Investing 102

[GregWeld]

I had friends over for dinner last night.... they have a 6 or 7 million dollar house here on Lake Washington... and a 2 million dollar house in Scottsdale... We have one house here - on the wrong side of the tracks... I have a 900K mortgage at 2.63%.... Gwen and I are retired... THEY are not and can't. I just got back from the Monaco Grand Prix... and a nice road trip to LA and up the California coast. I picked up the entire tab for three trucks and trailers - the rooms/houses/food etc... WE had a fantastic time. I picked up the tab because then I get to make the choices on rooms and food. I don't have to stay at "Mongos Beach Hut"....

My TOTAL monthly expense is around 5K.... that means that anything over that is purely discretionary spending. I'm living life to the fullest... my friends had to leave and get to bed because BOTH had to go to work in the morning. I wouldn't trade them for one minute. They think they're rich... I think their life sucks... They'll die owing... I'll die having done everything I ever wanted to do.

[Bucketlist2012]

That says it all. You are living the Dream..

I am Financially Healthy, and not Wealthy.. I had to retire due to health reasons at 50. My plan was 57 . But life had other plans for me.

But had I not prepared for years of being debt free and Invested, I would have lost it all the day I got Endocartitis and a Massive Seizure. Since I was on a path and a plan, all it did was put a dent in my Net worth and stopped my earning power..

So a lesson for those who are Investing and Planning..What if you have a catostrophic failure ? Are you ready ? Trusts/Wills, Portfolio ?

Your monthly nutt is quite low, Kudos to you..People would think your monthly nutt would be 20 grand or more...Well Done..

Oh and if I get healthy enough to get out to meet you guys, I need a few months straight of good days first, I would like to go on one of your adventures..I don't like camping at Mongo's motel...

[GregWeld]

On this trip - my brother in law and my sister trailered my Nomad and my other friends (Stan is 74) trailered their '32.... we tried to keep the hours behind the truck and trailer to a minimum and maximize the hours in the hot rods... worked out real well.

My sister - who doesn't have a pot to pee in - stated several times how much she was enjoying this little road trip..... to which I replied. Well then you know what? If you want to keep doing this stuff when you're retired... you'd better start thinking about the current "I wants" (she'd mentioned several times about buying a new car when she hasn't finished paying off the '06 300 they bought!) and start saving for your future. Every time she mentioned buying a new "F150" my blood pressure started to rise.... as I thought - yep - that's why you're broke...

[Bucketlist2012]

Originally Posted by GregWeld

On this trip - my brother in law and my sister trailered my Nomad and my other friends (Stan is 74) trailered their '32.... we tried to keep the hours behind the truck and trailer to a minimum and maximize the hours in the hot rods... worked out real well.

My sister - who doesn't have a pot to pee in - stated several times how much she was enjoying this little road trip..... to which I replied. Well then you know what? If you want to keep doing this stuff when you're retired... you'd better start thinking about the current "I wants" (she'd mentioned several times about buying a new car when she hasn't finished paying off the '06 300 they bought!) and start saving for your future. Every time she mentioned buying a new "F150" my blood pressure started to rise.... as I thought - yep - that's why you're broke...

Amen.

My sister trades in cars like underwear.. She has student loans from milking the government, and every known gadget from apple..She is money stressed all the time. She talks of trading in her 2011 SUV for one with more bells and whistles Her house is paid for, but she borrowed to remodel it..She put well over what it is worth and went from doing good, to underwater ????

Then my sister in law, who pushed for me to buy the mansion, lost her home, went to Italy, and talks of going back. She had a great camera , but bought a new one for 5000 dollars.. Her Husband is 50 with a pregnant daughter at home, and 40K in a 401K...He will work until he collapses.

But yet they ask me for advise and won't take it...Because I cannot give them a 500% return on their money...Then they get Jealous ????

[GregWeld]

BTW --- This thread isn't about "me"..... I'm already set. What I'm trying to do is to get those that aren't - to start thinking about how they might go about getting there!

Are you willing to trade your retirement years "in style" for a new car you don't really need - but just "want" - now? Or that bigger house you don't really need? Or the expensive trip to Hawaii over the moderate trip to So Cal?

The more I hear people say "well... I can afford it".... because they have higher incomes... the more I question them and say -- OKAY.... do you still want to be able to live this way when you have no job (retired)? And how much money do you think that will take?

Right now -- it takes a million bucks invested to "net" about 40 grand a year in income... So if you're making 100K a year - you now need TWO MILLION in the bank!

I just had a discussion with the buddy that handles my bond portfolio... I have a years worth (due 2012) rolling over in the next 6 months...so we were discussing what kinds of return I can expect. Ya know what? We're going to roll this years into bonds due 2019 and MAYBE I'll get 3% tax free.... Do the math -- that's 30 grand a year net off ONE MILLION BUCKS invested. Sucks but that's what it is! If you want super safe instead of A rated bonds - you can drop to well under 2%!

Now... it won't stay that way forever... but in order to get my money back I MUST hold until maturity... so that's dead money until 2019 folks. Think about that! In my book - that's a long time! Next years bonds will roll into 2020's and so on. I hope rates don't go DOWN between now and then!

[Bucketlist2012]

Greg..

Exactly.. I am trying to get the Wife to understand that.

I can spend a certain amount for life, or buy "wants", and end up broke.

People don't realize how much money it takes to live on after they stop working.

Another formula is you need 15 times your yearly salary, Invested to make it work. If you plan to live on less.

I am working on having 18 times my old yearly salary to make it work..

Right now it is tough to make money. I would love to lock in a CD at 11%.

[SLO_Z28]

Youd be surprised how cheap you can live if motivated, all my bills combined are $1300/mo. Even my dad lives quite well off $1000/mo social security income.

Anyways on to some planning, I can retire at 59 with 90% of my pension for the rest of my life(government pension, costs 10% of my salary), should I buy a house now and amortize the hell out of the loan by paying double the payment on a 15 year loan then put the entirety of my house payment into a 457(b), or just make regular payments on the house and pay the excess into my 457 thus reducing my tax burden. Basically im asking is it better to pay down a debt at 3% and gain equity and defer investing for 7 years(how long it should take to pay off a house), or invest for the entirety of those 15 years at the 457 maximum? If I invest the full amount into the 457 I can lower my federal tax rate to 15% (I have a 48,000 salary that when reduced to 43,000 by the 457 contributions drops me to a 15% tax bracket from the 25% im at now), so I would guess that the tax deferral would be worth it?

[Bucketlist2012]

Originally Posted by SLO_Z28

Youd be surprised how cheap you can live if motivated, all my bills combined are $1300/mo. Even my dad lives quite well off $1000/mo social security income.

Anyways on to some planning, I can retire at 59 with 90% of my pension for the rest of my life(government pension, costs 10% of my salary), should I buy a house now and amortize the hell out of the loan by paying double the payment on a 15 year loan then put the entirety of my house payment into a 457(b), or just make regular payments on the house and pay the excess into my 457 thus reducing my tax burden. Basically im asking is it better to pay down a debt at 3% and gain equity and defer investing for 7 years(how long it should take to pay off a house), or invest for the entirety of those 15 years at the 457 maximum? If I invest the full amount into the 457 I can lower my federal tax rate to 15% (I have a 48,000 salary that when reduced to 43,000 by the 457 contributions drops me to a 15% tax bracket from the 25% im at now), so I would guess that the tax deferral would be worth it?

Personally at 3%, I would not double down on the loan payment, and I would Invest that money.

That is without the tax reduction. With the tax reduction , I would for sure keep the loan and Invest the rest. That is an additional 10% for you in tax savings, and you should be able to get more than 3% on your Investments. IMHO.

Now we need our resident Math experts to chime in and share their thoughts..

[GregWeld]

With these low fixed rate loans available now - there should be absolutely no rush whatsoever to hurry to pay them off.... And what you really hope for is raging inflation so that your investments produce higher yields! If you're paying 3 and making 7 it's pretty no brainer to me.


Equity in a house really doesn't produce anything except peace of mind... because you have to live somewhere regardless. The only reason anyone wants a paid off house is to have it paid off at the same time you retire - to reduce monthly costs. But even that goes away if you have more than adequate income.

If you invest - and re-invest the dividends your investments should double every 7 to 10 years... and your payment will stay fixed... and over that same period your income should increase - making your fixed payment even cheaper.

So - save now - invest now.

[Lenie]

Originally Posted by GregWeld

With these low fixed rate loans available now - there should be absolutely no rush whatsoever to hurry to pay them off.... And what you really hope for is raging inflation so that your investments produce higher yields! If you're paying 3 and making 7 it's pretty no brainer to me.


Equity in a house really doesn't produce anything except peace of mind... because you have to live somewhere regardless. The only reason anyone wants a paid off house is to have it paid off at the same time you retire - to reduce monthly costs. But even that goes away if you have more than adequate income.

If you invest - and re-invest the dividends your investments should double every 7 to 10 years... and your payment will stay fixed... and over that same period your income should increase - making your fixed payment even cheaper.

So - save now - invest now.

Great thread, would love to sit and pick your brain one afternoon over a coke.