Pay cash for your house?

The best way to give up your ‘day job’ is to watch my Live Show this Thursday @ 8pm CST (9pm EST / 6pm PST) at ….


We have dealt with the concept of how much ‘house’ you can afford while you are still working, but what about when you ‘retire’ (young … very young!); that is the question posed by Ryan:

Regarding “the number”. I know you’ve touched on this briefly before, but when considering a multi-million dollar home to live in during retirement, would you suggest putting in a number to rent or to pay for a mortgage? If for a mortgage, do we assume a certain percentage down? And what kind of interest rate can we assume we’ll get in 10-20 years?

We basically have three options when acquiring a house:

1. Pay Cash

2. Take out a mortgage

3. Rent

The rental optionn is actually not so dumb in the high-end bracket, as rents tend to fall way behind house prices (hence mortgage payments) … just check out what you can rent for $40,000 – $50,000 a year compared to what the same level of mortgage payment (assuming a reasonable deposit of only 15% – 25%) will get you.

But, let’s also assume that your idea of ‘retirement’ isn’t to pack up and shift houses every couple of years so that leaves us with paying cash or financing.

The first thing to realize is the fundamental difference with buying a house when you are working and when you aren’t:

When you aren’t working all the money that you have is what you have already manufactured …

… so, all you are doing by mortgaging or paying cash for a house is shifting money to/from your house from/to your ‘retirement nest egg’.

Let’s look at an example:

You decide that you need $100,000 a year to live off (before considering mortgage payments) but you want to retire into a nice $750,000 townhouse … your current house, after you pay back its mortgage will provide $250,000 of that, leaving you to ‘find’ $500,000.

Not exactly Ryan’s “multi-million dollar home” but it’ll do for the sake of this exercise …

Scenario 1 – Pay Cash for the House

Let’s see; we need:

a) $500k to pay the cash upgrade to the nice townhouse (on a golf-course, of course!)

b) $2 Million (according to the Rule of 20) to deliver $100,000 (indexed for inflation i.e. so next year it becomes $105k; and so on) living expenses.

So, we can afford to ‘retire’ as soon as we have built a $2.5 Million ‘nest egg’ …simple!

Scenario 2 – Borrow Money for the House

Now we need:

a) $2 Million (according to the Rule of 20) to deliver $100,000 living expenses

b) Another $1,100,000 (according to the Rule of 20) to generate the $4,500 monthly mortgage on the $500,000 townhouse balance (assuming 6.5% fixed interest for 15 years), plus $20k closing costs

Now, we have to wait to retire until we have built a $3,100,000 ‘nest egg’

But, it is actually a wash because we can afford to use the Rule of 10 on the mortgage payments rather than the Rule of 20 … why?

The mortgage is a fixed dollar amount: $4,500 every month for 15 years. If we consistently achieved 10% return on our investments, we would only need $540,000 set aside to generate the required monthly payment.

Then our total nest-egg would be $2,560,000 or a virtual ‘wash’ either way … but, this is heavily interest rate dependent:

– if interest rates are low and investment returns are high: mortgage.

– if interest rates are high and investment returns are low: pay cash.

Since you won’t know which way to expect the interest / investment markets to be aligned when you do retire in 5, 10, or 20 years, my advice is to plan to pay cash …

… calculate your Number using Scenario 1.

That’s what I did … then when I get the urge to invest a little of my home equity, I simply turn up the juice on the HELOC that I have sitting there ‘just in case’ and hop in / out of the investment markets as is my desire.

Is real-estate management time consuming?

Rick asks:

What about time commitment? What is a realistic estimate of hrs/year needed to manage a single rental property?

Well, I can only tell you what we do: we only have one property that qualifies as a ‘single rental property’, one little condo in a complex of about 16 units that we do not own, near the beach …

…. and, while we live in the USA, that beach is in Melbourne, Australia!

Also, it’s my wife who manages this one, so I asked her:

It takes about 2 hours per year.

Now, we have another residential property that is a quadruplex; it’s also in Australia and my accountant takes care of that one while we are in the USA.

I checked and it takes him less than 2 hours per month … at least, that’s what he bills me for, so the whole thing probably also takes him about 2 hours per year!

The secret?

Simple: we always hire property managers and get them to take care of everything:

1. Finding tenants

2. Negotiating leases

3. Handling repairs and maintenance

4. Collecting the rents

5. Paying the bills

Doesn’t it cost money?

Sure. 6% – 9% of the rental income (plus usually the first month’s rent for any replacement tenancy after a tenant leaves).

Would it be cheaper doing it ourselves? Of course: we could ‘pay ourselves’ that 6% to 9%, but then:

1. We would eventually suffer burnout. It can be very stressful handling retail tenants.

2. We would be trading (our) time for money.

Trading time for money is exactly the wrong way of looking at it: time is a finite resource; money is an infinite resource, why trade the finite one for the infinite one?

In other words, they keep printing money, but nobody is giving away more time.

So, every time that I can find an opportunity to ‘buy’ time with my money that’s exactly what I will do.

It’s why I give my shirts to the dry cleaners; my mowing to the landscapers; and my property management to the experts. It’s why I outsource practically everything to do with my investments, too – except picking the investments themselves, or managing any issues to do with risk.

If I didn’t outsource my property management, I would eventually stop buying real-estate because every property that I bought would add to my workload, and who wants to do anything that makes you have to work harder? And, I would eventually get what Dave Lindahl calls “tenant burnout” …

So, I may lower my return on each property somewhat, but I reinvest the ‘saved time’ into purchasing more investments … the whole shebang is much greater than the parts.

Jack somebody …

My 13 year old son sent me this YouTube video from “Jack Somebody” …

… it’s Jack Canfield (Chicken Soup For The Soul author) talking about the 4 steps to getting rich (I’m not so sure about Step 2).

Step 1 is what we have been covering for a number of weeks on, my site devoted to making 7 Millionaires … In Training! (and, as many of you as want to follow along!) as rich as they need to be.

Chicken Soup for your Wealth, indeed 🙂

Newsletters. Worth the 'paper' they are written on?

Ryan asks:

I’d like your opinion on investment newsletters such as those offered by the guys over at Tycoon Research. Is it possible to use this in your money making 201 phase. At the moment I’m still in making money 101 but I can’t shake the idea of leveraging someone else’s knowledge to make you money. Of course, as with all things, you should know enough not to be taken for ride.

This is a really easy one!

Does Warren Buffet:

a. Write about his stock picks and earn a fixed fee for each one that he publishes?

b. Invest in his stock picks on behalf of his customers and take a 1% ‘cut’ on the money invested?

c. Invest in his stock picks on his behalf (and, on behalf of the other shareholders in his own company)?

Let’s see:

a. Might produce $100k – $1 million per year revenue, depending on how many subscribers you can get.

b. Might produce $1 million – $100 million per year revenue, depending upon how much money you can get under your management.

c. Well, how much did we say Warren Buffett is worth?

Newsletter publishers are on the bottom of the wealth totem-pole, so I would give their ideas about as much credence as I would give to anybody who makes their daily living by giving you information.

I would only take my information from somebody who has already made 10 times as I want to make from doing the exact thing that I want to do …

… so, if you can find a newsletter publisher who fits that criteria (and, I’m sure they’re out there, for the same reasons that I’m here), then go for it!

Otherwise, you’re going to have to learn how to do research (BTW: much of what I’ve seen in the Tycoon Report that you mention falls into the ‘how’ category … I read it!), then do it yourself …

If it’s stocks that you’re interested in, you could do worse than start by reading Rule # 1 Investing by Phil Town.

According to this, I'm financially dead!

I came across this financial health check on an Australian government web-site, and I must admit that the test itself is sound  and you should try it NOW at this link before reading on …

dum di dum di dum [waiting music]

Finished already? It’s a quick one …

… did you see how it provided useful links to basic Making Money 101 reading material for any question where you may not have selected the ‘best’ answer? Nice, huh?

But, if you’re an avid follower of Personal Finance books and blogs, the answers may have seemed a little obvious … and, you may have even disagreed with a couple.

Let’s see:

As you know by now, my purpose for sharing this type of basic PF ‘wisdom’ on this site is to show you exactly why so-called conventional wisdom fails because it is almost always designed to deliver a conventional result … but, we aren’t satisfied with merely achieving conventional results, are we?!

So, here is the test – reproduced, with the most obvious answer bolded (I haven’t checked the test results to see if they agree … these just seem the most obvious answers to me) – but, I didn’t say it was the ‘right’ answer 🙂

I have added my comments underneath each question:

1    Do you save any of your money?
a) Yes. I try to put some aside for bills.
b) Yes. I keep a bit back from each pay because I am saving for something I want.
c) Of course I save, to pay for bills, to buy things I want, for a rainy day and for my retirement.
d) It would be nice to have enough left to save.

For me, the answer was None of The Above: since I have transitioned (almost) from Making Money 201 to Making Money 301, it is calculating the correct amount of ‘safe monthly withdrawal’ from my ‘nest egg’ that determines that I have enough for bills, to buy things, and for a ‘rainy day’, as I am already retired. Unfortunately, if you don’t do this calculation well (in my case, 7 years, but for most people 10 to 20 years) before your expected retirement, your nest egg simply won’t be enough to support your intended lifestyle.

2    Do you keep track of your money?
a) No, I have a life.
b) My bank statements help me do this.
c) I have a rough idea of where my money goes and where it comes from.
d) I have a budget plan.

I have a confession to make: I have NEVER kept track of my money. This is a fault but, contrary to conventional financial wisdom, actually not wealth threatening unless, one of the potential disasters (that  will point out in a future) post does occur. So, while conventional wisdom says to have a detailed budget plan that you should stick to, I have found that when I was ‘poor’ and when I was ‘rich’ a “rough idea of where my money goes and where it comes from” is sufficient.

3    How much do you pay towards your credit card accounts each month?
a) As much as I can.
b) I can’t always make the payments and sometimes use one credit card to pay off another.
c) The minimum amount.
d) I only borrow money for something I really need and when I am sure I can keep up the              payments.

The answer here, for me and for everybody, should be None of the Above: if you cannot pay your credit card balance off IN FULL each and every month, don’t use it. That was our policy through financial ‘thick and thin’ and it should work for you. As for borrowing to buy ‘stuff’ … don’t! I remember that we took ‘advantage’ of an interest-free purchase once …. it was a pain in the rear-end to keep up with the payments (they want you to, so that they can kick in the ‘fine print’ excessive interest payments) and we didn’t do it again … neither should you.

4    What would you do with a windfall?
a) Pay off my bills and put some money towards my loans.
b) Buy something I really need.
c) Save it.
d) Spend it.

The answer here is both All of the Above and None of the Above and deserves its own post; but, for now: Reserve whatever your accountant says that you need to pay any taxes on the windfall; then take 5% to 10% of what’s left and spend it like a crazy gorilla (go ahead … don’t be a miser); then if you owe money (on consumer loans), pay those down until there’s either no loan left or no windfall left (there are exceptions); then put aside 50% of the balance for investments; then pay cash for something that you really need (do you REALLY need that car? If so, go ahead and buy it!); then invest whatever is left. Notice that this only makes sense if you do it in this exact order 🙂

5    If you were in the market for a new car and loan what would you do?
a) Shop around for the best deal for both the car and the loan.
b) Take advice from a friend or family member.
c) Find a car I like and get the finance wherever I can.

None of the above: In ANY stage of my financial life I’d pay cash for less car than I want. Period.

6    Will you have enough money when you retire?
a) I am far too young to worry about this.
b) I have superannuation and I am pretty sure I’ll have enough when I retire.
c) I have made sure that I’ve got a plan and I know I’ll have enough when I retire.

Of course the answer is c) and we have the plan all laid out for you (the exact, same planning process that I followed) on … find it, read it, do it!

7    Would you be protected if your house burnt down?
a) I don’t know if I’m insured or not.
b) I am fully insured.
c) I have some insurance but I am not quite sure what is covered or the level of that cover.

Of course, your answer must be b), but, when you have enough money, why pay somebody else to carry the risk for you? So, while I was on my journey I carried a sh*t-load of insurance, including millions of dollars in life/trauma cover. Now, I carry a $20k deductible on my contents cover; full house/building insurance (a $1 mill. house fire would hurt at little); no personal life/trauma insurance – we do carry health insurance because with a young family we don’t know what will come up and it saves us carrying large chunks of cash … but, we could just as easily ‘self-insure’ this, too.

8    If you received a large bill for car repairs how would you pay for it?
a) Withdraw the money from my savings or take out a loan and work out the best way of paying it back.
b) With my credit card and pay it back sometime.
c) From a special account I keep for emergencies.

For me, the answer is always b) – plonk it on my credit card then pay the bill in full when it comes up … we always have enough cash on hand (not as an emergency fund) because it’s hard to be always fully-invested (in the current market, having cash on hand IS an investment!). My thinking for you, though, differs from the conventional answer that is bolded: I think the correct answer is a) and have already posted on this.

9    What would you do if you received a phone call offering you a chance to make big money with a new investment opportunity?
a) Take up the offer, no one becomes rich without taking risks.
b) Consider it carefully and seek qualified advice.
c) Ignore it. It is unlikely that anyone would make such a good offer unless there is a catch.

I think that most people would say b) but I think that the people who created this questionnaire agree with me that c) is the correct answer: by the time you see, read, hear, are told about, given a hot tip on, read in the tea-leaves, had a vision about ANY investment, it’s already too late for YOU to make money on it! Sorry, that’s just the way it works …

10    If you lost your partner are you sure your family would be OK financially?
a) My partner is too young for me to worry about this.
b) They will be OK as I have ensured that our finances are in order.

c) I am reasonably sure they will be OK as I have some insurance.

For most people the answer is a combination of b) and c) … from the way the question is written, b) is the ‘obvious’ answer, though. The only correct answer is b), though, as insurance becomes less and less important as you build up your own financial reserves … until you reach that point, insurance is really PART of making sure that your ‘finances are in order’ anyway.

Did you find it as interesting as I did that in many cases the ‘correct’ answer wasn’t even one of the options provided?

If you also noticed this – while you were doing the ‘test’ for yourself, and before I pointed it out – then you have a real chance to be an ‘unconventional financial success’, too 🙂

More on Emergency Funds …

The best way to give up your ‘day job’ is to watch my Live Show this Thursday @ 8pm CST (9pm EST / 6pm PST) at ….


Recently I wrote a couple of posts on Emergency Funds; my goal was to blow a hole in the standard “save a 6 month Emergency Fund” myth … that’s right: myth!

Most of the comments (and, they were really good) related to my suggested use of HELOCs as a possible replacement for 6 month’s cash slowly wasting away in a CD – and, I have just posted a follow-up to address this.

But, Meg comments from a slightly different angle that I think addresses the core of my original post:

I hate having loads of cash sitting around earning less than the rate of inflation. And I consider 3 months of expenses for me to be loads of cash. Plus I have tons of liquidity in the form of a total stock market index fund. This is from where I have drawn money when I totaled my car unexpectedly (ins only covered half the value of a comparable newer car), when I needed a down payment for real estate purchases, etc.

That has worked great over the last 5+ years of a bull market. But 2 weeks ago I was presented with an unexpected real estate investing opportunity, which I jumped on. I was of course going to put 20% down (to minimize the rate, avoid PMI, be conservative, etc). Then the market began its tumble. I was AGONIZING over the loss (it would still technically be a gain to sell, but still it sucks to sell at a market cycle low).

Then Meg, found a fortuitous solution:

Luckily for me I have a wealthy and generous grandfather who volunteered completely unprovoked to lend me the money for the down payment rather than have me sell stocks at a cycle low. He has plenty of money sitting in bonds and cash that he doesn’t have any better use for, I suppose, than to thrill a granddaughter with a 2.5% loan.

Lucky for Meg, indeed. But, an anti-climax for those of us who are not so fortunate!

So what would you do? Rich relatives aside, I see three choices:

1.  Put 6 Month’s cash into CD’s as an emergency fund

2. Put 6 month’s cash into an Index Fund and let it sit

3. Put 6 month’s cash into an Index Fund, sell at a 20% ‘loss’ to buy the real-estate

Now, these aren’t exactly comparable choices (we really need a table: do/don’t buy the property across the top, and CD’s/Index Funds down the side … and to be really fancy, we’d need a cube adding emergency/no emergency along the edge), but we can at least illustrate some key thoughts by examining them mathematically.

And, I will consider a 30 year investing horizon, because that allows me to guarantee an 8% return for the Index Fund (it will probably do better, maybe even 12%, but then there could be fees and commissions to consider).

Put 6 Month’s cash into CD’s as an emergency fund

If Meg is on $100,000 and paying 25% tax, she would need to sock away $37,500 to provide a 6 month after-tax salary emergency fund.

This might take some time, so let’s pick up at the point where she achieves this monumental milestone: over the ensuing 30 years, her salary will increase, hopefully at least in line with inflation (let’s average that to 4%) so she will need to keep topping up her Emergency Fund such that it reaches $117,000 by the end of the 30 year period (I didn’t increase her tax rate to 35% … I guess I should have).

Assuming that her CD’s keep pace with inflation – and, she doesn’t need to draw down on the fund at all during the 30 year period – she will have $247,000 at the end of the 30 year period.

Before you sing Ode to Joy on this, remember that the CD’s are just keeping up with inflation, so the $247,000 is ‘worth’ no more and no less than the money that Meg actually put away … there is NO investment here at all.

Now, CD’s actually bounce around between 3.5% (actually for a bank deposit with WaMu) and 5.5% in the current market (and, who knows what they will average over the next 30 years?), so Meg could technically get a point to a point-and-a-half above inflation, but we are only talking $90,000 ‘gain’ over 30 years, if she gets the max.

Put the 6 month’s cash into an Index Fund and let it sit

OK, now that we have the cash ‘baseline’ set, let’s see what happens if we ‘amp up’ the savings rate a little by putting our Emergency Fund into an Index Fund instead:

Assuming the 30 year ‘guaranteed’ return for the ‘large cap’ stock market of 8%, Meg will ‘gain’ $335,000, after her inflation adjusted deposits are factored out … or, nearly a quarter of a million more than the $90k gain that she made by putting her money into pretty much the highest-performing major bank CD’s out there!

So, that was the premise of the original post: is the ‘peace of mind’ of having 6 month’s cash put aside for emergencies ‘worth’ $250,000 to you … put another way, would you pay a $8,333 a year (that’s $250,000 divided by 30) to ‘insure’ yourself against an emergency – on top of the insurances that you already do pay?!

Now, the stock market has actually averaged 12% over all but two 30 year periods in 75 years of history so what would ANOTHER $900,000 do to your decision-making process?!

That’s why you find another way … any other way … to dealing with an emergency rather than wasting the earning power of 6 month’s salary!

Put 6 month’s cash into an Index Fund, sell at a 20% ‘loss’ to buy property

Now, so here’s where it gets tricky: would you sell down your stock holdings, at a potential 20% ‘loss’ to move to another form of investment?

Basically what we are saying is this: you don’t know when an emergency will crop up, so while a CD will at least keep it’s value – year in, year out – an Index Fund may return more now, but at some stage (Murphy’s Law says in EXACTLY the year that you need the money for some emergency!?) the stock market will drop 10% or even 20%.

OK, let’s see …

Let’s assume that we have been rocking along nicely, still working on our 8% returns then at Year 10, this opportunity comes up just as the market tanks to the tune of 20% … what would you do?

Well, firstly, we are going to assume that the market eventually recovers and we get back to our long-term 30 year average of 8% for the Index Fund (after all, there have been NO 30 year periods when this hasn’t occurred, hence my suggestion to use 8% rather than the oft-quoted long term ‘average’ of 12% for the market … this higher ‘average return’ just isn’t guaranteed). So, we are still talking $250,000.

But, if we divert our funds to the real-estate option after 10 years (and, let’s assume that we use all of it as a deposit after taking that one-off 20% ‘hit’), we would have a $1.2 Million net gain by suffering the loss and acquiring the property (assuming that we find one that averages only a 6% capital gain, plus some rental income).

Why the huge advantage to real estate?

It is the only leveraged investment that we have considered (for example, try running a margin loan on your Index Fund and see what that can do).

Also, keep in mind that we don’t stop ‘topping up’ our emergency fund after the 10 year mark when we bought the real-estate, we simply keep putting our salary increases aside after year 10, so we could afford another, smaller, property (say, a $350k condo) at year 20 that would boost the 30 year returns markedly, again.

But, if it’s now in the real-estate, how do we handle an emergency? Simple: with a HELOC or refinance or sell the investment if a real emergency arises and the bank calls your HELOC in.

And, if you think that’s all-too-risky, then keep your money in the Index Fund and forget about the real-estate idea …

Here’s what Meg would do:

I would never have counted on such generosity and would have still sold my funds for this RE investment.

So would I, Meg, so would I … now, what about the rest of you?

Just make a move!

I wrote a piece about the 80/20 rule: how 80% of the people do nothing. I then broke the remaining 20% who do ‘something’ into two sub-groups:

– The 19% who save, pay down debt, etc.

– The 1% who will strive for – and perhaps reach – the top of the financial totem-pole.

And, I believe that the difference between all of these groups boils down to one thing: propensity to take action.

Josh‘s question sums it up quite nicely:

I guess you don’t want to be one of those people who contract “paralysis by analysis”. I’m thinking the key here is to just make a move, even though it may not be most perfect move?

Most people fail because they either take too much action or not enough!

Too much action can be a problem, for example, when you chase the market and switch investments a lot; as the Dalbar study found:

During the greatest bull market of all time from 1984 to December 2002 the study came up with an annualized return of 2.57% [for market timers, who move in/out of investments chasing better returns] compared to 12.22% for those who bought and held an S&P500 index fund.

But, how much did those who took NO action make?


Clearly, taking some action is preferable to none … but, what of Josh’s second point: taking action even if “it may not be most perfect move”?

Life rarely presents us with a Final Choice Option …

…. when we take an action, we are usually free to take another! If you make a mistake, back-out as best you can and try something else.

I think of life in terms of a branching structure: at many stages – every day, hour, minute – we are standing at some sort of fork in the road and we have to take the left branch or the right. Somehow, we find a way to choose one:

a) If it seems to carry us to where we want to go. Fine. We stick with it (at least for a while).

b) If it seems to carry us away from where we want to go, we simply wait for the next branching opportunity and try something different.

For example, if an investment works we (should) stick with it. If not, we can always exit for a (hopefully) small’ish loss and try another … if we don’t the loss might increase and take us to zero (how about Enron?).

Of course, this is where it helps to have an overall destination in mind; it helps us understand what does represent the ‘right direction’ for each of us: sometimes, more than one branch appears to be sensible.

But, if you have a clear idea of your Life’s Purpose, all of a sudden only one of the branches may start to make more sense than another.

This helps to explain: where your Life’s Purpose goes, your finances will eventually and surely follow … either by direct route, or meandering, you will eventually find the road to what you deem to be success.

Why bother? Ric Edelman says that you already have it all …

I while ago I wrote a post gauging my own performance against the “Ric Edelman Secrets” …

I’ll leave you to go back and read the post and its comments as I think that they serve to show some of the differences between financial advice for the masses and the types of things that people who want extraordinary levels of wealth (if you’re reading this, that’s probably you!) need to consider.

In case you haven’t yet come across him or his books, Ric Edelman runs one of the country’s largest independent Financial Planning firms, so his firm has interviewed thousands of people looking for financial advice.

Ric says that when he (or one of his staff) asks the question of a new client “what are your financial goals?” the most common answers – by far – in this descending order of importance, are:

1. To buy a house

2. To save for (their kids’) college

3. To save for retirement

Now, here’s where I agree totally with Ric: these are not financial goals … they are inevitable outcomes!

Loosely paraphrasing Ric, here’s why:

1. Your house – you probably already have a house (most people do), and if you don’t, you won’t have to be prodded very much to go out and buy one – look at the sub-prime crisis to see how easy it can be to buy a house!

2. Your childrens’ college – if your children want to go to college, they will … one way or another, they will come up with the money. Sure you can improve on the situation by providing the funds to help them get into the college of their choice, but it’s a qualitative goal, not a ‘make or break’ in most cases.

3. Your retirement – you will retire … one day! Maybe not at the time, and in the manner that you would like to – but, you will retire (or die trying). It’s as simple as that!

So, why bother doing any financial planning when you already have – or will have – it all?!

Simple: it’s because these people haven’t yet developed a sense of their Life’s Purpose … to me that is the only goal worth aiming for … but, we have already discussed that subject, at length.

To each their own …

You’ve heard about the so-called Debt Free Revolution?

Suze Orman and Dave Ramsey are the most famous proponents of the pay-down-all-debt approach to personal finance.

But, just because something is called a ‘revolution’ doesn’t necessarily make it right!

… I’m sure that plenty of good French aristocrats also lost their heads during the French Revolution!

But, Money Monk was just voicing the view that’s it’s OK for debt-averse people, or those who know nothing about investing, to pay off their mortgages early when he said:

To each their own. In my parents case it was wise for them to pay off their mortgage because they have no knowledge of stocks and investments.

In my case it maybe be wise not to pay off my mortgage. Some people just like the simple no risk life. Younger people tend to take more risk because time is on their side.

Unless more people are educated about the market, many will go the debt free route because it take no risk

Firstly, if your parents were born in the US, MoneyMonk, they didn’t want a mortgage because they (or their parents) saw how the banks pulled mortgages to try and fund the run against their cash deposits during the Great Depression.

Their view was simple: “if I don’t have a mortgage, then the Bank can’t take my house away”.

But, this can’t happen any more. The bank can’t take your house away if you continue to make payments on time …

Secondly, having no knowledge of “stocks and investments” is no excuse: you can get that knowledge … even if it was a valid ‘excuse’ for your parents, it certainly isn’t the case today. Blogs such as your and mine are just one example about the sources of information out there today …

But, I agree: if time is running out, and you have less than 10 years left to retirement, then it’s probably too late – and too risky – to change course. The volatility of just about any investment over a time frame of a decade or less makes them simply too risky to bet your financial future on.

But, if you do have time on your side, then the risk is totally on the side of NOT investing. Because not investing guarantees a poor financial outcome!

And, if any of my readers think that getting a 6.5% – 8.5% after-tax return is ‘investing’ then they should be reading Pensioners’ Weakly instead of this blog 🙂