brandonhughes
New Member
Cash: $ 0.65
Posts: 3
Joined: 23 Jul 2006
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| Smart Suggestions Please |
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The Situation:
$59K left on a $70K mortgage. I refinanced to a 3/1 ARM a while back because we had planned to move. The realtor listed our house at $132,500. After being disgusted with what one has to pay to get just a simple 3br/2bth house we decided to stay where we are. (3/1 ARM is about to adjust in about 8 months). Current mortgage payment is $422 per month. I am considering refinancing to a 40-year fixed mortgage and lowering my monthly payment another $50 - $70. I don't really care if I never take down any principle on my mortgage. My money market will soon yield more per month than my mortgage payment + interest.
I have $14K in 401K. The wife has $14K in her 401K as well.
$71K in Money Market yielding approx. 3.5% - 4% a month ($213 - $284).
$1600 is added to Money Market on 15th of each month. Pay raises are added to this amount each year, ie next year i will change to $1800 on 15th of each month and so on and so forth.
We own outright 1.3ac of land in the Great Smokey Mountains (2005 appraised value of $38K.)
Household income of approx. $75K per year.
No credit card debt, cars are paid for and good for many years to come.
We are debt-free aside from the $422 per month mortgage.
We have no children and no plans to change that.
As you can probably deduce, I am a very conservative individual. My personal preference is to have full access to my money without penalty. Hence, the MM account. I believe we are saving enough to more than account for the fact that we do not add to our 401K's.
My wife is an engineer and I am a graphic designer. We like food and movies. Other than that we are not trying to keep up with the Jones'. Saving money is my favorite past time because of what I know people like myself have to go through to get it.
Has anyone had experience with online Money Market accounts that yield more than 4%? What about other investments that I may be missing?
My main goal is to make my money work as hard as possible given my conservative approach.
Sorry for the long post. Just want to be thorough.
Now for your chance to throw punches!! I know this situation can be better. I would love to hear your advice or suggestions.
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Sun Jul 23, 2006 9:11 pm |
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Kiaser
Senior Member
Cash: $ 43.05
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Joined: 12 Apr 2006
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| Re: Smart Suggestions Please |
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A money market only approach isn't safe, and in fact could be against your "conservative" approach. Just as coaster said, that money market account is barely beating inflation (at best). Sure, you've got a lot put into the account and like how liquid the money is, but you really need to spread that money around for something that can make a noticeable gain over inflation rates. In a money market you are at risk of the economy going on those big roller coaster rides (which is a guarantee that it'll happen) and dipping under inflation rates.
Like you've pointed out: you have zero debt, you don't live beyond your means, you're not try to upgrade your life to keep up with the jones, and most importantly you do not have any children. This leaves you open to a whole slew of opportunities to make great gains on your money at the expense of liquidity. Find your minimum safety preference on having available funds (and do consider you have far less financial obligation that most others) and then keep that in the money market account. Everything else spread through diverse mutual funds and, like coaster said, something that can provide dividend payouts.
As far as the mortgage goes, keep it IMO. It's a very low amount, not high interest, and can give you some tax deductions.
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Sun Jul 23, 2006 10:22 pm |
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brandonhughes
New Member
Cash: $ 0.65
Posts: 3
Joined: 23 Jul 2006
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I'm nearly speechless. Can someone translate this garbled muddle?
If you are going to reply.....how about english please.
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Mon Jul 24, 2006 12:36 pm |
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brandonhughes
New Member
Cash: $ 0.65
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Joined: 23 Jul 2006
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Coaster,
You have a good understanding of my interests. You have described exactly what I am bouncing back and forth in my head. It seems to me that I would be better off investing long term (15-20 years) and getting a much better overall return. I would be happy with a modest 8% return over 15-20 years. I am 31 years old right now.
I ask a favor. In regards to the spreadsheet you ran, one variable is missing. I would be adding approx. $27,600 per year on average as additional investments.
Can you please run again with this consideration?
I appreciate your insight and thoughtful response.
Jeff
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Mon Jul 24, 2006 2:52 pm |
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Kiaser
Senior Member
Cash: $ 43.05
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Joined: 12 Apr 2006
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quote:
Originally posted by coaster
I can do that. 
Running the same comparison with the following changes: starting at $71K (your current MM); and adding $27.6K per year at the end of the year gives: $869,865 at 4% and $1,371,727 at 8%. I tried taking a screen shot but after resizing to fit on the page here, the numbers are illegible. If you want to pm me with an email address, I can email you the worksheet (if you have a spreadsheet app than can read xls files.)
Looks like the choice is obvious, Brandon. Missing out on gains IS a risk.
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Mon Jul 24, 2006 7:39 pm |
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BlankenshipFP
Money Talk Advisor
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Location: Illinois
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Don't overlook the impact of inflation. Given the timeframe that coaster has run calcs on, consider that inflation will erode the value of your account: that $869,865 will be the same as $437,164 in today's dollars, and the $1,371,727 is worth $689,383 in today's dollars - and this is only assuming 3.5% inflation over the twenty years...
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Tue Jul 25, 2006 2:57 pm |
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Pegasus
New Member
Cash: $ 1.20
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Joined: 24 Jul 2006
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Brandon, Hi!
Just sent to you private message. Please reply me via PM or e-mail if you're interested.
Rgds, Phil.
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Tue Jul 25, 2006 3:19 pm |
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Blue Eyed Cat
Contributing Member
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Joined: 12 Jul 2006
Location: Central Florida
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In reply to your question about internet MM accounts. I have personal experience with Emigrant Direct which pays over 5% and I am very happy with them.
Regarding investments. I think getting into the stock market is appropriate. My suggestion is to take a small amount of your savings and invest it in the market--perhaps 10%. Then each time you save, put 10% of the savings into the market. Invest conservatively. Look into Mutual Funds that make you comfortable. Some ideas would be financial institutions (banks), energy, one that mirrors the market, REITS. Then keep track of how things go. As you become more comfortable in the market you might want to increase the percentage you put into it rather than CDs or MM.
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Sat Aug 19, 2006 7:05 pm |
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oldguy
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Location: arizona
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I like your approach on refi and a 40-year FR loan - the FR is important, you need to be certian of your money supply. (I do this with my rentals, it has worked well)
I understand your desire to keep control of your money, but if your comapny has "matching" you are leaving free money on the table - so be sure to contribute enough to get the max.
There is a tremendous deiffernce between investing in appreciating assets (such as index funds) and using savings products such as a MM. Using your numbers $71k + $27k/yr) in 30 years you would have $2.5M @ 6% and $8.6M @12% (not twice as much as you might expect - thepower of compounding). In either case, youcan see that it is much better to invest the extra money than to prepay your mortgage.
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Wed Aug 23, 2006 4:25 am |
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