The Stock/Investment Thread

[wiggin]

Actually, pardon the double post, but my own dilemma-

Due to an unfortunate death in the family, I was left a bit of money a few years ago. This money is currently invested in the stock market, so basically I got possession of a few mutual funds. If I sell all of this, I could pay-down 80% of my mortgage. Obviously, I would still have some other cash and investments but substantially less than right now.

I'm tempted to pay-off as much of the mortgage as I can, then skim the budget a bit over the next few years to pay the whole thing down. My hangup is that it would take me a few decades to make-up this money, and I wonder if it's best kept invested with a long-term horizon in diverse assets. That said, with the status quo I am basically betting on a long-term stock market return in excess of 4% while still paying interest on a mortgage. On the flip side, selling the assets and paying-down the mortgage is doubling-down on the real estate market.

My gut tells me to not pay-off the mortgage, but I just hate hate hate debt.

In general I would agree with your gut on this one. I think that assuming a greater than 4% return on stocks over the long term is a pretty safe bet - especially when you take the tax write-off into account on your mortgage interest. Furthermore, moving most of your assets into a single, highly illiquid seems like a bad idea. Just my two cents; everyone's risk tolerance is different.

[Dreadnaught]

The prospects are fairly/very good. A lot depends on whether our Mayor breaks the city.

As for timeframe, 3-5 years seems reasonable. Then again, I could have the option of renting it out. In which case, paying down the mortgage would help improve the cashflow from rental income.

[Timbuk2]

Thanks for the responses guys, and wiggin for taking the time to make your comprehensive reply.

I'll make an approach in the next couple of weeks, and take your advice on board.

[DecoyMilk]

Decided to venture into this thread, seeking advice.

Now that I've moved house and paid off all unsecured debts, and have a new job with a 25% salary hike, I've got (and should continue to have) spare cash with which to invest.

I am a total newbie when it comes to this. The most investment I've done is Shares Purchase schemes offered at the banks and insurance companies I've worked for.

~

So how would I start?

It's going to be small-time to begin with - a few hundred pounds to get me going. Then as I find my feet and familiarise myself with the market and its movements, I'll start to invest more with growing confidence.

I imagine I'd be best going through a broker? Suggest a spread of high, medium and low risk investments, and see where that takes me, and where I find the most suitable returns?

Any advice welcome.

Firstly, get yourself a stocks and shares ISA account set up. You can put £11,520 into a S&S ISA, and it is completely exempt from Capital Gains Tax. Outside of an ISA, you have a personal allowance of £10,900, after which you need to pay CGT.

Also, outside of an ISA, you pay 32.5% tax on dividends, but only 10% inside it. It absolutely makes sense to do this.

You can set one up with most brokers, such as TD Waterhouse, Hargreaves Lansdown etc.

I've been looking into doing this for a while, but I won't be doing any investing until I've paid off my last loan and am more comfortable. I do read a lot though. I'm a trader at work (Commodities, not stocks) so I try to do research when I can. Read books, lots of them. Watch the markets, get a feel for what's going on. Trade on paper first, don't just plough in. If you're considering investing, read their history, learn their plans and strategies, what are their risks? Stick to companies or an industry you're interested in, at least at first

[Kazuha Vinland]

As a tech-head, Sony is going to get an abrupt upswing the coming year. Will probably be worth investing in.

[Wraith]

I haven't been following closely; what makes you expect an upswing?

[Kazuha Vinland]

PS4 is doing well, but more importantly, there is about to be a throne change in the phone business. Samsung Galaxy S5 has disappointed, become less stylish, while Sony Z2 has become more stylish and trumphs it in most specs. Both nerds and hipsters alike will most likely jump on the Sony wagon this year.

[wiggin]

I'm very skeptical. They are a big company and lots of business units are underperforming and likely will continue to underperform for a long time - notably TVs. PS4 sales are reasonable, but I question how much that will affect their bottom line. Entertainment and music are money makers, as is their finance arm, but most of their other units are making little if any money. They just hived off their PC business (good move), and I'm not convinced they'll be able to push their mobile business to get the scale and customer base they'll need to succeed.

Yes, Sony stock has been hit hard lately (so it might be undervalued), and yes, they have some tailwinds - e.g. the devaluation of the yen - but the company has a very rocky future until they can slim down and concentrate on profitable businesses.

[GGT]

Actually, pardon the double post, but my own dilemma-

Due to an unfortunate death in the family, I was left a bit of money a few years ago. This money is currently invested in the stock market, so basically I got possession of a few mutual funds. If I sell all of this, I could pay-down 80% of my mortgage. Obviously, I would still have some other cash and investments but substantially less than right now.

I'm tempted to pay-off as much of the mortgage as I can, then skim the budget a bit over the next few years to pay the whole thing down. My hangup is that it would take me a few decades to make-up this money, and I wonder if it's best kept invested with a long-term horizon in diverse assets. That said, with the status quo I am basically betting on a long-term stock market return in excess of 4% while still paying interest on a mortgage. On the flip side, selling the assets and paying-down the mortgage is doubling-down on the real estate market.

My gut tells me to not pay-off the mortgage, but I just hate hate hate debt.

Bull. If you truly "hate hate hate debt"....you wouldn't have taken out a home mortgage in the first place, let alone in a risky market like NYC. No, what you really wanted to do was buy into the mortgage and housing market without 'losing' money....and find a way to 'make' money from your residence.

That's why you asked the forum to help you decide between East and West coast job opportunities several years ago, too.

[Dreadnaught]

I got a home mortgage because I didn't have the cash on hand to buy a home.

Now that I have enough wampum to pay off a chunk of it, I'm considering it.

But please continue to opine conspiratorially.

[GGT]

I got a home mortgage because I didn't have the cash on hand to buy a home.

Now that I have enough wampum to pay off a chunk of it, I'm considering it.

But please continue to opine conspiratorially.

There's nothing "conspiratorial" in what I said. Now that you have enough income to pay off your debt obligations, you still hesitate to do so....because you'd probably lose the tax advantages that debt provides. And it's difficult to compare your current income with previous debt "investments", and tax consequences....because you don't seem to have any educational debt that changes your "financial recipe".

Correct me if I'm wrong about that. Are you still paying down college loans, or using educational debt as investment collateral?

[Aimless]

Unless your mutual funds are just the most amazing ones, and unless you get the most amazing tax benefits that keep your mortgage costs to a minimum (and probably even then), screw the funds, pay off your mortgage, siphon future savings off to other assets depending on what's best at the time.

I think that'd be the best way to get some more flexibility in case you have to go through any difficult times wrt your job/business/whatever. You'll reduce some of your more fixed expenses and have less on your mind.

[Loki]

How do you figure? He's probably paying ~4% interest on his mortgage, while the average market return is double that. I also don't see how putting hundreds of thousands into an illiquid asset adds to flexibility.

[Aimless]

How do you figure? He's probably paying ~4% interest on his mortgage, while the average market return is double that. I also don't see how putting hundreds of thousands into an illiquid asset adds to flexibility.

I don't know what his life is like right now, but there's a possibility there will be months or even years when he'll be able to appreciate having lower fixed expenses in the form of mortgage costs. He can choose to put the savings from paying off most of his mortgage into stocks or funds or whatever he likes, or use the extra cash on kids, women, traveling, paying off mob hitmen, getting a hair-transplant,

If the assets in question are in an actively traded mutual fund that will average a return of over 8% every year for the next few decades then wow everyone should have some of that good stuff

[Aimless]

Of course, if he doesn't have much else in the way of investments then I do understand the hesitation.

[Dreadnaught]

There's nothing "conspiratorial" in what I said. Now that you have enough income to pay off your debt obligations, you still hesitate to do so....because you'd probably lose the tax advantages that debt provides. And it's difficult to compare your current income with previous debt "investments", and tax consequences....because you don't seem to have any educational debt that changes your "financial recipe".

Correct me if I'm wrong about that. Are you still paying down college loans, or using educational debt as investment collateral?

You are plainly trying to suggest that I'm a person who wants to lower taxes who is getting a tax break from debt. Besides the fact that this isn't hypocritical at all, it's plainly not true.

The tax benefits are okay, but not game-changing. I would net much more money with no mortgage than with a mortgage tax deduction. My motivation has nothing to do with taxes and everything to do with cash-flow and my long-term financial stability, with a focus on the issues Loki and Aimless highlighted.

Unless your mutual funds are just the most amazing ones, and unless you get the most amazing tax benefits that keep your mortgage costs to a minimum (and probably even then), screw the funds, pay off your mortgage, siphon future savings off to other assets depending on what's best at the time.

I think that'd be the best way to get some more flexibility in case you have to go through any difficult times wrt your job/business/whatever. You'll reduce some of your more fixed expenses and have less on your mind.

How do you figure? He's probably paying ~4% interest on his mortgage, while the average market return is double that. I also don't see how putting hundreds of thousands into an illiquid asset adds to flexibility.

You're both right. But Loki brings up my most acute concern: putting a huge chunk of my savings into an illiquid asset (my home) when I'm doing okay with my mortgage right now and have plenty of other things/future-teen-laborers who can benefit from the security of my savings.

[Loki]

If the assets in question are in an actively traded mutual fund that will average a return of over 8% every year for the next few decades then wow everyone should have some of that good stuff

That is the average rate of return.

[Aimless]

That is the average rate of return.

Sure, but is it the average rate of return for Dread's present investments?

[Loki]

Well, if he sucks as an investor, he could just invest in an index fund.

[GGT]

snip




You're both right. But Loki brings up my most acute concern: putting a huge chunk of my savings into an illiquid asset (my home) when I'm doing okay with my mortgage right now and have plenty of other things/future-teen-laborers who can benefit from the security of my savings.

Your "savings" are a direct result of national policies that favored certain types of debt....beginning with your parents' and grandparents' generational debts. They likely used benefits as immigrants, minorities, or War Veterans. They had GI Education loans, and VHA home loans that put you in a sweet spot.

[Dreadnaught]

I don't think you understand tax deductions.

[GGT]

Sure I do. I don't think you understand how previous tax deductions/subsidies have influenced what you call "savings", or liquid/iliquid assets.

[Dreadnaught]

Well, I chose to re-allocate and remain invested which...turned out to be a worthwhile thing. The market last year went up far far more than I would have expected. I am still considering paying off my mortgage, but I'm also beginning to think that the flexibility of not having all my wealth parked in a home is preferable. Especially if I need to get a larger home because Child Services objects to kids sleeping in dresser drawers.

I got a very unexpected bonus at work, in honor of my capitalistic rapaciousness. I am considering rolling the dice a bit and trying Junk Bonds:

https://personal.vanguard.com/us/fun...FundIntExt=INT

My thinking is that I would love more income-producing investments. Bonds in the US are risky because prices may/will fall when the Fed raises rates. The one possible exception are junk bonds. I recognize this is riskier than most of my other strategies, but my time horizon here is long.

[Wraith]

I'm starting to feel bearish.

[Loki]

I feel dolphinish.

[wiggin]

Anyone have any thoughts on choosing a 529 plan? There's a whole lot of choices, and they all have fairly circumscribed investment options and a bewildering array of different fee structures. I'm looking for low cost and an index-heavy portfolio, along with ease of use. Tax considerations are irrelevant here since my state doesn't offer a rebate. Figure total investments will only be a few thousand dollars a year.

As for bears, bulls, dolphins, etc, I have long been uncomfortable with the market as is. Profits are extraordinarily high but starting to level off, suggesting high valuations aren't really that justified for a prospective P/E. Sovereign bonds are definitely a rube's game with the end of QE looming in the US (and, frankly, I trust the Japanese and eurozone bond market about as far as I can throw it). Chinese equities still have tight capital controls and massive policy risk (just look at the recent crash). There's really no good place to put one's money.

[Loki]

I'm just putting my money in a Russell 2000 ETF. I figure if something like that goes under, chances are the entire economy will be kaput, and my money will be worthless anyway. It does mean lower profits, but also much smaller risks.

[GGT]

Anyone have any thoughts on choosing a 529 plan?

Read the fine print. I considered a 529 when my kids were born, but it didn't have a contingency if they decided to attend university/college outside the state, or not attend college at all.

I wasn't keen on paying penalty taxes or fines, so I gave up on the 529 "adventure".

[Loki]

I'm sure wig will be a good parent and threaten to disown them if they decide to not attend college.

[GGT]

How is that being a "good" parent?