On Track — Optimistic, except we leased a car

So for the end of the year, everything looks to be on track. My prediction on my measure (long term debt – liquid assets) 240162 – 30100 = -60838 for the end of 2018. Under that measure, we are a bit ahead. 251,487 – 301,032 = -49,545. We probably don’t get to 0 by the end of next year, but it should be close.

Lately though I have been evaluating things on total debt – liquid assets. This a much better measure, because it takes in to account my current credit card (which we pay every month), and the car lease which right now is about 20k.
With out accounting for those 2 items you really can’t predict when we *might* be able to pay off the mortgage. That current measure sits at: -75,226 (basically 20K for the car lease, + 5K in current CC debt).

The big expenses coming are the same. The roof, will hopefully last in to the mid-2020s, but no guarantees. That’s 30-40K easily. Doors and windows 10K (probably this year). No major car expenses coming, and I’m going to keep my car at least another 2-3 years. Pretty happy with it.

Additional income coming though. This year, ~30K in stock after taxes. Wifes income, 15K. So that’s about 25K more than last year. Bonus structure is about the same, and looks good through at least the next year. I am set on my bonuses through the rest of the companies FY. Next big set of bonus is coming in 30 days.

As the market dips, I’ve been buying stock. Basically whenever we hit recessions I will continue buying. Looking at pullbacks greater than 20% for small buys…. anything greater than 30-35%, buy a ton more. Already started this a bit.

So now, I doubt I will pay off the mortgage unless, the market is at a high and we have at least 100K in the bank. Other thoughts have been to fully fund the college funds, or buy real estate if there is a good opportunity to invest (which hasn’t existed in this area since about ~2009).

Markets are looking to be way up for the day so I may come back and revise these numbers.

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Quote from an article

Since 1973, investors would have gotten a 10.2 percent annualized return if they had a portfolio that split evenly each year across commodities, large U.S. stocks, small U.S. stocks, real-estate investment trusts, 10-year Treasurys, gold and foreign developed-market stocks. That’s nearly as big a return as the S&P 500 itself, at 10.4 percent, with significantly less volatility.

I need to verify that quote, but that is fairly remarkable statement considering it’s a pretty easy to implement strategy. I threw the numbers in this site, and didn’t get quite what I thought:

https://www.portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults

You can muck around with these numbers, and you get some interesting results, but this portfolio does seem to do better than most over various time periods. Gold’s effect seems to be the most pronounced. Taking gold out of the equation and shifting it to commodities basically ruins any gains. Is gold really still not correlated with the market as an asset (looking at other precious metals funds, you get similar results but with much worse draw downs). This is all anecdotal I pick random periods and random portfolios.

I would need to do much more analysis to see how this really performs. This site really goes to show how much timing enters in the equation as you can pick years of entry and see massive changes. Need to spend more time with this. Rolling returns is pretty awesome…

2018 Goal – Follow on post

Market moving against me looks like it will keep me just beyond the 60K goal in the next 60 days.  Still at 78K on my metric after receiving my last bonus for the year.

I should have gone with my gut and bought a bunch of the S&P at yesterdays close, but was in meeting so it didn’t happen.   May get a few more chances over the next few weeks… election volatility coming.

401K is way down… lost about 6% in correction.   I am beginning to question using the advisory with the asset allocation.   2nd time I’ve bought in to this theory only to be disappointed.    Market could easily drop another 30%…. and one would hope that the tactical asset allocation would do much better in a down market.

 

2018 Goal – Metric 60K and other thoughts.

Goal of 60K on my primary metric (All debt minus liquid assets) is in reach, but unlikely.  Current metric is 78K, so I need to create 18K worth of liquid wealth between now and December 31st.

How it might happen.   6K in mortgage payoff, mortgage is down to 301K at end of year.  Stock of Approx 6600 in ESPP becoming liquid in October.  That would knock things down to 66K.   Have one more bonus coming this year of about 10K before taxes (that’s another 6500 after taxes).   So we are close, but this means keeping spending in down.  I’m not taking in to account a couple of outstanding checks for around 3K.

If I exclude the car lease, the metric is already down to 55K.  Unfortunately large purchases will happen.   Need to spend some money on the house next year.  Likely some window/door upgrades, landscaping, kitchen appliances (and possibly cabinets).   That’s 25K next year at least.   Then 25K the following year for a roof.

The further I get in to this, the less likely I am to actually say ‘pay off the house’.   If on track, could be done at the end of 2020.   The question is always, will the interest i’m paying @ 3.875% outpace what I can earn from investment accounts.   I should earn more… but if market is still inflated like it is today, then I think it makes sense to pay off.

Other ideas are to pay off down to about 50K to 100K, and then pay the mortgage back to myself instead of the bank (ie, I can take tax free from my 401K, so that money would be earning 4-5% coming from my own pay check… strange, and not sure this makes sense as I write it).   No debt to the bank… only to myself.    This post makes some sense https://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp and confirms this strategy could make sense ahead of recession.

Other thoughts… if a recession hits housing markets again, real estate may be another good play with alot of liquid assets.   Although real estate has always seemed like a pain in the ass to me, I am pretty sure I can objectively evaluate income streams (and all the incidentals) of owning and renting real estate effectively.   If returns look to be >15% it might be worth it.

Lastly,  I could just continue to invest.  Have the planner, or myself invest with a goal of earning 5-8% a year (over the long run).

I am starting to realize psychologically the ability to pay of the mortgage may be the same as actually ‘paying off the mortgage’.   All that really matters in the end is ending up financially ahead of the game.

One last thought… writing posts like these really helps me keep the eye on the prize.   Makes me much less likely to over spend, just thinking about meeting these goals over the next couple years.

 

Year over Year comparison

Simple comparison from early September post last year to this year.

I have about 42K more in ‘liquid’ assets (banks, stocks, etc).
Sept 2017 – 203660
Sept 2018 – 246000

Liabilities:
Mortgage principal is 27.5K less than a year ago.
Add additional debt of 24K for car lease.

Total debt (long and short): $336,253.
This is up 3K from last year, because of car lease.

Prime Metric is at 90K. Lowest it’s been has been 84K. Stock market fluctuations have effected things.  Last year it was at 129K in September.

Net Change in these metrics is 39K over one year.   So assuming a fairly linear function, I knock out about 3,250 dollars off my prime metric a month.  Not bad.   With 90k to go will reach goal in 28 months, January 5 2021.  I will be 44.

If I look at it another way…. in January 2021, I should have 256K left on mortgage, and 330K in liquid assets and a few thousand left on the car lease.     If I continue to pay down mortgage with an extra 800 a month this would workout to pay off all debt and drop liquid assets to 75K.

Passed the 100K Goal!

All Debt – Liquid Assets = 92K.

My ‘prime’ metric is above.   My goal is to get that number to below 0 mid-2020 or earlier.   At the end of this year I am projecting it to be about 70K, end of next year 15K, and then in 2020 it should drop to about -40K.

Depending on who wins the election in 2020 (and whether the current tax law stays in effect) will likely influence the decision to pay off the mortgage in 2020/2021.    Also, if it’s a down market, probably won’t pay off, as there might be good opportunities for investment appreciation.   If conditions were the same as they were today 3 years from now, I think there would be no question that we would pay off the mortgage (stock market highs, less tax incentives, etc).

The big question is… how much cushion should I build in when this happens.   My goal is 100K, but given that the savings can increase rapidly  once it’s paid off that might not be such a big factor if all else seems equal.

The unknowns… home improvements (a roof, kitchen upgrades are due… about 30-50K), new car for wife (35K), and unforeseen repairs(auto/home) and ‘stuff’  (10-20K).  I’ve already seen some unforeseen this year (5-10K)… so I guess this stuff is expected, but hasn’t effected the bottom line.

It really points to the question… what is psychologically and financially better.  Paying off the mortgage or having 300K or more in the bank and liquid investments.   If investments exceed 3.875%, the financial decisions is easy.  I’m not aggressive in investments, and my returns are typically closer to 4-5%, so this isn’t much of a big deal.  Earning tops 1% over say 10 years compounded on 300K is 31K.   What provides the most freedom to achieve financial independence.

 

All is well…

CC spending over the holidays was a bit more than I like.   Made an extra mortgage payment last month to catch up for not paying in January.

Still on track to pay off all debt by sometime in 2021.   Two bonuses coming this month (one tomorrow, and another at the end of the month).  Then it’s quiet till April.

Tax refund coming too… about 5K in total between federal and state.

Wife’s car is 10 years old, so that’s when I start thinking of upgrading, but maybe hold off another year.   Budgeting 30K-40K for this (thinking used Lexus truck a couple years old).   This might impact things some, but since we are ahead shouldn’t be too much a setback.

I need to get on changing insurance.  My life insurance is taken care of through employer right now, so that’s okay.  Need to update home owners + get umbrella policy.