Should I pay down mortgage or invest in today's market?

[jerseyguy]

I know it's an age old question but just wondering what you great forum participants think. I have about 100K left on my loan and eager to pay it off. At 3.875% and about 3 years into a 15 yr loan. No car payments and what little I have in CC debt is at 0% for 12 months. I currently try to put an extra $300 to $500 per month to the principal. Wondering if I should push myself to pay more or give any extra into stock market. Is that bubble going to burst, and when?? hmmm? Thanks in advance.

[StormRichards]

I would focus on investing for retirement

[Jluke]

Not really enough info to give decent advice.

Are you saving at least 20% towards retirement?

Ideally you would be putting $18k in a 401k, if available. $5500 in an IRA (Roth or traditional). Substitute your retirement vehicles if those do not apply (403b SEP, etc). If older than 50 you can also do the catch up contributions.

My favorite thing to do with a loan is to make an amortization schedule and figure out exactly how to plan the mortgage payoff. I paid mine off last year at age 39 for perspective. I used accelerated payments and a balanced approach towards debt and retirement and savings so that I wasn't ignoring any one financial aspect.

One of the most important things to have is a healthy emergency fund.

[Milly]

I think it depends on what your adopted strategy is. The general rule for investment is put your age in bonds (although this might make more sense: forbes.com/sites/phildemuth/2013/07/29/is-age-in-bonds-dead/#1ba56bfa46c6).

If you have a spouse that insists that his or her hard-earned money should stay "safe" in bonds and the average bond return is around 2 or 3%, then paying off your house is more lucrative. Almost any other allocation is going to yield a better return (over time) on your investments.

That being said, I’d go for both. Just like it is good to invest a portion of your retirement in bonds despite their low returns, you should invest in debt reduction even at low interest rates. Just don’t make it your only strategy. Treat it like a bond holding and just throw a little extra in every month.

I’m paying off mine rapidly because our household alternative is bonds. If you are into the stock market, don’t let your house payments cut into your abilities there.

[MonkeyMama]

There's no cookie cutter answer. I'd say it depends on your age and income, assets, savings rate, etc.

[Fishindude77]

Either route will help you get ahead. Saving a nest egg is good. Getting out of debt is good. What is more important to you?

[disneysteve]

Not really enough info to give decent advice.

Agreed.

Should you invest in "today's market"? Absolutely. And tomorrow's market, and next month's market, and next year's market. You should always invest. It doesn't matter if the Dow is up or the S&P is down or the NASDAQ is flat. You should keep investing.

Should you invest instead of paying off your mortgage or vice-versa? No. You should be doing both. You should be saving at least 15% of your gross annual income not counting any employer matching funds for retirement. You should be maintaining an emergency fund of at least 6 months worth of living expenses. You should be setting other money aside, probably in the neighborhood of 5% of income, for non-retirement needs like your next car, home repairs, travel, etc.

If, after doing all of that, you still have surplus income, you can certainly direct that toward extra principal payments on your mortgage.

[jerseyguy]

Thanks for the comments....

Yes have been doing both investing and as mentioned putting between $300 to $500 per month to principal mortgage. And yes, maxing out retirement, Roth and a Sep IRA. It's those times, when I do have a few extra bills that I'm tempting to apply to mortgage as opposed to putting into taxable investment account. Again, thanks to all.

[TexasHusker]

I know it's an age old question but just wondering what you great forum participants think. I have about 100K left on my loan and eager to pay it off. At 3.875% and about 3 years into a 15 yr loan. No car payments and what little I have in CC debt is at 0% for 12 months. I currently try to put an extra $300 to $500 per month to the principal. Wondering if I should push myself to pay more or give any extra into stock market. Is that bubble going to burst, and when?? hmmm? Thanks in advance.

The markets will keep going up until they don't. That could be tomorrow, next year, next month.

Rather than throwing money at "the stock market" as if it is a bathtub of rising toy boats, why don't you find a business - any business - that you have some knowledge about, and invest in that? (and that still might be a publicly traded company!)

Tossing dollars at something as nebulous as "the market" is essentially the same as online gambling. In fact, if you are a seasoned gambler, the online gambling could prove more profitable since you know more about it.

Good luck !

[disneysteve]

Rather than throwing money at "the stock market" as if it is a bathtub of rising toy boats, why don't you find a business - any business - that you have some knowledge about, and invest in that? (and that still might be a publicly traded company!)

Tossing dollars at something as nebulous as "the market" is essentially the same as online gambling.

So you think putting your money into one business is less of a gamble than investing in a broadly diversified fund like a total stock market index?

[james.hendrickson]

The entire point of diversification is the REDUCE your risk and INCREASE your return. If I remember, my history correctly that's how the math behind modern portfolio theory works out.

If the OP wants concentrated risk with the potential for higher returns, then the OP should buy a business, if wants to reduce his risk and still get returns, then the OP should diversify.

[disneysteve]

The entire point of diversification is the REDUCE your risk and INCREASE your return.

Reducing risk doesn't necessarily increase return. Typically, the opposite is true. Higher risk comes with higher return - if the bet pays off. Diversification reduces risk but you are much less likely to hit one out of the park.

[TexasHusker]

So you think putting your money into one business is less of a gamble than investing in a broadly diversified fund like a total stock market index?

Better to put the money in one thing that you understand than
ten things that you do not.

[TexasHusker]

The entire point of diversification is the REDUCE your risk and INCREASE your return.

Huh ?

[Fishindude77]

The markets will keep going up until they don't. That could be tomorrow, next year, next month.

Rather than throwing money at "the stock market" as if it is a bathtub of rising toy boats, why don't you find a business - any business - that you have some knowledge about, and invest in that? (and that still might be a publicly traded company!)

Tossing dollars at something as nebulous as "the market" is essentially the same as online gambling. In fact, if you are a seasoned gambler, the online gambling could prove more profitable since you know more about it.

Good luck !

I agree with this. People tend to blindly invest in "the market" based on people telling them ... It's traditionally returned X% average and should continue to do so.

In reality, when we give that money to our broker or investment firm, it's all totally based on trust, because most of us don't have a clue what businesses or investments our dollars are going to.

I think having some money in the market is a good way to diversify your overall portfolio, but I darned sure won't bet the farm on it. Better to put the majority of your investments into something you have more knowledge of and can control the outcome on.