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educate me 401-k

  1. #1101
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k


    Most of them. Yes.

    My local CU teases some pretty sweet deals. But there are so many strings attached I pass.

    YMMV, as with all this.

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  2. #1102
    Your Father csmutty's Avatar
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    Re: educate me 401-k

    Yeah you have to shop for deals at local banks.

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  3. #1103
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    Re: educate me 401-k

    Quote Originally Posted by nhbubba View Post
    Just one man's opinion. But that sounds pretty silly to me. 3.xx% on a 30-year loan backed by real-estate in the greater Boston metro area with all the sweeteners the Fed throws in on mortgages... why the hell are you trying to kill that? For the record I don't think Iglu is making the right move here either. I get it, being mortgage (and debt) free would be awesome. But at what cost? Building up investments and other assets now will pay dividends later. Or at least it has always been a sound move.

    I'd rather have $100k in vtsax and a $100k mortgage than nothing saved and no mortgage. But YMMV.
    I'm in the same thought camp. A fixed (low) APR mortgage is also a hedge against inflation. While I do pay extra monthly towards my mortgage, its only because I've maxed out all available tax deferred space, plus taxable, 529, HSA, etc.. The rationale for my extra payments is that it puts me on track to be mortgage free by my early retirement age goal.

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  4. #1104
    Super Moderator TheIglu's Avatar
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    Re: educate me 401-k

    If I had known the market was going to skyrocket, I would of refiíd my 30 at 6.5% down to 4% for another 30. But the recession was fresh in my mind and I wanted a paid off house at 40 to be my ace in the hole.

    At that point, I also didnít have the understanding or self control to invest responsibly. I would of been gambling and trying to make a buck by timing the market. 8 years ago me isnít the now me. The 10 year was my way to force a safe, conservative path towards financial stability.

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  5. #1105
    Soul Rider Paul_E_D's Avatar
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    Re: educate me 401-k

    A paid off home is only really a good idea if you are very wealthy, or if you are about to retire and take a big pay cut. I understand the young person's dream of no mortgage, but since it is most people's biggest asset, parking all of your savings in it has a huge opportunity cost.

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  6. #1106
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by TheIglu View Post
    I would of been gambling and trying to make a buck by timing the market. 8 years ago me isn’t the now me. The 10 year was my way to force a safe, conservative path towards financial stability.
    I think "gambling" is the wrong word here. But we've had this discussion.

    If the choice was pay down the mortgage vs piss the money away, I get it.
    If the choice was pay down the mortgage vs build up the retirement & other savings, I don't get it.

    Realize I'm speaking in generalities here. You have clearly done well for yourself. $35k in cash/liquid savings with a $1600/mo mortgage is a fantastic place to be in. I'm going to guess you're sitting on >18 months of expenses there. But typically I think paying the "minimum" on a low interest, 30-year fixed mortgage while building savings is a good approach. Some of ya'll seem more adverse to mortgage debt than I think you maybe should be.

    But then you know what opinions are like. Do your thing.

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  7. #1107
    Your Father csmutty's Avatar
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    Re: educate me 401-k

    Looking back now I wish I had gone for a longer mortgage term.

    But then again I might have seen that I had money and gone racing again vs increasing financial assets.

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  8. #1108
    Soul Rider Paul_E_D's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by csmutty View Post
    Looking back now I wish I had gone for a longer mortgage term.

    But then again I might have seen that I had money and gone racing again vs increasing financial assets.
    Yeah, there is a forced savings aspect to that. I'm a spendthrift, so it would likely be smart for me too. haha. But racing and travel are experiences that make a rich life for me. Money in the bank (or market) is not enriching to me. There has to be a balance, but I lean hard towards using money to gain memories. I have had friends who lean hard towards putting everything in the bank for retirement. They are no fun, and it's hard to maintain those friendships.

    Edit: take that last comment lightly, it's not totally true, but it feels that way at times.

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    Last edited by Paul_E_D; 02-04-19 at 12:39 PM.
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  9. #1109
    Super Moderator TheIglu's Avatar
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    Re: educate me 401-k

    I was on the path of extremes previously. Either spending like crazy on vacations/racing/flying/etc, or going through spells of not spending a dime. I didn't have the financial maturity to achieve my goals via budgeting alone. I was all too like a democracy; put far too much consideration weight on short term wants/needs, vs keeping the big picture in mind.

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  10. #1110
    Super Moderator TheIglu's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by nhbubba View Post
    I think "gambling" is the wrong word here. But we've had this discussion.

    With the lack of knowledge and self control I had at the time, it would of certainly been gambling for me.




    Back to the topic on hand:

    If you decided to hedge against inflation with $25k in cash, what would you put that into? I've now moved that lump into a Vanguard account and am thinking either bonds or a money market account.

    VBTLX - Total domestic bond market, 3.14% SEC yield

    VMRXX - Money Market account, roughly 2% return

    VMATX - MA tax exempt! (but really only beneficial for the highest tax bracket which is NOT me) 2.79% SEC yield



    I'm thinking VBTLX.

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  11. #1111
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    Re: educate me 401-k

    Quote Originally Posted by tsorfas View Post
    I also did silly things like advancement payments on my mazda 3 that has 0% interest. Like, why?
    Might be a long wait for an answer to this.

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  12. #1112
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    Re: educate me 401-k

    Quote Originally Posted by TheIglu View Post
    With the lack of knowledge and self control I had at the time, it would of certainly been gambling for me.




    Back to the topic on hand:

    If you decided to hedge against inflation with $25k in cash, what would you put that into? I've now moved that lump into a Vanguard account and am thinking either bonds or a money market account.

    VBTLX - Total domestic bond market, 3.14% SEC yield

    VMRXX - Money Market account, roughly 2% return

    VMATX - MA tax exempt! (but really only beneficial for the highest tax bracket which is NOT me) 2.79% SEC yield



    I'm thinking VBTLX.
    If you believe that interest rates will continue to rise then bond markets are a bad place to be as their value will drop as interest rates rise.

    Think of holding a bond like holding someone's mortgage, they agree to pay x% per year on a fixed amount. Say you acquire someone's 2% mortgage on $500k, then interest rates rise to 3%. Is anyone going to pay you 500k to acquire that mortgage now, given that they can write a similar mortgage paying a higher percentage? So you have to discount the price of the mortgage to offload it. Bond market works the same way. If interest rates move fast enough, you can actually lose money as the total interest paid to you may be less than the drop in value of the underlying note.

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    Last edited by Honclfibr; 02-05-19 at 11:07 AM.

  13. #1113
    Super Moderator TheIglu's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by Honclfibr View Post
    If you believe that interest rates will continue to rise then bond markets are a bad place to be as their value will drop as interest rates rise.

    Think of holding a bond like holding someone's mortgage, they agree to pay x% per year on a fixed amount. Say you acquire someone's 2% mortgage on $500k, then interest rates rise to 3%. Is anyone going to pay you 500k to acquire that mortgage now, given that they can write a similar mortgage paying a higher percentage? So you have to discount the price of the mortgage to offload it. Bond market works the same way. If interest rates move fast enough, you can actually lose money as the total interest paid to you may be less than the drop in value of the underlying note.
    Interest rates have been all over the place lately in the home mortgage world. Buddy of mine is mortgage top dog at a larger local CU, he hasn't seen a volatile week like last week in a long time.


    But, wouldn't the likelihood of a market slump increase with increased interest rates?

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  14. #1114
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    Re: educate me 401-k

    Right, neither the stock market nor the bond market is likely to benefit from rising interest rates. Whereas your yield on a money market account will increase. Though in recent history that just mean increasing from nearly nothing to almost nothing.

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  15. #1115
    Super Moderator TheIglu's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by Honclfibr View Post
    Right, neither the stock market nor the bond market is likely to benefit from rising interest rates. Whereas your yield on a money market account will increase.
    Hmmm, good point. Perhaps the money market fund is the right move. Plus the money is available RIGHT NOW if I decide to say fuckall to logic and make a stupid emotional purchase.

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  16. #1116
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    Re: educate me 401-k

    Yeah I certainly can't answer the question for you otherwise I'd be rich myself, just pointing out that while the bond market and money market tend to get lumped together in the category of "safe bets" during a stock market downturn, they actually have very different performance during periods of rapidly rising interest rates.

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  17. #1117
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k

    I don’t think there is any way to win right now.

    I think I’d also consider a CD ladder. Although it is possible I don’t know what I’m talking about.

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  18. #1118

    Re: educate me 401-k

    I vote for stupid emotional purchase

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  19. #1119
    Super Moderator TheIglu's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by nhbubba View Post
    I don’t think there is any way to win right now.

    I think I’d also consider a CD ladder. Although it is possible I don’t know what I’m talking about.
    Not necessarily win, just not lose. Or minimize loss. Right now, my loss is inflation.

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  20. #1120
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k

    Welcome to the club. We have dong patches.

    There is no obvious choice. Trade risk for rewards for convenience for risk again.

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  21. #1121
    Super Moderator TheIglu's Avatar
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    Re: educate me 401-k

    All these bond funds and money market funds are in the mid 2% range.


    Why wouldn't I just go do the CIT Bank route and get 2.45% APY on a min $25k balance? FDIC insured and everything.

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  22. #1122
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k

    Great question.

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  23. #1123
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    Re: educate me 401-k

    Quote Originally Posted by TheIglu View Post
    All these bond funds and money market funds are in the mid 2% range.


    Why wouldn't I just go do the CIT Bank route and get 2.45% APY on a min $25k balance? FDIC insured and everything.
    That's what I am doing now with a lump sum I need to keep liquid and accessible.

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  24. #1124
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    Re: educate me 401-k

    Quote Originally Posted by Honclfibr View Post
    Right, neither the stock market nor the bond market is likely to benefit from rising interest rates. Whereas your yield on a money market account will increase. Though in recent history that just mean increasing from nearly nothing to almost nothing.
    Interest rates and bond prices (and yields) move in opposite directions.

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  25. #1125
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    Re: educate me 401-k

    Quote Originally Posted by TheIglu View Post
    All these bond funds and money market funds are in the mid 2% range.


    Why wouldn't I just go do the CIT Bank route and get 2.45% APY on a min $25k balance? FDIC insured and everything.
    Just saw this, that's exactly what I did actually. Got about half of our non-retirement fund still in index funds, but the other half that's sitting I've got parked in CIT. With interest rates and the stock market in flux, it's a nice place to leave some money on the sidelines earning a few guaranteed bucks while you figure out your next move.

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