Tiny Houses

[Pitt1975]

I was lucky to get a couple big bonus’s late in my career. Called my investment guy, and asked him where should I invest the money.
He said pay your house off.
Also said he has never heard of anyone that said, “I wish I had a mortgage”
Best advice I ever got.

 

[Sean Miller Fan]

I was lucky to get a couple big bonus’s late in my career. Called my investment guy, and asked him where should I invest the money.
He said pay your house off.
Also said he has never heard of anyone that said, “I wish I had a mortgage”
Best advice I ever got.

Depends what your rate was and if you were able to write off the interest. Now you cant write it off but back then you probably were able to. That may have been very very bad advice depending on when it was given. My interest rate is so low right now that if I hit the powerball, I'm still not paying off my mortgage. It makes no sense as I can make more in the market.

 

[Pitt1975]

Depends what your rate was and if you were able to write off the interest. Now you cant write it off but back then you probably were able to. That may have been very very bad advice depending on when it was given. My interest rate is so low right now that if I hit the powerball, I'm still not paying off my mortgage. It makes no sense as I can make more in the market.

Nothing beats being debt free. Period.
I have zero debt.
All of my money is invested, and I pay no interest on anything.
Best thing I ever did.
Even better is I pay cash for nothing. I put everything I spend on my Sam’s Mastercard, and pay the balance off monthly.
I have earned over $700 in free food from Sam’s club YTD.

 

[DaveTrout]

Some of you seem like you're pretty knowledgeable on the subject, so I want to throw a question out there. I'm looking at retiring from my current position in about a year. Looking at focusing on a business I started a few years ago on the side that is staring to be pretty lucrative, so I can't do both. Anyway, I was thinking about adding a room onto my house for an office. What kind of cost will I be looking at per sq ft. Not finished, but framed and brick and windows in place. Probably around 315 sq ft.

 

[Sean Miller Fan]

Nothing beats being debt free. Period.
I have zero debt.
All of my money is invested, and I pay no interest on anything.
Best thing I ever did.
Even better is I pay cash for nothing. I put everything I spend on my Sam’s Mastercard, and pay the balance off monthly.
I have earned over $700 in free food from Sam’s club YTD.

You are incorrect. There is such a thing as good debt. I dont know all of the circumstances around when you paid off your mortgage but its possible that it was a very bad decision, maybe costing you a lot of money had that bonus money been invested instead. I mean psychologically, its nice to have 0 debt but depending on the circumstances, the feeling of having 0 debt may have cost you quite a lot of money in the long run.

 

[Pitt1975]

You are incorrect. There is such a thing as good debt. I dont know all of the circumstances around when you paid off your mortgage but its possible that it was a very bad decision, maybe costing you a lot of money had that bonus money been invested instead. I mean psychologically, its nice to have 0 debt but depending on the circumstances, the feeling of having 0 debt may have cost you quite a lot of money in the long run.

We will have to agree to disagree. Love having no debt. I have enough money to live comfortably the rest of my life.
Conservative? Maybe. But it’s a great feeling. Will leave my 3 girls a nice sum when I croak.
The market has been good to me as well.
Never would have thought that I could live in HHI SC, own my home free and clear, and have a comfortable bank balance sheet.
But it’s your life. Follow your dream.

 

[PittPharm2002]

You are incorrect. There is such a thing as good debt. I dont know all of the circumstances around when you paid off your mortgage but its possible that it was a very bad decision, maybe costing you a lot of money had that bonus money been invested instead. I mean psychologically, its nice to have 0 debt but depending on the circumstances, the feeling of having 0 debt may have cost you quite a lot of money in the long run.

How is being completely liquid a bad decision
Hint - you could invest that mortgage payment into retirement planning instead of simply paying off debt ?

Guess who is more likely to being to be retired early ?
The guy with “good debt”, or the guy with no debt ?

With every post you demonstrate how little you understand about most things

 

[PittPharm2002]

Some of you seem like you're pretty knowledgeable on the subject, so I want to throw a question out there. I'm looking at retiring from my current position in about a year. Looking at focusing on a business I started a few years ago on the side that is staring to be pretty lucrative, so I can't do both. Anyway, I was thinking about adding a room onto my house for an office. What kind of cost will I be looking at per sq ft. Not finished, but framed and brick and windows in place. Probably around 315 sq ft.

Do you need extra space for the business , or simply because you want an office ?
You can use existing square footage of your house to itemize as home office on your taxes . We have just used a spare bedroom .

 

[Sean Miller Fan]

How is being completely liquid a bad decision
Hint - you could invest that mortgage payment into retirement planning instead of simply paying off debt ?

Guess who is more likely to being to be retired early ?
The guy with “good debt”, or the guy with no debt ?

With every post you demonstrate how little you understand about most things

Stick to counting pills, you are out of your lane here. Here's an example:

You have 100K and 10 years left on your 3% mortgage. You get 100K in a bonus, inheritance, lottery, etc. You are better to invest that 100K into the market and then have a monthly distribution to pay that mortgage. At the end of 10 years, you will have money left in your investment assuming an average 8% rate of return and a paid off mortgage which your investment paid.

Hint: the same thing goes for low-interest student loans. Many times those were very low interest. Mine and my wife's were around 3%. Why the eff would you pay off 3% debt early? If you have an extra $100 in a month to pay that 3% debt down, invest it instead.

 

[DaveTrout]

Do you need extra space for the business , or simply because you want an office ?
You can use existing square footage of your house to itemize as home office on your taxes . We have just used a spare bedroom .

I need space away from daily buzz around the house, and the business itself should be able to pay for the addition. I've been advised by multiple people, including a recently retired IRS Senior Manager that claiming space in your home as a business deduction is a bad idea.

 

[PittPharm2002]

I need space away from daily buzz around the house, and the business itself should be able to pay for the addition. I've been advised by multiple people, including a recently retired IRS Senior Manager that claiming space in your home as a business deduction is a bad idea.

Why ?
It literally asks for the square feet used for exclusively business reason vs total square feet .
Its literally zero different than building an extension
The deduction is literally the same , and isn’t much .
At least for us who are individuals who are employees with a home office because they don’t have another option (her employer is out state ) and my employer at the time gave away our on site work space during covid
I’m back on site with a new gig so my space won’t be deducted this year

 

[PittPharm2002]

Stick to counting pills, you are out of your lane here. Here's an example:

You have 100K and 10 years left on your 3% mortgage. You get 100K in a bonus, inheritance, lottery, etc. You are better to invest that 100K into the market and then have a monthly distribution to pay that mortgage. At the end of 10 years, you will have money left in your investment assuming an average 8% rate of return and a paid off mortgage which your investment paid.

Hint: the same thing goes for low-interest student loans. Many times those were very low interest. Mine and my wife's were around 3%. Why the eff would you pay off 3% debt early? If you have an extra $100 in a month to pay that 3% debt down, invest it instead.

Buddy -
You don’t aeem to understand compounding interest works .

Let me help you out -
There is no 8% annual guaranteed income -
So instead you’re accruing debt for 10 years
Versus having zero mortgage now , and playing with house money the next 10 years -
Versus removing that “investment” paying the penalties and taxes , only to be in the same spot maybe 10 years - assuming the timing works out perfect .

Counterpart -
You pay off your mortgage. Every dollar you aren’t spending on a mortgage every 2-4 weeks instead you invest into the market instead
Now, unemployable , who has more money and flexibility over the next 10 years
As a 46 year old who is both a pill counter who understands math- and also why being debt free is better instead of thinking a single investment is going to grow a Net 5% of a decade while the “gain “ is eroded by inflation.
Maybe Google “future value of money “ and start there .
You think maybe grossing “7,564” over a decade with your projected net 5% difference .
Where instead of paying the $1200 to the bank each money, I’m investing in your same 8% return for 10 years .
And I’m finishing with $17.383 at the end
Guess who has more pills at the end ?

 

[SMF Fidelity]

Why ?
It literally asks for the square feet used for exclusively business reason vs total square feet .
Its literally zero different than building an extension
The deduction is literally the same , and isn’t much .
At least for us who are individuals who are employees with a home office because they don’t have another option (her employer is out state ) and my employer at the time gave away our on site work space during covid
I’m back on site with a new gig so my space won’t be deducted this year

That deduction is gone. Only way is for self employed. Any payroll / w-2 employee can no longer use the deduction. Doesn’t matter if the only office is in Guatemala, 100% remote workers are not entitled to it.

Sorry

 

[PittPharm2002]

That deduction is gone. Only way is for self employed. Any payroll / w-2 employee can no longer use the deduction. Doesn’t matter if the only office is in Guatemala, 100% remote workers are not entitled to it.

Sorry

Will have to check my fed and state returns because the simplified deduction was definitely able to be itemized for 2023 income but I believe ya

 

[Sean Miller Fan]

Buddy -
You don’t aeem to understand compounding interest works .

Let me help you out -
There is no 8% annual guaranteed income -
So instead you’re accruing debt for 10 years
Versus having zero mortgage now , and playing with house money the next 10 years -
Versus removing that “investment” paying the penalties and taxes , only to be in the same spot maybe 10 years - assuming the timing works out perfect .

Counterpart -
You pay off your mortgage. Every dollar you aren’t spending on a mortgage every 2-4 weeks instead you invest into the market instead
Now, unemployable , who has more money and flexibility over the next 10 years
As a 46 year old who is both a pill counter who understands math- and also why being debt free is better instead of thinking a single investment is going to grow a Net 5% of a decade while the “gain “ is eroded by inflation.
Maybe Google “future value of money “ and start there .
You think maybe grossing “7,564” over a decade with your projected net 5% difference .
Where instead of paying the $1200 to the bank each money, I’m investing in your same 8% return for 10 years .
And I’m finishing with $17.383 at the end
Guess who has more pills at the end ?

Again, you are outside of your element here. I am a seasoned pro. Obviously there isnt a guaranteed 8% annualized return but over a 10 year period, that is the average you can expect. Could be more. Could be less. Depends on the market and some luck

Lets use 2 scenarios:

Here's yours:

1. You win the lottery for 100K and pay off your 100K mortgage. Lets say thats $1000/month you were paying. Now, since you have no mortgage payment you invest that $1000 month.

2. Same thing but you invest the full $100K and withdraw $1000/month from your investment to pay your monthly mortgage.

At the end of 10 years:

Scenario 1: You personally paid $120K into your investment and its worth more than that due to dividends and capital gains.

Scenario 2; You personally paid $0 into your investment and its worth $75K now. But in this scenario, you had an extra $1000/month for 10 years to mess around with since your 100K investment was paying your mortgage.

It was a nice try on your part but you cant beat an MBA in Finance on this.

 

[PittPharm2002]

Again, you are outside of your element here. I am a seasoned pro. Obviously there isnt a guaranteed 8% annualized return but over a 10 year period, that is the average you can expect. Could be more. Could be less. Depends on the market and some luck

Lets use 2 scenarios:

Here's yours:

1. You win the lottery for 100K and pay off your 100K mortgage. Lets say thats $1000/month you were paying. Now, since you have no mortgage payment you invest that $1000 month.

2. Same thing but you invest the full $100K and withdraw $1000/month from your investment to pay your monthly mortgage.

At the end of 10 years:

Scenario 1: You personally paid $120K into your investment and its worth more than that due to dividends and capital gains.

Scenario 2; You personally paid $0 into your investment and its worth $75K now. But in this scenario, you had an extra $1000/month for 10 years to mess around with since your 100K investment was paying your mortgage.

It was a nice try on your part but you cant beat an MBA in Finance on this.

I literally did the math for you .
Sit down
No part of a $100k investment is paying for your mortgage
Every time you take out from the investment to help pay your mortgage - note it won’t pay it - you are reducing the amount to compound interests
Your money isn’t making money because you’re removing it incrementally .

Buddy , try getting an actual job
Signed a fellow MBA with another professional degree who counts better than you

 

[Sean Miller Fan]

I literally did the math for you .
Sit down
No part of a $100k investment is paying for your mortgage
Every time you take out from the investment to help pay your mortgage - note it won’t pay it - you are reducing the amount to compound interests
Your money isn’t making money because you’re removing it incrementally .

Buddy , try getting an actual job
Signed a fellow MBA with another professional degree who counts better than you

You dont understand investments, thats ok. Its not your thing. I was doing the math in my head so I was off some but I just ran the numbers.

$100K invested into the market, assuming an average 8% interest rate with taking $1000/month withdrawals to pay the mortgage. You'd have $37,798 left after 10 years and no mortgage.

What you want to do is pay the mortgage off and then start investing that $1000 every month but you could ALSO invest that $1000 every month with my plan since the investment will be paying your mortgage.

Do you understand yet? Just take the L, move on, and find a new financial advisor or just ask me from now on because SMF knows investments.

 

[Mikefln]

I literally did the math for you .
Sit down
No part of a $100k investment is paying for your mortgage
Every time you take out from the investment to help pay your mortgage - note it won’t pay it - you are reducing the amount to compound interests
Your money isn’t making money because you’re removing it incrementally .

Buddy , try getting an actual job
Signed a fellow MBA with another professional degree who counts better than you

You are making the assumption you are taking the money out of the market to make that payment. If you make the payment out of your salary like you have been doing and do not touch the investment at all, then you are still compounding the investment.

We really are arguing nonsense here, as neither answer is right or wrong. Just a preference, this is a Coke vs Pepsi discussion.

 

[Mikefln]

Some of you seem like you're pretty knowledgeable on the subject, so I want to throw a question out there. I'm looking at retiring from my current position in about a year. Looking at focusing on a business I started a few years ago on the side that is staring to be pretty lucrative, so I can't do both. Anyway, I was thinking about adding a room onto my house for an office. What kind of cost will I be looking at per sq ft. Not finished, but framed and brick and windows in place. Probably around 315 sq ft.

My only suggestion is ask people in your area who they recommend (ask the architect if you use one), ask the contractor for references/see their work, and get at least 3 bids.

 

[PittPharm2002]

You dont understand investments, thats ok. Its not your thing. I was doing the math in my head so I was off some but I just ran the numbers.

$100K invested into the market, assuming an average 8% interest rate with taking $1000/month withdrawals to pay the mortgage. You'd have $37,798 left after 10 years and no mortgage.

What you want to do is pay the mortgage off and then start investing that $1000 every month but you could ALSO invest that $1000 every month with my plan since the investment will be paying your mortgage.

Do you understand yet? Just take the L, move on, and find a new financial advisor or just ask me from now on because SMF knows investments.

So let me ask a simple question -
Where are you investing this money ? Via which vehicle ?
Because I’m very interested in your recommendations to either avoid the 10% Ira penalty for each withdrawl or capital gains tax for short term investments (22% just for federal alone ) .

Mostly , because - I want to avoid getting any advice from where you work .

 

[SMF Fidelity]

So let me ask a simple question -
Where are you investing this money ? Via which vehicle ?
Because I’m very interested in your recommendations to either avoid the 10% Ira penalty for each withdrawl or capital gains tax for short term investments (22% just for federal alone ) .

Mostly , because - I want to avoid getting any advice from where you work .

I was waiting to hear that same answer, but I’m sure he doesn’t even understand what you are asking. I still don’t believe he even has a job.

 

[Sean Miller Fan]

So let me ask a simple question -
Where are you investing this money ? Via which vehicle ?
Because I’m very interested in your recommendations to either avoid the 10% Ira penalty for each withdrawl or capital gains tax for short term investments (22% just for federal alone ) .

Mostly , because - I want to avoid getting any advice from where you work .

In this scenario, you came into a windfall of 100K so you couldn't invest that into an IRA. Well, $7000 of it you could. $8000 if you are 50 or older. If it were me I'd invest it in a S&P 500 index fund or possibly get fancy and divide it into 5 or 6 different diversified mutual funds, though an S&P 500 index fund is diversified enough.

Of course, there is no 8% guarantee, that's a general historical average. The Fidelity S&P 500 Index Fund has averaged 12.85% a year for the last 10 years and all other S&P funds would be similar. Keep in mind though, that the market has been historically good thanks to the post-Covid economy being incredibly strong. So you can't always except that type of return. There is certainly risk.

As for taxes and capital gains, yes, you would pay those but its not as much as you think it is because your investment is after-tax so you arent paying taxes or penalties to withdraw. You only pay them based on what the fund in general does that year in terms of how many dividends it pays and did it make any capital gains distributions.

 

[PittPharm2002]

In this scenario, you came into a windfall of 100K so you couldn't invest that into an IRA. Well, $7000 of it you could. $8000 if you are 50 or older. If it were me I'd invest it in a S&P 500 index fund or possibly get fancy and divide it into 5 or 6 different diversified mutual funds, though an S&P 500 index fund is diversified enough.

Of course, there is no 8% guarantee, that's a general historical average. The Fidelity S&P 500 Index Fund has averaged 12.85% a year for the last 10 years and all other S&P funds would be similar. Keep in mind though, that the market has been historically good thanks to the post-Covid economy being incredibly strong. So you can't always except that type of return. There is certainly risk.

As for taxes and capital gains, yes, you would pay those but its not as much as you think it is because your investment is after-tax so you arent paying taxes or penalties to withdraw. You only pay them based on what the fund in general does that year in terms of how many dividends it pays and did it make any capital gains distributions.

You would be paying either capital gains (short term at least 25.07% between or fed and pa) or you are paying the 10% early withdrawl fee for each month your plan’s investment is “paying your tax”
Now recognize the 8% annualized earnings(so say 0.0666% monthly ), is netting you negative percentage on top of the 3% interest on your mortgage .

I understand this hurts your feelings -so I’m only paying income taxes on the withdrawal.
Because if I’m going to be over 59.5 years old-
Why would I prefer you plan to still have a mortgage for another decade -
Vs literally be able to retire ?
Because even if I do a Roth 401k- I can’t withdrawal for 5 years - so, how is that mortgage getting paid during that time ?

Again / please let me know which investment firm you work for , so I can tell friends and family to look somewhere else for advice .

 

[Sean Miller Fan]

You would be paying either capital gains (short term at least 25.07% between or fed and pa) or you are paying the 10% early withdrawl fee for each month your plan’s investment is “paying your tax”
Now recognize the 8% annualized earnings(so say 0.0666% monthly ), is netting you negative percentage on top of the 3% interest on your mortgage .

I understand this hurts your feelings -so I’m only paying income taxes on the withdrawal.
Because if I’m going to be over 59.5 years old-
Why would I prefer you plan to still have a mortgage for another decade -
Vs literally be able to retire ?
Because even if I do a Roth 401k- I can’t withdrawal for 5 years - so, how is that mortgage getting paid during that time ?

Again / please let me know which investment firm you work for , so I can tell friends and family to look somewhere else for advice .

You still dont get it. Stop talking about IRAs. In this scenario, where you have 100K left on a mortgage and come into a 100K windfall, you would most likely be better off investing the money (NOT in an IRA) and using a monthly distribution to pay your mortgage.

Also, mutual funds very rarely distribute short-term capital gains due to the tax implications. Very, very rare. They'll distribute some long-term capital gains but those are only taxed at 15%.

 

[PittPharm2002]

You still dont get it. Stop talking about IRAs. In this scenario, where you have 100K left on a mortgage and come into a 100K windfall, you would most likely be better off investing the money (NOT in an IRA) and using a monthly distribution to pay your mortgage.

Also, mutual funds very rarely distribute short-term capital gains due to the tax implications. Very, very rare. They'll distribute some long-term capital gains but those are only taxed at 15%.

Again- with with which vehicle ?
Because if you buy they directly - you are incurring short term capital gains tax or early withdrawal fees of 10% with every single withdrawal to pay your mortgage .
You keep ignoring how are you paying the mortgage for the first 5 years , to minimize those taxes and fees .
You are withdrawing from this investment which means it’s taxed every time .

Its okay .
As usual , realty is your enemy .

 

[Sean Miller Fan]

Again- with with which vehicle ?
Because if you buy they directly - you are incurring short term capital gains tax or early withdrawal fees of 10% with every single withdrawal to pay your mortgage .
You keep ignoring how are you paying the mortgage for the first 5 years , to minimize those taxes and fees .
You are withdrawing from this investment which means it’s taxed every time .

Its okay .
As usual , realty is your enemy .

Which vehicle? None. Its not a retirement account. There's no fees or penalties. It would be a regular brokerage account. Also, I wouldn't withdraw from the fund(s) within a year to avoid paying the short-term capital gains rate. But even if you had to, its not the end of the world as STCG as are taxed as ordinary income which is pretty low as it is.

 

[PittPharm2002]

Which vehicle? None. It’s not a retirement account. There's no fees or penalties. It would be a regular brokerage account. Also, I wouldn't withdraw from the fund(s) within a year to avoid paying the short-term capital gains rate. But even if you had to, it’s not the end of the world as STCG as are taxed as ordinary income which is pretty low as it is.

So
To clarify - you are investing that windfall into a privately purchase mutual fund -
Pay your mortgage out of your own pocket for 5+ years .
Then the only pay 15% from your withdrawals on capital gains for years 6-10 from your withdrawals ? Having less for retirement at the end .
Instead of -
Again- investing entirely each month 1.000 into the same
Vehicle - growing even more- and being liquid for a decade in case things happen , and living off that investment interests in retirement after 10 years .

cool
Please tell me your mba isn’t from Pitt .

 

[Mikefln]

So
To clarify - you are investing that windfall into a privately purchase mutual fund -
Pay your mortgage out of your own pocket for 5+ years .
Then the only pay 15% from your withdrawals on capital gains for years 6-10 from your withdrawals ? Having less for retirement at the end .
Instead of -
Again- investing entirely each month 1.000 into the same
Vehicle - growing even more- and being liquid for a decade in case things happen , and living off that investment interests in retirement after 10 years .

cool
Please tell me your mba isn’t from Pitt .

I am not a SMF apologists, I think he makes the fool of himself more than not. But in this case he is not wrong. It is a legit strategy that many employ. Others employ your strategy too. There is no right or wrong just more conservative vs aggressive.

You are also making a lot of assumptions in your take. Who is to say the stock/fund didn't double/ triple/ 10x in a year on top of any dividend it paid? Grant it, they could drop too.

As for the liquid part you keep mentioning, they are both liquid. Not sure what you mean as a person could sell their shares and pay off the loan at anypoint.

 

[PittPharm2002]

I am not a SMF apologists, I think he makes the fool of himself more than not. But in this case he is not wrong. It is a legit strategy that many employ. Others employ your strategy too. There is no right or wrong just more conservative vs aggressive.

You are also making a lot of assumptions in your take. Who is to say the stock/fund didn't double/ triple/ 10x in a year on top of any dividend it paid? Grant it, they could drop too.

As for the liquid part you keep mentioning, they are both liquid. Not sure what you mean as a person could sell their shares and pay off the loan at anypoint.

If you have a debt for a mortgage your are by default not liquid .
My simple point was -
He’s not accounting for any taxes or penalty fees to remove his investment to “pay the mortgage “ with the interest .
As noted -
His strategy , means he ends ups with maybe $75k at the end or - he’ll double that and pretend he doesn’t pay taxes or fees for the deductions drom
The initial investment . We are both presuming you’re alive and healthy 10 years later to enjoy . My
My strategy has you NOT in debt for 10 years and also yields 3x to 4x more investment income for retirement at the end so you live off the interest of that investment .

These aren’t equivalent tragedies .
“Good debt “ is a student loans at low interest earn a substantially higher income for your life - like say to be a “pill counter “ making a
Min of 6 figures annually .
Or perhaps if public transport isn’t an option , a small car loan so you can go to work and earn more.

Its not having a mortgage for a decade longer than you need to pay a bank each month instead of investing into your self .

 

[Mikefln]

If you have a debt for a mortgage your are by default not liquid .
My simple point was -
He’s not accounting for any taxes or penalty fees to remove his investment to “pay the mortgage “ with the interest .
As noted -
His strategy , means he ends ups with maybe $75k at the end or - he’ll double that and pretend he doesn’t pay taxes or fees for the deductions drom
The initial investment . We are both presuming you’re alive and healthy 10 years later to enjoy . My
My strategy has you NOT in debt for 10 years and also yields 3x to 4x more investment income for retirement at the end so you live off the interest of that investment .

These aren’t equivalent tragedies .
“Good debt “ is a student loans at low interest earn a substantially higher income for your life - like say to be a “pill counter “ making a
Min of 6 figures annually .
Or perhaps if public transport isn’t an option , a small car loan so you can go to work and earn more.

Its not having a mortgage for a decade longer than you need to pay a bank each month instead of investing into your self .

By your definition of liquid, Elon Musk, the riches man in the world, is not liquid. He used his Tesla stock as collateral and borrowed against it to buy Twitter. In your mind the fact he has way more assets than the ammount he borrowed does not matter?

 

[PittPharm2002]

By your definition of liquid, Elon Musk, the riches man in the world, is not liquid. He used his Tesla stock as collateral and borrowed against it to buy Twitter. In your mind the fact he has way more assets than the ammount he borrowed does not matter?

He also sold about $22bil in Tesla stock to as part of the deal to buy Twitter .
So- yes - if you can sell your preferred stock every year -
Which he’s done for several years - you’re liquid .
His stock is collateral for the loan to a 10 to 1 ratio $67b in stock for the &6.7b loan )
So yes - when you can buy a company worth $19b for $44b- you are liquid

 

[joeydavid]

In this scenario, you came into a windfall of 100K so you couldn't invest that into an IRA. Well, $7000 of it you could. $8000 if you are 50 or older. If it were me I'd invest it in a S&P 500 index fund or possibly get fancy and divide it into 5 or 6 different diversified mutual funds, though an S&P 500 index fund is diversified enough.

Of course, there is no 8% guarantee, that's a general historical average. The Fidelity S&P 500 Index Fund has averaged 12.85% a year for the last 10 years and all other S&P funds would be similar. Keep in mind though, that the market has been historically good thanks to the post-Covid economy being incredibly strong. So you can't always except that type of return. There is certainly risk.

As for taxes and capital gains, yes, you would pay those but its not as much as you think it is because your investment is after-tax so you arent paying taxes or penalties to withdraw. You only pay them based on what the fund in general does that year in terms of how many dividends it pays and did it make any capital gains distributions.

You are describing an 8% CD not a market return. Historically, what you are describing doesn't typically work.

Pretend it's 2022, 2020, 2018, 2008. Let us know how this strategy works out for you.

2008. Your 100k in the S&P 500 would be roughly $40k going into 2009 and it's not coming back.

 

[KennyTheKangaroo]

This was a tough read. L on all sides.

 

[Pitt SML]

This was a tough read. L on all sides.

Well. SMF takes multiple losses in this thread. I really want to have him continue to post financial advise. It’s literally the funniest thing I’ve seen in a long while.

 

[pittdan77]

You are describing an 8% CD not a market return. Historically, what you are describing doesn't typically work.

Pretend it's 2022, 2020, 2018, 2008. Let us know how this strategy works out for you.

2008. Your 100k in the S&P 500 would be roughly $40k going into 2009 and it's not coming back.

To be fair, his example is screwed up because he always chooses a weird lane. In reality, if you have $100k left on a 30-year loan at 3%, you've already paid most of the interest anyway. Quick math says you'd owe about $125k yet, with interest, so if you could invest that money in something that makes you more, you'd be better off not paying it off. Honestly, what a lot of wealthier people would do is purchase another piece of property. Likely a vacation or seasonal home or a place you rent. Probably even borrow more money to do it. So long as you overcome that $25k and get at least what you put into it back when you sell it, it's not a big L. I'd say it depends a lot on what you have in the way of investments. If you're way behind, yeah, pay off the house and sink that payment into the catch-up option on your retirement.

 

[Sean Miller Fan]

So
To clarify - you are investing that windfall into a privately purchase mutual fund -
Pay your mortgage out of your own pocket for 5+ years .
Then the only pay 15% from your withdrawals on capital gains for years 6-10 from your withdrawals ? Having less for retirement at the end .
Instead of -
Again- investing entirely each month 1.000 into the same
Vehicle - growing even more- and being liquid for a decade in case things happen , and living off that investment interests in retirement after 10 years .

cool
Please tell me your mba isn’t from Pitt .

I dont know how many times I have to explain this:

"privately purchased mutual fund" - yes though I have never heard a mutual fund(s) that ANYONE can buy through just about any brokerage firm as a private purchase

Paying 15% tax on capital gains - yes. You make money, you pay taxes. Making money and paying taxes on it is better than paying no taxes on making $0. Also, I think in your mind, you are thinking that if you withdraw $1000 per month then that's $150 (15%) per month in CGT. It doesnt work like that. When you make distributions from a fund, the largest portion, especially early on, is going to be a return of principal. So, just spitballing, maybe $50 of your $1000 would be a capital gain so you'd pay $7.50 in CGT.

Last point - you said its better to pay off your mortgage and invest that $1000 in some other type of investment. 2 things: 1. You are starting your investment at $0 instead of $100,000. $100K grows faster than starting at $0. 2. You are substituting your mortgage payment for an investment so your disposable income is the exact same. In my strategy, you have an EXTRA $1000 in disposable income per month because the mutual fund is paying your mortgage.

This, again, depends on each person's exact scenario. Generally, if your mortgage or student loans are less than 5%, it would probably (not definitely) be a good strategy to invest any windfall money instead of paying it off.

 

[joeydavid]

I dont know how many times I have to explain this:

"privately purchased mutual fund" - yes though I have never heard a mutual fund(s) that ANYONE can buy through just about any brokerage firm as a private purchase

Paying 15% tax on capital gains - yes. You make money, you pay taxes. Making money and paying taxes on it is better than paying no taxes on making $0. Also, I think in your mind, you are thinking that if you withdraw $1000 per month then that's $150 (15%) per month in CGT. It doesnt work like that. When you make distributions from a fund, the largest portion, especially early on, is going to be a return of principal. So, just spitballing, maybe $50 of your $1000 would be a capital gain so you'd pay $7.50 in CGT.

Last point - you said its better to pay off your mortgage and invest that $1000 in some other type of investment. 2 things: 1. You are starting your investment at $0 instead of $100,000. $100K grows faster than starting at $0. 2. You are substituting your mortgage payment for an investment so your disposable income is the exact same. In my strategy, you have an EXTRA $1000 in disposable income per month because the mutual fund is paying your mortgage.

This, again, depends on each person's exact scenario. Generally, if your mortgage or student loans are less than 5%, it would probably (not definitely) be a good strategy to invest any windfall money instead of paying it off.

Or you simply don’t know what you are talking about.

 

[Sean Miller Fan]

Or you simply don’t know what you are talking about.

You wished. I know more about this stuff than third tier TV rights.

 

[Joe the Panther Fan]

2008. Your 100k in the S&P 500 would be roughly $40k going into 2009 and it's not coming back.

$60K, not $40K, but in any event if you stayed invested, sure it would come back. Because, in fact, it did.

I mean the S&P grew 23.5% in 2009, and then another 12.8% in 2010. So after two years you'd basically be back at your $100K. After five years you'd have had around $143K. After ten years, even with dropping $40K in the first year, you'd have turned your $100K into approximately $206K.

 

[Gunga_Galunga]

I bought a starter house when I was 26 and have made extra payments on it, blah blah. It has also doubled in value. I'm strongly considering trying to rent it out and seeing how that goes. Would definitely require me tapping into my 401k for a downpayment on my next house, though. Not sure if that'd be ill-advised, but I feel like I need to do something like that so as to not have to sit at a desk for another few decades. I assume the gross rental income would be enough to cover the mortgage/monthly escrow on my current house and maybe about 25% - 50% of it on my hypothetical new house. Of course it would be taxable, though, so it's not like I would be getting 100% of it.

Would it be much more prudent if I just waited until I paid this one off and saved up more toward a downpayment on my next one? I feel like the answer is probably yes. But the thing that sucks is the taxes are so high here that my mortgage (I put down 20%) isn't even half of my monthly payment.

Don't touch your 401k. The bigger the number you can get in there early, the better off you're gonna be down the road.

Home equity your existing house if you can make the numbers work. If you can't make the numbers work, it's probably not a good idea.