Investing 102

[sik68]

Man, this thread moves fast! Thanks for answering my loan interest questions above solar & greg!

[WSSix]

Finally made some progress on my end though nothing great. I moved the money in my Roth around so I'll be able to purchase the stocks I choose soon. Hopefully sometime towards the end of next week. I have to go blow some stuff up half a mile underground at the beginning of next week so we will see what the second half of the week brings.

Also, I found out I already have a brokerage account with Fidelity. Turns out that my ESPP plan simply takes money from me every pay check and then puts it into an account that twice a year then purchases company stock for me. The company stock is then in the brokerage account. The "ESPP account" is simply a holding account for the twice a year purchase of the stock. I thought the ESPP account was all by itself. So anyway, I can link a bank account to my brokerage account and purchase stock that way. Unfortunately, my 401k account can't be linked to a brokerage account. I'm stuck with choosing from a list of mutual funds. No big deal though, I get sweet company matches.

I'm also doing even better than I previously though in terms of money saved towards retirement. Good day overall.

[GregWeld]

Good for you Trey!


Hey -- from one guy that has blown up his fair share of stuff, to another... be careful out there!

Fire in the hole!

[XLexusTech]

I hate carrying Debt,,, 0 credit card debt, paid off the student loans.... have cash in the S&P 500, some basic Div stocks, MCD JNJ XOM. All DRIP's.... and some tax free Muni.. + ESPP @ 15 % .....

Have a home that's underwater.. a HELOC @ 9% interest .. which yields a tax deduction on the interest..... do I take some of the money and pay off the HELOC .. which will still leave the house underwater...... Nobody wants to help anyone with some money in the bank and current on thier loans... its BS.. a bad loan is a bad loan.. (BTW the HELOC is from the 80% 20% I got to buy the house... not from cash taken out...

[GregWeld]

So - We all know that the devil is in the details! Right? I mean - that's got to be the 3rd oldest saying in the universe!


So I was looking at all these "total return" numbers and trying to find the differences in calculations from one place to another... and I still haven't figured it out -- but something else has always bothered me on the Schwab website.

When you pull up a total return tab in Schwab -- it is accompanied with a chart showing the "hypothetical growth of 10,000" -- and I always wondered why the chart never quite "matched up" with the TOTAL RETURN numbers shown.

I mean - if 10 grand is shown growing to 15,000 grand over 5 years -- that's 50% growth - but the total return number might say it "returned" 100%...

I then actually read the "fine print".... the Total Return is calculated using reinvested dividends.... The GRAPH is only showing share price growth with NO reinvested dividends. Go figure.



The Total Return is the rate of return representing the price appreciation of a stock with cash dividends reinvested on the pay date for the most recent 1, 3 and 5 fiscal years.

This growth of 10,000 graph represents the growth of a hypothetical investment of $10,000. It does not assume reinvestment of dividends with capital gains.

[GregWeld]

Originally Posted by XLexusTech

I hate carrying Debt,,, 0 credit card debt, paid off the student loans.... have cash in the S&P 500, some basic Div stocks, MCD JNJ XOM. All DRIP's.... and some tax free Muni.. + ESPP @ 15 % .....

Have a home that's underwater.. a HELOC @ 9% interest .. which yields a tax deduction on the interest..... do I take some of the money and pay off the HELOC .. which will still leave the house underwater...... Nobody wants to help anyone with some money in the bank and current on thier loans... its BS.. a bad loan is a bad loan.. (BTW the HELOC is from the 80% 20% I got to buy the house... not from cash taken out...

Wow! What a great question!! Not sure I can answer it... but I will discuss "my" thinking about it.

#1 -- Your real interest rate depends on your income tax rate... So we can't do any real math -- and frankly -- for this discussion - we don't really need to.

#2 -- 9% is crazy stupid interest to be paying -- on the surface -- but that bigger number is also reaping a bigger tax benefit (see #1) so while the base number seems "stupid" -- it might not be as bad as you think.

#3 -- The house being under water really isn't as important as you think it is. Yeah -- it's under water now... and yeah -- nobody knows when the market is going to crawl it's way back... but eventually you're going to gain on that "deficit". And -- you have to live somewhere... so right now you're paying rent instead of making headway on the mortgage and building "equity".

#4 -- I wouldn't pull money out of savings or anywhere else -- just to put it on an underwater mortgage... UNLESS.... Unless you could refi the house and get a under 4% 30 year fixed rate mortgage -- that was going to allow you to put that money BACK in short order... and then continue to save every month from here out.

So if you could pay down the mortgage and get a new 80% mortgage you might be ahead over the VERY long run. Either way -- you're stuck in your house until the market rebounds.... Because in the end - you've still (currently) paid more than the house is worth regardless of the financing.

Does that make sense?

SO ----- you're making money --- probably at a faster rate -- on your INVESTMENTS than you are on your house rebounding (big if right now). The more you make on your investments the better off you are in the long run because of the compounding. And as those grow - and hopefully the house starts to gain some ground too -- the difference in the value of the house is shrinks. As it gets closer to what you owe -- and you have more CASH ASSETS you become a better credit risk... If your investments continue to compound -- you might be able to pull out far less to do a refi.

I think the biggest "item" here --- is that regardless of the interest rate - you're still sinking money into an asset that has no real value... CASH is king (cash is any salable asset in my book - and the house "isn't" one!)... and just to save a bit (not sure how much because we have no numbers to work with) on the monthly payment doesn't really help you out much... ya still owe the dough.

Ordinarily -- you'd say anything you're not paying out monthly is money saved and would be a good thing. But to try to fil a hole in a big bucket that you can't really fill up ain't going to do you much good. I think you're better off sitting tight and hope that the market starts to go your way.


So just a "real life" example --- I had bought a condo in Tempe area for the kids to live in while attending ASU... we paid $307K for it in 2007... the market since went south --- and I had paid cash for this property. I just sold it and closed last week... for $110K. It really doesn't make any difference whether I owned it - or was making payments or anything else... it's still a LOSS. Period. If I was living there and making payments... I'd be underwater -- but I have to live somewhere.... and I wouldn't actually be loosing the money (yet) - ya don't lose til ya sell.... And if the market came back to say $175K --- if I was to sell - I'd have lost "less"....

Now -- as above -- by having all that cash in the place -- I also had an "opportunity cost" attached to that money. I wasn't making ANY income off that money -- and there is a real cost associated with that. Had I been making money off the $307 - let's say I financed $250K.... and I'd have made 10% per year -- $25K - over the 5 years -- that's $125K (not compounded even!). Less the financing costs... and less the tax deduction for the interest rate paid etc... I think I'd have been ahead (not much) if I'd have made payments!

[toy71camaro]

Originally Posted by GregWeld

So - We all know that the devil is in the details! Right? I mean - that's got to be the 3rd oldest saying in the universe!


So I was looking at all these "total return" numbers and trying to find the differences in calculations from one place to another... and I still haven't figured it out -- but something else has always bothered me on the Schwab website.

When you pull up a total return tab in Schwab -- it is accompanied with a chart showing the "hypothetical growth of 10,000" -- and I always wondered why the chart never quite "matched up" with the TOTAL RETURN numbers shown.

I mean - if 10 grand is shown growing to 15,000 grand over 5 years -- that's 50% growth - but the total return number might say it "returned" 100%...

I then actually read the "fine print".... the Total Return is calculated using reinvested dividends.... The GRAPH is only showing share price growth with NO reinvested dividends. Go figure.



The Total Return is the rate of return representing the price appreciation of a stock with cash dividends reinvested on the pay date for the most recent 1, 3 and 5 fiscal years.

This growth of 10,000 graph represents the growth of a hypothetical investment of $10,000. It does not assume reinvestment of dividends with capital gains.

Good catch.. .i was wondering why the two didnt really jive together. but i didnt look THAT close at it. but knew something just wasnt quite right... thanks, now i know

[GregWeld]

Hey Albert! I've been investing for 30+ years and never figured it out... never took the time to actually look at it. You guys make me dig around for info etc with your questions -- so see there! You guys made ME learn something!!

[Sieg]

Originally Posted by Sieg

So I just opened another Traditional IRA last night to stuff $2-3K away for five or so years.

Any creative funding suggestions?

Cash.......boring

ETF's

One good Steady Eddie?

I'm tempted to fund it with PM or McD and watch what happens.

So here's my creative solution to funding the IRA. My 13 year old son has Chron's which limits many young kid activities, he's also TAG level IQ and an Xbox Modern Warefare or similar junkie. I don't love the Xbox addiction but the Chron's limits normal sports and outdoor activities to a degree so.....

He's very strong in math and memory recall so I decided I'b buy something he could relate to and turn it into a learning experience that will hopefully pay off in his lifetime. He's 13 I'm heading to 54 so he's going to need to cover his own butt earlier than I had too.

I stumbled across GME (Gamestop Corp) which is a company he is very familiar with. Besides being a relatively successful company that pays a 2.6% dividend they just announced they'll be marketing used Apple equipment so I funded the IRA with 100 shares of GME.

I came home tonight and sat him down on his Apple AirBook and we created his Yahoo account and stock portfolio with GME, DJI/S&P/NAS for him and explained in detail my reasoning behind the stock selection and the potential upsides of their new market venture so he can follow the "potential" growth of the investment and begin learning the world of investing and compounding at a "leveraging" age.

The best part of the whole experience was I manage to hold his attention the entire time. Then I took him to the Lat-G Investing 102 thread and explained how it all started and gave him some background on the gentleman responsible for it.

Hopefully the seed sprouts.

[XLexusTech]

Originally Posted by GregWeld

Wow! What a great question!! Not sure I can answer it... but I will discuss "my" thinking about it.

#1 -- Your real interest rate depends on your income tax rate... So we can't do any real math -- and frankly -- for this discussion - we don't really need to.

#2 -- 9% is crazy stupid interest to be paying -- on the surface -- but that bigger number is also reaping a bigger tax benefit (see #1) so while the base number seems "stupid" -- it might not be as bad as you think.

#3 -- The house being under water really isn't as important as you think it is. Yeah -- it's under water now... and yeah -- nobody knows when the market is going to crawl it's way back... but eventually you're going to gain on that "deficit". And -- you have to live somewhere... so right now you're paying rent instead of making headway on the mortgage and building "equity".

#4 -- I wouldn't pull money out of savings or anywhere else -- just to put it on an underwater mortgage... UNLESS.... Unless you could refi the house and get a under 4% 30 year fixed rate mortgage -- that was going to allow you to put that money BACK in short order... and then continue to save every month from here out.

So if you could pay down the mortgage and get a new 80% mortgage you might be ahead over the VERY long run. Either way -- you're stuck in your house until the market rebounds.... Because in the end - you've still (currently) paid more than the house is worth regardless of the financing.

Does that make sense?

SO ----- you're making money --- probably at a faster rate -- on your INVESTMENTS than you are on your house rebounding (big if right now). The more you make on your investments the better off you are in the long run because of the compounding. And as those grow - and hopefully the house starts to gain some ground too -- the difference in the value of the house is shrinks. As it gets closer to what you owe -- and you have more CASH ASSETS you become a better credit risk... If your investments continue to compound -- you might be able to pull out far less to do a refi.

I think the biggest "item" here --- is that regardless of the interest rate - you're still sinking money into an asset that has no real value... CASH is king (cash is any salable asset in my book - and the house "isn't" one!)... and just to save a bit (not sure how much because we have no numbers to work with) on the monthly payment doesn't really help you out much... ya still owe the dough.

Ordinarily -- you'd say anything you're not paying out monthly is money saved and would be a good thing. But to try to fil a hole in a big bucket that you can't really fill up ain't going to do you much good. I think you're better off sitting tight and hope that the market starts to go your way.


So just a "real life" example --- I had bought a condo in Tempe area for the kids to live in while attending ASU... we paid $307K for it in 2007... the market since went south --- and I had paid cash for this property. I just sold it and closed last week... for $110K. It really doesn't make any difference whether I owned it - or was making payments or anything else... it's still a LOSS. Period. If I was living there and making payments... I'd be underwater -- but I have to live somewhere.... and I wouldn't actually be loosing the money (yet) - ya don't lose til ya sell.... And if the market came back to say $175K --- if I was to sell - I'd have lost "less"....

Now -- as above -- by having all that cash in the place -- I also had an "opportunity cost" attached to that money. I wasn't making ANY income off that money -- and there is a real cost associated with that. Had I been making money off the $307 - let's say I financed $250K.... and I'd have made 10% per year -- $25K - over the 5 years -- that's $125K (not compounded even!). Less the financing costs... and less the tax deduction for the interest rate paid etc... I think I'd have been ahead (not much) if I'd have made payments!

Thanks.. Greg... ok Phase II... (your answer triggered this) I also have a Condo that I own same loan situation 80/20 underwater... the HELOC is at 8.5... Same situation.. i pay off the HELOC and its still under water.... I rent it out and have so for about 5 years...it just about break even annually... give of take a few hundred bucks..... do I pay off that HELOC?