darkness39[at]yahoo.com wrote:

- quote -

I read something similar, in either Smart Money or Kipplinger that
suggested the typical investor saw 3% at a time when the trailing ten
year average was closer to 10%. And numerous 'fund flow' data suggest
this is likely true.

- quote -

What this says to me is that the typical investor is market timing,
buying high and selling low. And that with all the discussion around
asset allocation, aiming for the perfect mix of 6 - 10 sectors and asset
classes, that one would be better off than 'typical' by going low tech,
choosing few indexes and holding long term.

If that 3% is created from ignorance, and the person is unwilling to
educate himself, then a planner is worth every bit of his fees, and I'd
dare say the typical investor would actually be better off going to the
paid professional, if only for the fact that the typical investor is so
undereducated and doesn't have the confidence or motivation to do
otherwise. (Let's face it, how can I continue to argue pro-education
when the numbers suggest that's not happening. An 8.5%, after fees,
return is great compared to the 3% that many are seeing)

- quote -

I'm with you on this.
JOE

On Apr 3, 1:15 pm, "HW \"Skip\" Weldon"
<skip5700removet...[at]hotmail.com> wrote:
- quote -

There are truly frightening numbers, about what the average holder of
a mutual fund gets, vs. what the mutual fund returns. It turns out
that the big money flows into funds, when their performance is already
past their peak.

I think I saw numbers that for the largest mutual funds, the average
investor was getting 4-5% less, per annum, than the fund was
returning.

It makes the 'buy and hold an index fund' strategy even more
appealing. Particularly as many of the biggest mutual funds now
restrict trading, thus reducing the penalty on long term investors
imposed by short term investors trading units.

Net-net the real return is somewhere around 3-4%
- quote -

c. 8% is probably a safe number for US total stock market return going
forward, although 9% is possible. And 4.5% for bonds.

On Mon, 2 Apr 2007 17:16:26 -0500, "kastnna" <kastnna[at]auburnalum.orgwrote:

- quote -

Keep in mind that the 10% long-term return is gross - to experience
what actually happens we must adjust for inflation, taxes and
investment expenses. Net-net the real return is somewhere around 3-4%
depending on assumptions. And that assumes a starting number of 10%,
something we haven't seen in a while.

That's why I usually tell folks that if they want to grow their money,
add to it. <grin



-HW "Skip" Weldon
Columbia, SC

On Mar 30, 2:02 pm, "Slain" <Slai...[at]gmail.com> wrote:
- quote -

Many people are a little too quick to use 10%. Its not necessarily
unreasonable, however. 10% is commonly used because that is close to
the historical average of the S&P 500. But are you planning on
investing fully in large-cap equities?

I have seen many cases where investors plan for 10% returns in a
portfolio that is 25-40% bonds. If your intended portfolio doesn't
match your benchmark, then don't necessarily expect average historical
returns.

As someone else here also stated, there is evidence that suggests
future returns will not be as grand as they have historically been.

On Mar 30, 3:02 pm, "Slain" <Slai...[at]gmail.com> wrote:
- quote -

I am going through something similar (Just refinanced first and
second). Here's some thoughts:

Interest only loans have varying terms. You need to understand your
loan. One company was urging me to do a "30 yr interest only", which
is really 10 years interest only, then ammortizes at 11th year into a
20 yr fixed loan (on remaining balance). I did not consider this, it
makes sense if you plan to move within 10 years... but not something I
wanted for house I plan to die in (I went in vertical and want them to
take me out the last time horizontal).

Here's the math- the earlier you start "prepaying/overpaying", the
better your return.

I have a 2nd mortage which I can afford to send extra principal
towards... the extra payment is 3X my monthly bill. This will be paid
off 15 years early because I can send pre-payments in early in
repayment schedule, and the pre-payment is such a large amount
relative to monthly payment.

I have a 1st mortgage which I can afford to send the extra payment to
in years 16-30, but even witha 9% return, I come out ahead (net
worth) wise investing... so I plan to invest. The extra payments
narrow it down from 30 years to 26 years, so saving 4 years of
payments does not appear "valuable" to me right now.

Paying off is like compounding in reverse small early pre-payments can
make a larger difference than later, larger pre-payments.

Read the fine print on these interest only mortgages.
Most are reverse-amortization. That is the difference
between interest only and amortized portion is added to
the principle. And when the princple reaches a certain
amont, typically 110% of initial loan, the interest rate
resets higher. Very scary.

"Slain" <Slain.k[at]gmail.com> writes:

- quote -

Think of it as an asset allocation decision. Paying off your mortgage
is essentially a fixed-income investment returning whatever your
interest rate is. It's 100% risk-free, but it's also a very illiquid
investment. If you need to tap into that money at some point, you'll
have to refinance or get a HELOC, perhaps at a less favorable interest
rate than you can get now, and if you need the money because you're
unemployed or having other financial troubles, you may find it
difficult to get a loan.

You might be able to get a higher return over the long term by
investing in equities instead of your mortgage.... but what happens
if you need to sell unexpectedly and both the real estate market and
the stock market are down?

-Sandra the cynic

"Slain" <Slain.k[at]gmail.com> wrote:

I don't know the answers, I'm just starting out in this whole financial
planing thing but I have some questions...

- quote -

How much is this convenience costing you? Presumably you could have
gotten a lower rate if you had gone with a 15 or 30 year fixed without
this convenience...

How long do you plan on living in the house? Five years at interest only
isn't much better than renting the way the housing market is right now.

Slain wrote:

- quote -

I don't see a rate, it sounds like some type of variable mortgage, no?
Is it actually fixed for the full time, but interest only for 5 years?

Not knowing your age or YTR (years to retirement) or your tax bracket, I
would say that it's not clear. An average 10% over the terms of your
mortgage isn't as likely as some hope. I've seen much evidence that the
next 10-20 years lean toward an 8% average. If your mortgage is even 6%,
then you are still risking being behind in the bad years. Since you say
you just refied, you might have been better off taking a 15 or even 10
year fixed rate fully amortizing. I would want to better know the
numbers (both int rate and your marginal tax rate) first before
committing. Then, still, how you're fixed for other parts of your
finances, 401(k), IRA, etc. All that would change anyone's answer.

JOE

I think that fully contributing to your Roth IRA is the first thing you
should do for sure. Over the years the compounding of this investment will
outstrip your savings in paying off your home.
It also gets you into the habit of putting money back for the future.
I would pay as much as I could toward the house after I had contributed to
all tax savings investments like the Roth IRA, SEP, 401K or whatever you
have available.

"Slain" <Slain.k[at]gmail.com> wrote in message
news:1175265489.383733.109480[at]b75g2000hsg.googlegroups.com...
- quote -

On Mar 30, 3:02 pm, "Slain" <Slai...[at]gmail.com> wrote:
- quote -

Assuming the interest rate on the mortgage is relatively low (< 6%), I
would be in no hurry to pay it off. But I also wouldn't let it go
indefinitely. I think a pretty good goal is to have the mortgage paid
off by the time you retire. That significantly cuts down on your
income requirement post-retirement.

- quote -

10% is a good estimate only for long-term investing. Of course, you
can never count on that return, but for time horizons of 10-20
years... it's a good bet.

- quote -

Please don't think that paying interest just to get a tax deduction is
a good thing. It's not. I think the best way to look at the
deduction for mortgage interest is as a reduction of your interest
rate. You can estimate your effective interest rate as

r_eff = (1 - r_tax) * r_int

where r_eff is the effective interest rate of your mortgage, r_tax is
your marginal tax rate and r_int is the nominal interest rate of the
mortgage. For example, if you're in the 25% tax bracket and the
interest rate on your mortgage is 5.375%, your effective interest rate
is:

r_eff = (1 - .25) * 5.375%
4.031%



--Bill

I have about 200,000 left on my mortgage principal. I just refinanced
where in for the first 5 years I am just paying off the interest. I
did this so that I would pay at my own convenience towards the
principal.

My confusion is if I should just put huge chunks of money towards the
principal and pay it off in 10 years or should I rather invest the
money?

I can still pay some towards the principal and some towards investing,
but was wondering if it would be a better idea to put most of that
money towards the prinicipal than investing?

I am assuming that investing would give me a return of about 10 %
( Too optimistic??). Also the tax deductions from paying interest on
mortgage.

Please advice.