sure it’ll bounce back up”). Your stance is relatively common: as I mentioned upthread, people have a short risk horizon, which is to say they tend to focus on the short-term performance of the market and lose sight of the fact that the market’s long-term performance is extremely likely to beat savings accounts and bonds by a large margin.
On top of that is the fact that people tend to invest in things after those things have already shown excellent returns - in other words, they tend to buy shares at a high price. If you’re waiting for your existing investment to grow before putting more money into it, then this is exactly what you’re doing.
A savings account providing 0.8% interest will grow your initial investment by a total of 10 percent over the course of 12 years. If you believe there’s an unacceptably high probability that the US economy will grow by less than 10% over the same period, then you should keep your money in a savings account. Looking back over the history of the S&P500, there are very few 12-year periods for which this was the case, meaning the probability that a savings account will outperform the market over the next 12 years is extremely low.
There’s no such thing as a free lunch.
I’d rather pay them out of pocket then pay a higher interest rate for the next 30 years. If you’re moving in a few years you may be better off having a higher interest rate then rolling the cost into the principle, but you have to remember, it costs the bank money to do the closing and somewhere, somehow, they’re going to collect it back (with profit). Obviously paying a higher interest rate will mean you’re paying it for as long as you have that loan and rolling it into the loan will mean you are paying it for as long as you have a loan (unless you pay it off and start over). That’s why I’d just rather pay it out of pocket and not have it secured to my house.
That’s a good point. But right now I don’t know how to do things like look at the S&P500 at various 12 year periods to see how much they’ve grown. That stuff is beyond me at the moment.
Who offers mortgages with no closing costs? I went to Amerisave and when I typed in my basic loan info all the options came back with at least 2k in closing costs.
The lenders that offer no closing cost options just roll the closing costs into the principle (if there’s space to do it) or raise your interest rate. It’s not actually free.
Seriously, go get the book I link to upthread, The Intelligent Asset Allocator. Amazon even lets you preview a few pages from Chapter 1, and you’ll see that he starts off in an extremely basic way that will be accessible to anyone who understands a coin toss.
More to the point, in Chapter 2 (which unfortunately you can’t preview) he uses real stock market data to calculate how a lump-sum investment in the S&P 500 would have performed over any given 5, 10, 20, or 30-year period, starting as far back as 1926. Shorter investment periods are riskier than longer investment periods, but if you look at those plots and see how ten-year investments have done on average, that might give you the confidence you need to enable you to invest a greater proportion of your wealth in stocks/mutual funds. It’s not risk-free, but for a 12-year investment period, there’s a very high probability you’ll come out ahead.
That’s a good book. I also highly recommend A Random Walk Down Wall Street. It is the best investment book ever written. And it’s very accessible.