TransWorld

I have outlined it, above. If you make an average of 8% in investments and pay 3% in mortgage interest, doing that for as many years as you can makes the most money you can. It is not the optimal to take some middle ground. Talk to people who have been financially successful, or CPAs, and they can show you the detailed numbers that back up what I am saying. I have experienced it first hand, over many years.

For those that purchase rental property, when a property is say 40% paid off, the wise thing is to refinance and buy a second property, with both 20% paid off. There are tax advantages and returns for rent from two properties that are greater than from just one. Something things are different than on a primary residence, but it is along the same lines.

TransWorld

Have you seen a Monte Carlo simulation (described above) of returns on your assets from 1925 to current? (Before 1925 there is not good stock market returns data.) Yes, you can cherry pick, but including the worst, best, and everything in between you get a 8% return as the expected average return. Indeed, the bell shaped distribution shows returns from lower to higher, but wise conservative withdrawal rate (I use 4% of my assets) results in a good cash flow to pay the mortgage and other expenses and a very high probability (> 98%) of increasing the assets over time. That is based on the assumption I will leave an estate at age 100, when I die.

Yes, past retirement age, unless my time horizon is to cash out and spend it all in the next few years (me or my estate/descendants), the wise thing is to be invested in stocks. Not high flying, flash in the pan, but a wise portfolio of stocks that beat the market averages by two or three percent per year (mine have).

What I have said is not just me sucking out of it out of my thumb. I have received education from the firm that manages much of my portfolio. They manage $200 Billion of investments of high net worth individuals. They have been doing this for more than 40 years. I also read the Wall Street Journal and other books and periodicals to educate me. I still learn things, but have solid core of investment knowledge.

BoilerUP

Again...

Smart money and "the math" says the prudent rational decision from an opportunity cost perspective to pay a lower interest rate and obtain a higher percentage return.

Like most things in life, however, humans are rarely completely rational. Emotion controls practically everything we do, especially with regards to money. To compare the decisions we make with our money to flying an airplane is kind of ridiculous; we pilots don't normally gamble with career decisions that could result in loss.

I max 415c limits and earn a defined benefit. By paying off my mortgage early vs. investing in the market, I'm trading probable gains worth low six figures over the next couple decades in exchange for a known elimination of monthly debt service and the financial freedom that provides in a more immediate term. I know the cost/benefit of my decision and have made my choice accordingly, but that doesn't mean the decision right for me is right for anyone else.

Nobody taking either path should end up as a Wal Mart greeter...

135tankerdriver

Please answer my question is it not a middle ground between paying off your mortgage early and investing and if not what is?

BoilerUP

Yeah, it really doesn't have to be an either/or between "Dave Ramsey" and "Use debt to build wealth".

TiredSoul

True, however the market is legalized gambling and the concept that debt is somehow beneficial (use debt to make money) is really twisted when you think about it.
Friends have bought a car with 0% financing, now that is free money and any return will beat it.
After 2008-2009 we were underwater on the mortgage for about 10 years. Now a house down the street sold for stupid money a month ago , $359k with an asking price of $395k.
It’s smaller then ours.
No way that house is worth that kind of money in 3-4 years. So unless you really came in at the bottom of the market (and how many of us really are?) going underwater on your mortgage really kills your 8% return.
This is where it gets so convoluted for us and that’s partially why we’ve decided to pay off.
We understand paid off, we understand debt free, we don’t understand the intricacies of debt-to make money, we can just barely identify some of its pitfalls.

SonicFlyer

No, not if you do it right.

It takes money to make money. Debt on 'cash flowing' or appreciating assets, again if done right, is a net positive.

tnkrdrvr

The market isn’t legalized gambling any more than choosing a career airline is. You are placing your money on the future of the American economy when you invest. If that future is grim, owning your house free and clear may not be much of a panacea either. That said, it is comforting to know that you have reduced your number of landlords from the bank and government to just the government. Unfortunately, that’s the one that can change the bargain at will.

My plan was always to have a paid off house when I retired from the USAF. After selling one rental house as I retired, we had the cash to pay off a house we had custom built back in 2004. Unfortunately, my new job was on the other side of the country and commuting was not what I wanted. So…I bought another house in domicile and continued renting the custom home. Fortunately, interest rates have been stupid low. As a result of that low rate and inflation, I will be paying off that loan at a steep discount, even if inflation stops tomorrow. Thanks to our strong union (IPA), my income will likely at least keep up with inflation over time.

All that to say, I may make knocking out that mortgage a priority after upgrading, but my number one priority as an FO is to build my future independent income by maximizing my 401K, HSA, and B plan. If you have income you will always have options. Unfortunately, owning a home in our country doesn’t even guarantee you will have a place to live since the government can jack up property taxes beyond what someone on a fixed income can afford.

TiredSoul

Well a home paid off is an investment if you’ve done it right.
The opportunity that it now offers is that as long as you don’t touch it, just leave it alone, you can start ‘riskier’ investments with whatever you’re able to put together without the chance of loosing your home when everything goes sideways.
Best comment above has been that there isn’t a one size fits best for all.
What sometimes scares me is if I hear what some people have on open notes, like everything is built on debt. Loss of a significant portion of their income and they stand to loose everything.
I think as a complete noob I’ve done alright.

SonicFlyer

This is a horrible way of thinking for several reasons. And lots of people make this mistake.

Unless you're in the business of real estate, a primary residence should not be thought of as an investment, but as a consumer item. Investments generate revenue (like a business). Homes usually appreciate over time, but not as much as the market does. And in some areas they actually decrease in value.

You're best off buying the cheapest home you can afford and then properly investing everything else you would have otherwise spent into the market over the long term. That is rock solid... except of course in a situation where there is nuclear war, a complete societal collapse, etc.