Tuesday, April 12, 2016
Okay, all you financial whizzes, let me run something by you
Disclaimer: Money talk ahead.
When my mom died a few years back, I inherited a bit of money. Let's just say it's more than fifteen thousand, and less than twenty thousand. Okay?
I promptly invested that money in an investment fund, a mix of stocks, bonds, and overseas investments with a "moderate", middle-of-the-road strategy - nothing too risky.
The damn thing's been losing money ever since. Nothing much, but it's two years on, and instead of making money, I'm down by a few hundred bucks. The fees are eating up any gains that I make.
So what I'm thinking is, instead of letting that money sit there and stagnant, hoping that at some point the fund will turn the corner and start earning me some interest, I should take that money and pay down my mortgage.
My mortgage interest rate is currently 5.75%. I've been paying extra on the principal every month for the past couple of years, and if I continue at that pace, I'll have the thing paid off in eight years or so. If I take the money out of the fund and put it against the mortgage, I'll have the mortgage paid off much, much quicker. (If I put the fund money against the mortgage, it'll bring the remaining mortgage down to 14K.)
But!, you say. Your job situation is not stable! Yes, that is true. HOWEVER, I do have other savings, which will carry me through if necessary for several months until I get find another position, and in the meantime, I feel like I would sleep easier at night knowing that my mortgage was practically all paid off, PLUS the fund money, instead of making me zip-zero-nada, would instantly generate a return of 5.75%, or the interest rate on the mortgage.
I ran it by someone IRL who I trust very much, and they said it sounded like a solid plan. Now I would like to know: What do YOU think? Enquiring minds want to know.
(And I've been thinking about this for some time now, so no, it's not the meds talking. I've also been thinking about this since before the whole my-boss-is-a-lunatic thing, so it's not *just* the job situation talking.)
Let me hear it!
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6 comments:
Can you invest instead in a passively managed index fund? They have the lowest fees.
One assumes that this money you inherited was not the entirety of your retirement plan? (I ask, because a friend of mine is in his early 50's and *his* retirement plan is that when his father dies, he expects to inherit money. Having *met* his father a) his dad is going to outlive him, and b) his dad is unlikely to reward this type of thinking and I actually suspect the money will go to the grandkids...)
However! back to you! Even 20k is not going to keep you afloat for long if you don't have other retirement funds - and it sounds like you have your emergency fund (i.e. the I QUIT fund) that will keep you going while you find another job, should you walk out one day and never go back.
So, with that in mind, this money from your mom was not earmarked for anything else - if it gives you financial peace of mind to use it to pay down your mortgage - I'd say go for it!
The "trick" would be that once you pay off the mortgage - you then keep making mortgage payments - but to yourself - and to your savings accounts, building up that savings account quickly.
I am definitely a fan of paying off the mortgage asap, though - totally biased :) My mortgage runs till 2043, but I am beating up that sucker and plan to wipe it out by the end of 2020!
You definitely should do something other than leave the money where it is. Like the Queen, I am a fan of big name no-load indexed mutual funds, stock only. Bonds are paying next to nothing these days. The market goes up and down day to day, month to month, but since 2008 it has been generally up up up. You should absolutely NOT have been losing money over the past several years! Something was very very wrong there.
If you are comfortable with paying down the mortgage, and don't think you will need ready cash any time soon, then do it. After Jay died, I immediately paid off the mortgage out of his life insurance, not because it made financial sense, but because I just didn't want to worry about it any more. And it felt good.
I think you would be a fool to listen to anything I might say about finances. So I won't say anything except that it's a good problem to have.
The money used to pay down the principal of your mortgage is a guaranteed investment of 5.25% unlike the crap shoot of the other investment. It depends on your comfort level and desire to be free of your mortgage.
Thanks for all the advice, guys. I contacted the investment fund and told them to write me a check, yo. I'm going to put the money against the mortgage, simply because it will make me feel more comfortable knowing that the amount remaining on my mortgage will be less than a used car loan. :) Financial security FTW!
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