Where to invest?

[Mano]

Have a talk with Bain Capital investments. They can change your income to carry over interest from investments so you pay capital gains tax. You can lower your income tax down to 13 per cent. Sound familiar?

 

[rabbidrabbit]

Have a talk with Bain Capital investments. They can change your income to carry over interest from investments so you pay capital gains tax. You can lower your income tax down to 13 per cent. Sound familiar?

 

Why play politics?  Do you have any idea about what you are talking about?  15% tax is on dividends and long term capital gains.  This is money that you already have paid normal income tax since you earned it in some manner before investing it.

[DREDIOCK]

Have a talk with Bain Capital investments. They can change your income to carry over interest from investments so you pay capital gains tax. You can lower your income tax down to 13 per cent. Sound familiar?

 

I'd respond to this with facts. But that would get us a couple of rule violations

[eagl]

Check out Dave Ramsey's total money makeover.  daveramsey.com

He has a multi-step program that makes it "easy" to get and remain wealthy without a single gimmick, and he has good advice and rules on pretty much everything having to do with money.  I don't agree with 100% of what he says but most of what he says makes sense.

As for investments, he recommends a mix of growth stock mutual funds, some safe stuff like govt bonds so you can use your savings instead of having to wait for the market to come back up, and if you have the time to play with it, he personally dabbles in "sure thing" property and real estate investments where you get back at least 15% profit (if I recall correctly).  He won't buy property unless it is an awesome deal that he knows he can flip for a huge percentage profit, but he is willing to "go big" when he finds those deals.  For most people though, he figures that a good growth stock mutual fund will get you 10% over the long term if you get a fund that is well managed and has a long track record of good returns.  Pretty much everything else he scoffs at because even the "experts" lose sometimes and money managers get rich risking other people's money while betting their own only on sure thing investments.  He doesn't like gold except as something to sell if you have it, in part on the basis that inflation and govt interference ruin gold as a way to keep and build wealth.

The Dave Ramsey program is cheap and many churches or community organizations offer his classes for a pretty low fee.  You basically buy his courseware and the class is often free, depending on the location.  In my case I paid $85 for the books and the classes held in a church were free.

He claims that on average, people who follow his program no matter what their debt level is to begin with are debt free including their mortgage within 7 years.  Just imagine how you might live if you pocketed/saved every dime you currently spend on credit card bills and the mortgage...

[eagl]

More specifically to the original post...

1.  Set aside emergency fund of at least $1000.
2.  Eliminate ALL debt but the mortgage and work out a household budget that tracks where EVERY dollar goes.
3.  Put aside 3 to 6 months of living expenses for an emergency fund.  This should be easily available in an emergency but not part of your normal cash flow account.
4.  Once debt free except mortgage, 15% of income goes into retirement fund.  Max out employer matched retirement contribution, if offered.  Then max out any other tax sheltered retirement opportunities like IRA or Roth IRA.  After that, invest in growth stock mutual funds with a good long-term history of past performance, looking for at least 10% annual returns over the long term.
5.  Anything over that 15% goes towards a mix of kids school funds, paying off mortgage faster, saving up for big expenses like new car, vacation, etc.

[Gman]

Ok, in all seriousness unlike my first post, Eagl's advice is probably the best here.  I followed a similar plan from an early age and it payed off.  I saved a lot of my cash while working until I was 26, when I bought my first house in Calgary.  2700 sq ft house was about 190$k back then, and I put 50k down, and carried no other debt and payed off my credit cards every month.  I had a 20 yr mortgage at 990$ a month including my property tax monthly, and I put the extra cash I had like the OP has in his case on my mortgage every year, as I could put down an extra percentage without penalty yearly.  Putting an extra 5 to 10 thousand on the principal really cut down the time on the mortgage, and it's now been payed off for over two years.  The reason I was able to do this was following a very tight conservative budget, and this gave me extra money to invest in real estate.

I bought a 2nd house in 2005 for 300$k in Calgary right before the big boom of that year, and in only 15 months the value skyrocketed to over 500$k on that property, which I sold for nearly 175$ in total profit, which gave me enough to pay off my first home's mortgage after paying the tax on the profit etc, because I'd been paying down my 1st mortgage every year with extra money.

So my advice to the OP is follow Eagl's last post, leave about 15$k aside for emergencies, and put the remainder against your debt, and maybe invest a small amount in some type of investment.  I can attest that once your mortgage is paid, life becomes much simpler.  When all you have is property tax and utility bills to pay, your amount of disposable income swells very quickly and THEN you can really invest in some long term stuff.  I'm no expert on this at all, and would consult some type of pro as some of the guys in the thread have advised, but I DO KNOW that the quicker you pay down all your debt, mortgage included, the better off you'll be.

[rabbidrabbit]

I'm not sure if I'd advocate totally deleveraging if and only if, the Cost of Capital is at or under Inflation.  Say I have a house worth 500k and I now owe 350k on it.  I can mortgage it for 3.3% or continue to pay it down to zero over time.  What's my best path?  Well.... it depends on my personality but assuming I'm responsible. Historically cheap leverage favors me in the long term and functions as a hedge against inflation.  How so?  Well, if I can secure funding at a rate below the long term average of inflation then I now have the money as a liquid asset instead of inaccessibly locked into the property.  A fixed 30 year long term rate at 3.3% is at/below the long term inflation rate so Inflation is very unlikely to work against me over the 30yr term.  Far more likely than not,  my returns on my investments with this money I now have control over will exceed the float cost of <3.3%.  If inflation goes above this amount then it works to my favor by devaluing my remaining balance, hence it's cheaper for me to repay.  Leveraging isn't necessarily evil if the opportunity costs of what you can do with it are greater than the risk you will have more resources available to you in the long run.

[eagl]

rrabbit,

That is good technical advice but in practice most people actually end up using that as justification for remaining in debt forever, piling up more debt over time instead of reducing it.

Assuming a 3.5% inflationary period for the next few years, and a 3.0% mortgage, your debt is actually decreasing by around half a percent all on its own.  HOWEVER, people will take that to mean if they have additional cash, they can just spend the money instead of putting it against the mortgage and then they are somehow "ahead".  What they're really doing is giving themselves a 0.5% coupon on whatever it is they waste their money on.  Plus, that sort of bad reasoning also is often accompanied by equally dumb decisions like leasing or financing a car instead of just paying cash for whatever you can afford now, trading up later when more cash is available.

If we were robots, yea playing games with interest rates and inflation and other ways to make debt work for us would give people a leg up.  In practice, paying off all debts as soon as possible and following a realistic investment plan is the quickest and most guaranteed way to become and stay wealthy.

Again, imagine all the money you pay towards various debts remaining in your pocket, available for ANY use you can think of.  Save up for something.  Put away for retirement or kids college.  Save for a vacation or nice car.  Whatever.  That's what first generation wealthy people do, not play games with debt.  Debt is for suckers unless you're playing with other people's money.

[rabbidrabbit]

Agreed for the most part.  Cheap leveraging only works if you have the discipline to invest and save instead of squandering the resource.  Most simply lack that core discipline and thus we have a nation where a majority live nearly paycheck to paycheck with nearly maxed out credit  They are one bad day away from disaster and doomed to a life of debt servicing with no real resources to speak of.  They accumulate nothing over the course of their lives and are increasingly becoming addicted to grossly broken government entitlements.  It's a sad story of succumbing to weakness on a societal level.  Owing money at any interest rate above what you can get in return by conservatively investing is a fools venture.  You will always have a lower quality of life in the long run because all those things you do cost you more than if you just spent within your means. 

The case for leveraging comes with it a severe responsibility to exercise self control.  If you lack that then you should absolutely follow the Gordan Ramsey way of no credit cards and pay off your mortgage.  My contrary argument is only for those who can set aside and manage their own money with great discipline. 

 Credit cards:  If you know you lack the discipline then don't use them.  Paying interest on depreciating assets is going to leave you with far fewer assets.  Counter argument: Get credit cards that give you kick backs and pay in full every month.  For example, my Costco Amex gives me 4% on gas anywhere and lesser amounts on other products.  I paid no interest this year and will get back more then $600.

Mortgage or other leverage:  Simple math, what's the cost of the leverage and the opportunity cost of locking the resources in a illiquid asset such as a home?  If you can leverage out and have the discipline to  invest those particular assets carefully, you are hedging inflation and increasing your overall assets in the long run.  It all comes down to math and self discipline.  If you lack the discipline then you really need to use an absolute means of running your finances.  Any other path will be far more inefficient.

[eagl]

Heh, most people's eyes glaze over when you use terms like "opportunity cost".  Even many grads with econ 101 don't really understand it, because some professors teach it like a math problem.

That's what I like about Dave Ramsey's system...  Even an average joe can figure it out and actually make it work because he has it broken down into basic steps.  It isn't easy and for some people it is super painful to get started, but once the results start rolling in it becomes a way of life and all of a sudden people find themselves with thousands of "extra" dollars every year, or even every month, that they had no idea they could have.  It's like doubling your paycheck at the cost of eating at home and driving a cheap beater for a year or two.

Still, even though "most" people could do it, they still have to decide that it's worth changing their habits and that's where Americans, even as stupid and commie-liberal as we've become, remain hopelessly stubborn.  Americans never want to quit anything even when what they're doing is obviously stupid and destructive.  It pretty much defines a huge portion of the population.  Things our grandparents and great grandparents would never DREAM of doing, like borrowing money to buy a car, is now considered normal and suggesting that it is abnormal is considered a grave insult.  We pretty much suck and deserve what we get.

[BoilerDown]

I'm not sure if I'd advocate totally deleveraging if and only if, the Cost of Capital is at or under Inflation.  Say I have a house worth 500k and I now owe 350k on it.  I can mortgage it for 3.3% or continue to pay it down to zero over time.  What's my best path?  Well.... it depends on my personality but assuming I'm responsible. Historically cheap leverage favors me in the long term and functions as a hedge against inflation.  How so?  Well, if I can secure funding at a rate below the long term average of inflation then I now have the money as a liquid asset instead of inaccessibly locked into the property.  A fixed 30 year long term rate at 3.3% is at/below the long term inflation rate so Inflation is very unlikely to work against me over the 30yr term.  Far more likely than not,  my returns on my investments with this money I now have control over will exceed the float cost of <3.3%.  If inflation goes above this amount then it works to my favor by devaluing my remaining balance, hence it's cheaper for me to repay.  Leveraging isn't necessarily evil if the opportunity costs of what you can do with it are greater than the risk you will have more resources available to you in the long run.

Winner.

Also, here: http://www.fool.com

[ghi]

I would try to renegotiate the mortgage interest, 5.25% is high for today market; i'm paying 2.9% closed 5 years, ( i'm in Canada, not sure how the rates are in USA, but most of the Canadian banks have branches in USA). Maybe 10 years ago , the future was sunny, i would have payed  40K$ vs mortgage, ...not this days. The difference in monthly payment for 160K$ is going to be maximun 150$ less/ month ,  won't make big difference in family budget. This fiscal cliff, slow world economy, huge national debt all over the world ... makes large corporations keep 100s of billions in banks without reinvesting:
"Statistics Canada numbers show Canadian non-financial corporations with a cash hoard of $526-billion at the end of the first quarter of 2012, an increase of 43 per cent since the recession ended in 2009." ... from The Globe and Mail.
 I'm  listening CNBC/ Bloomberg radio, i understand in USA is same fear to reinvest the capital, Apple Inc. alone is keeping over 100 billions cash and many more large corporations.   Why are this large corporatins with the best market strategists keeping the cash in banks, buying gold ?!- - uncertainty.  
I believe this global casino stock, bond markets could crash anytime; there's no way out of this mess without pain. Something will trigger a crash, it will happen swift in few hours; you'll see riots, people on the streets. I don't trust gold,banks to hold my money, retirement funds, stocks; From my bitter experience back in "89 in Romania when the system collapsed,inflation, unemployment, the small self sustained farmers made it essayer ,the rest skipped meals or eat dirt sandwiches. This is what i would buy  for 40K$; few acres of good farmland, with crops, some poultries, cow, goat, firewood, fresh water maybe move a mobile home if needed, and far away from big cities, MT,ND,SD,IA,MN. If you won't need it, lease the land or sell it, won't lose $$.
 

[zack1234]

If your asking on a flight sim forum about how to make money you should not be investing money

"Your investment might go up or down"

"Your new car might start or might not"

If a car dealership said that to you what would you do?

Is the recession we are in at present caused by daft people playing bigshot?

I bought a 45 record for £35 15 years ago, its worth £250 today and its garbage
I have lots of such 45 records 

Investments

[pervert]

FARRRKING GENIUS ZACK GENIUSSS 

[zack1234]

Perv is also my farcical advisor