"Andy" <idontcheckthismailbox[at]yahoo.com> wrote in message
news:1107698753.480651.216430[at]c13g2000cwb.googlegroups.com...
- quote -

Very good, Andy. I think this is the point missed by those who posit that
houses should be fully mortgaged so that those dollars can be invested. My
observation has been that if you don't have a mortgage, you don't need as
large an income to maintain the same standard of living. To me, this
translates into how much is needed in principal for retirement needs. If all
(or the majority) of housing costs are "prepaid", then your 401k doesn't
have to have to be able to spin off enough income to pay the mortgage. Think
about it.

Elizabeth Richardson

Andy wrote:

- quote -

Of course, you're right. But I think it's largely semantics whether
we're talking about the mortgage or the house (at least in this
context). On further reflection, I think my diversification point was
bogus anyway. Putting money into an asset other than your house does
not reduce your exposure to home equity risk because you still have to
pay off the mortgage. The mortgage actually increases risk, just like
buying an asset on margin. A little flaw in my reasoning there...

-Will

Will Trice wrote:

- quote -

We are talking about treating debt elimination as an investment, not
about whether or not a home is an investment. Paying off your mortgage
earns you a 6.5% rate of return regardless of whether or not you
consider your home to be an investment.

Lets say you have a mortgage with a $200,000 principle balance and 6.5%
interest rate. This means you are paying $13,000 in interest annually.

Now lets say you win $200,000 in the lottery. If you use that money to
pay off your mortgage you will suddenly have approximately an
additional $13,000 in disposable income because you no longer have to
pay mortgage interest. I say "approximately" because some of the
benefit is eaten up by losing the mortgage interest deduction. And it
doesn't matter if you consider your house an investment or not; you
still have an extra $13K because you used the $200K to pay off the
mortgage.

The same logic applies to all debt elimination, regardless of whether
the debt is secured by house or not.

Thanks,

Andy

Agree 100%

"John A. Weeks III" <john[at]johnweeks.com> wrote in message
news:john-6D5F0F.21482801022005[at]news.mpls.visi.com...
- quote -

Can you warranty 10% of return? He can pay the house and then invet month by
month what he is apying on the mortgage, using dollar cost average.

Rui

"JLP" <AllThingsFinancial[at]hotmail.com> wrote in message
news:1107291997.605011.303600[at]c13g2000cwb.googlegroups.com...
- quote -

John A. Weeks III wrote:
- quote -

So if I understand you correctly, nobody's gains are ever valid until
they die, because otherwise they might reinvest. So if I have a 20%
gain in a S&P 500 index fund, cash it out and put it under my mattress,
I don't actually have a 20% gain because I might reinvest it. In fact,
my heirs would also not have a gain because they might reinvest it.
This sounds kind of nonsensical.

- quote -

"You are reading more into what I said than what I wrote." My time
horizon is tens of years, not just the last five which appears to be
your time horizon. And I'm taking the recent up period "illusion" all
the way to the bank as I invested all through the bear market (which by
your definition should not be classed as a bear market as it was just a
result of the run-up from the previous bull market) and I continue to
invest. By no means do I think that the market will always go up, but
I'm betting that over the long run it will have net positive growth.
That is the primary reason to invest in anything after all.

- quote -

So by not trying to time the market, I'm the speculator? Even though I
invest for the long haul?

- quote -

I agree that a house should not be treated as an investment. But we
were talking about "earning a 6.5% return" by paying off a mortgage - in
other words talking about the house in investment terms.

-Will

In article <4204F3A7.30201[at]paragondynamics.com> ,
Will Trice <wwtrice[at]paragondynamics.com> wrote:

- quote -

Until you cash out the stock, it is a paper gain. You
have to pull the money out and spend it in order to realize
the gain. If you don't spend it, then you might reinvest it.
If you reinvest, the market could go right back down, and all
of your paper gains will be wiped out. That is why you have
to die--so you don't risk reinvesting.

- quote -

You see, that is not a long enough time horizon to make a
generalization. I think you may be like the old 49'ers who
had gold fever, and saw gold everywhere. You have seen exactly
one up period and no down periods. That lulls people into a
sense of invincibility where they think it will always go up.
Well, it doesn't. The fact of the matter is that the recent
up period is an illusion. It is exactly canceled out by a
mirror-image drop in the market before that. The only people
who get this gain are those who got in on a particular date,
then got out on a particular date, and never invest again.

In general, this is called speculation. Investment is when
you are in for the long haul. Over the long haul, we are
in a period right now of mirror image ups and downs. Pundits
call this "going sideways". Many people have their money
sitting on the sidelines. I have some myself that is sitting
on the side. We are all waiting for the market climate and
economy as a whole to perk up, and to see the market break
out of the sideways doldrums and take a turn upward.

- quote -

This is a mistaken idea. Your primary house is not an investment.
It is shelter. It is required for life. If you lose your stock
market investment, you have made a boo-boo. If you lose your
house, you freeze your butt off (at least here in Minnesota).
Paying down your primary house mortgage is always a good idea
in that it reduces the risk of losing your house, which would
be a disaster for your family.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

John A. Weeks III wrote:
- quote -

I don't understand this. I could cash out today by selling my house and
the securities in my brokerage account. I could even cash out my
retirement accounts, pay the 10% penalty, and still be ahead (though I
wouldn't do this). Then I could start all over with a new decision to
buy a house and/or invest. Why do I have to die?

- quote -

You are absolutely right. That's why I caveated my previous statement
with, "so far," and, "I could just have easily been wrong." This is the
risky part of investing in the market. But I'm rolling the dice in a
game where the odds are in my favor. After all, that's why people
invest in equities in the first place. You can get a sure return in a
CD, too. But investing completely in CDs may not get you to your goals.

- quote -

"Your time horizon" must be relatively short (and arbitrary). Over my
time horizon, the market has gone up, and it sure looks like it's been
going up lately (almost two years). The market also provides
opportunity for diversification, instead of putting all my dollars in
one basket - my house (admittedly the need for diversifying home equity
may not be as great as the need for diversification when investing in
other asset classes, but the point still holds).

Don't get me wrong, I'm not trying to talk either you or the OP into
investing in the stock market. I'm merely trying to show that investing
in the market is a viable option.

-Will

In article <42039527.4000403[at]paragondynamics.com> ,
Will Trice <wwtrice[at]paragondynamics.com> wrote:

- quote -

You really cannot make the statement that you were correct.
The reason is that you do not know the outcome yet. Sure,
if you cash out your account today, you come out ahead. But
you have to die to do it. You will not know the outcome of
this decision for many years. We could just as easily see
a new market low 6 months from now, and they you might be
exactly even with your mid-2003 investment. In that case,
paying down the home loan would be the clear winner.

All of this talk depends on picking arbitrary dates. The
key question is what works over time. I have seen the market
go sideways over my time horizon, so I am taking the sure
winner and passing on a market that is doing nothing over
my time horizon. If the market makes a turn upward, then
I will take advantage of it. Until then, I am taking
advantage of the sure 6.5 over the essentially 0% stock
market.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

John A. Weeks III wrote:

- quote -

I guess this is where you and I differ and is largely dependent on risk
tolerance. I have a high risk tolerance, so I would rather take the
risky 10% return than the sure 6.5% return. And I have put my money
where my keyboard is. I bought a house in July 2003 at 5.125% interest
on a 30 year loan. I do not make extra principal payments because the
interest rate is so low. Instead, I invest in equities. The Wilshire
5000 is up ~17% annualized since then (my portfolio has realized a much
higher gain than this). So far, my decision has been correct, because
the market had already turned up. But I could just have easily been
wrong. I didn't time the market, I would have done the same thing in
the middle of 2001 (assuming that I could get the same mortgage). But
long term, I'm likely to win either way.

I don't advocate this for everybody, I'm just offering a different
point-of-view.

-Will

In article <4202411B.6090703[at]paragondynamics.com> ,
Will Trice <wwtrice[at]paragondynamics.com> wrote:

- quote -

I think you might be reading more into what I said than what
I wrote. I merely quoted Bob Brinker's description of the market.
I don't time the market, but I also don't have a problem with
those who do want to do it with their own money.

Given that, I do recall Brinker telling folks to get back in
somewhere around the 2003 low, and his followers did do pretty
well. Myself? I stayed 50% in the market through 2000, and
moved that up to 80% in 2001 and 2002. As a result, I rode
it down in late 2002 and early 2003, and then rode it back
up since then.

I listen to a number of pundits give their version of the
financial news each week. That doesn't mean that I am married
to any of their financial systems. In fact, I have a broker
that has earned my trust, and I tend to listen to his advice
much of the time.

- quote -

Yes, I did pick an arbitrary date. In fact, I picked 3 different
arbitrary dates in an attempt to make a point on just how
arbitrary the starting date is.

- quote -

Again, I invest for the long run, right or wrong. So I did
get the 2 to 3 year run up, but I also got the downturn that
made the run-up possible. What I do adjust is my portfolio
balance. As things stand today, I think it is far better to
get the 6.5% sure thing by paying down a mortgage than it is
to increase my market exposure. Once the market starts to
turn up, based on what I wrote above and in the previous post,
then I will move money out of bonds and real estate and into
the stock market. You can bet on it.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

John A. Weeks III wrote:

- quote -

So you advocate market timing at least on the "big" scale? Meaning that
anyone who listens to Bob Brinker missed out on the latest 50% run-up,
but will not be in the market for a big downturn that's coming any day
now. I'm not saying that Brinker is wrong on a short time scale, but
isn't the reason that stocks are generally believed to be useful
investments is that we are constantly in a secular *bull* market with
cyclical bears and bulls?

- quote -

Didn't you just pick an arbitrary date? Why is 5 years the same as "big
picture"? If I look back 10 years, the market (Wilshire 5000) is up
208%. This is 7.5% annualized which beats the OP's 6.5% mortgage. He's
probably got at least 10 years to retirement given his age.

In the discussion with my friend, I looked for the lowest point on the
Wilshire 5000 since March 2000 to establish a market bottom - that was
March 2003. Then I checked to see if the Wilshire 5000 had increased by
20% or more with no intervening drops of 10% or more. This is what I
considered to be a reasonable definition of a bull market (but you
obviously have a different definition of a bull market, I think many
others do as well as I have not seen any financial publications that
talk about the new bull market). It turns out that the Wilshire 5000
has increased ~50% since March 2003 with no intervening 10% drops
(assuming I looked at the data correctly). (I used the Wilshire because
the data was easily accessible.) My point is that I didn't just pull
out an arbitrary date.

- quote -

You have a point. I more-or-less dollar cost averaged through the bear
market and thus recovered all my bear market losses by November of 2003
(I'm not counting savings towards the losses, only earnings toward
losses). The OP looks to be making a lump-sum investment so this may
not help him, but he could always gradually ease into the market to
mitigate a sudden Brinker slide.

- quote -

So if "one never knows", how will one know when the next upward movement
of the market begins (if it hasn't already)?

- quote -

And maybe this is the crux of the matter. Does the market have to
exceed its previous high to be considered a bull market? That sucks
since you'll have missed 2-3 years of bull market by the time that you
figure out that it is a bull market (if indeed it is). But that's life,
I suppose.

-Will

In article <420171C0.1060408[at]paragondynamics.com> ,
Will Trice <wwtrice[at]paragondynamics.com> wrote:

- quote -

I think Bob Brinker describes the market accurately when he
says that we are in a long term secular bear market, which
will have periods of cyclical bull markets and cyclical bear
markets.

It is true that we are up big since March 2003. But the only
reason is that we were down big from the first quarter of 2002.
You can say the market is up or down nearly any number you want
by picking the right start date.

If you look at the big picture, the market has been going
sideways for the past 5 years trading between 9,500 and
11,500, with a major dip in the middle. Long term holders
have seen very little if any gains across the entire 5 years.
If you go back a little more, many of us are still way down
from the year 2000 peaks.

I think it very dangerous to assume the bull market hit a
bottom in March of 2003. It was a short term bottom, but
some pundits think that we still have not seen the true
bottom of the year 2000 crash. Others say the lack of
solid earnings and the spending crisis in Washington DC
is setting us up for an even deeper fall. One never
knows.

What I am looking for is the jobs market to start coming
back, something that hasn't happened yet. We need to get
people working again to have a market recovery. After that,
I need to see a few quarters of good growth, and growth that
is broad based, and not all in Halliburton and Exxon, or
one time flukes like Google.

Yes, the run up from the lows in 2003 has been nice, but only
in that we got back what we lost the previous year. What I
am looking for is the market to break out on the plus side
of 11,000 and hold those gains.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

John A. Weeks III wrote:
- quote -

John,

I had this discussion the other night with a friend. When do you define
"the market starts going back up again"? The market (as measured by the
Wilshire 5000) is up ~50% since March 2003 (the bear market bottom).

I'll risk the flames here and say that we find ourselves in the middle
of a bull market right now. My friend steadfastly refused to
acknowledge this despite the evidence, but gave no reasoning. On the
other hand, much booze had been consumed by all... Possibly he was
relying on a different market measure, but was to incoherent to relate
that to me. How are the other market measures doing?

-Will

- quote -

A point to consider. Paying off the 6.5% mortgage is the same as earning a risk
free 6.5% on the money over the life of the mortgage, while that 10% or so long
term return is not guaranteed.

In article <1107291997.605011.303600[at]c13g2000cwb.googlegroups.com> ,
"JLP" <AllThingsFinancial[at]hotmail.com> wrote:

- quote -

Where can you get that sure 10% today? Things are going sideways
in the market, and has been for a while. I'd far rather
get a sure 6.5% rate of return by paying down my house than
gambling and getting nothing in the market. If the market
starts going back up again, then it might be a different
story.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

I wouldn't pay the house off. Why pay off a 6.5% note when you can
invest and get a long-term rate of return of 10% or so?

Maybe you need peace of mind, I don't know. I would just think about
that before you pay it off.

JLP

http://AllThingsFinancial.blogspot.com

HW "Skip" Weldon wrote:
- quote -

I said I was paranoid. Companies and financial institutions sometimes
do things which are at odds with their publicly stated policies and
procedures, and/or laws and regulations, in an effort to hide losses,
enhance profits, etc. And auditors frequently go along with these
improper practices. Enron, WorldCom, 1980s S&L crisis, etc.

Sometimes things go belly up unexpectedly, and the person who has their
nest egg spread around loses less than the person who has it all in one
place. Plus, its not too burdensome to keep your investments spread
among two or three mutual fund companies.

Andy

- quote -

You may be putting the cart before the horse. Sometimes a trust is used to
control what happens to the money after death. In other words, Dad may be
gone but he can still control when you get the money. So it's a mistake to
assume immediate distribution.

We need to know more about the terms of the trust. Does it provide for
immediate distribution of all the principal? Or just part? Does it
restrict distributions to just the income earned on the principal? Does it
mandate how the funds are to be invested until distribution?

- quote -

Again, we need to know the terms of the trust. It may be that the trustee
is prohibited from changing the way the funds are invested. Or he may have
discretion. If the trust controls the asset allocation, then the trustee
must comply. If he has discretion, that's different. Finally, the asset
allocation that was appropriate for the father in his final years is
probably not appropriate for siblings in their 40s. (Assuming that the
money must remain in the trust.)

On Sun, 30 Jan 2005 08:38:06 CST, "Andy"
<idontcheckthismailbox[at]yahoo.com> wrote:


- quote -

How would you respond to the counterargument that the money is not at
UBS or Vanguard (or any other fund family), but invested in the
stocks, bonds, notes, etc. that they chose? And that the stock and
bond paper evidencing those investments is held by a separate entity?


-HW "Skip" Weldon
Columbia, SC