How much money saved before you'd bounce from biglaw? Forum

[Anonymous User]

Have about 400k right now between my 401k and taxable accounts, 30 years old, single, no debt, third year big law associate.

When I started the big law gig in 2017 i did a cash flow projection from what my income was from when i quit my pre-lawschool job in the summer of 2014 to what it would have been to this day (netting out all income I made while in law school from SAs, internships, tutoring, etc. and ignoring COL costs and ignoring any potential investment gains I would have made in those years if I actually worked and saved money, i.e. only considering gross W2 income etc.), and I saw I broke even for the "opportunity cost" of having gone to law school, from a financial perspective, at some point this year. So this is the year I'm going to quit and find something with a better work like balance. I paid $0 for law school but if I did pay, would've taken way longer to break even. Law school is not a smart financial decision if you're making even a decently average income pre-law school. Would have been cool to hit a net worth of $500k before quitting the high income, but don't think I can last another 12 months.

How the heck did you manage to save so much? Granted, I'm in an extremely high cost area, but my savings rate is around 80K a year and I live pretty modestly (don't really purchase clothes/electronics; only go out for drinks around once or twice a month; live with my girlfriend in a two bedroom).

They said "have about 400k right now between 401k and taxable accounts" and market is up what in the last 3 years? Google says S&P did 22% in 2017, 2018 -4% and 2019 30.43%. I assume that 400K is pretax $$$ in + after tax $ in + market returns on both for those 3 years. That is probably how they got there. Some quick napkin math says if you put in 80K a year for each of those 3 years you should have around $330k with gains. If they put around $100k a year in then the same napkin math spits out a little over $400k so it makes sense. I would guess they are living on about $2k/mo or more if they had little or no student loans (figure 20k of the $100k every year was pre-tax money, that means saving $80k post tax means saving $3k per pay check or about $6k per month).

Again its all napkin math and doesn't account for dividends re-invested etc. but it seems doable especially with the yearly raises and Cravath scale bonuses figured in.

This guy is good. That's pretty accurate - my average monthly expenditure in 2019 was $2500 and I thought I lived pretty well (though this would be more if I had more free time to actually spend). I did a few international trips (airbnbs/hostels instead of 5 star hotels for example) and generally go out a few times a week/weekend for dates/friends etc. It's doable if you have no loans and minimize the big things (i.e. rent) and don't sweat the small things. I'm also generally frugal by nature and not someone who needs to eat out at fancy places or always get expensive cocktails instead of the HH beer special or whatever.

Anyway, it's really helped me in big law because while I still feel like the job sucks and want to get out, I feel like I'll be fine financially. It's like choosing the difference now between being 50/60 years old with $2mm or having like $6mm.

[Anonymous User]

NYC homebuyer here. I'll add that I bought in during a buyer's market, after the seller has dropped over 15% off its initial asking price, I bought one of the cheaper 1BRs in my non-Manhattan neighborhood, and I'm paying <3.5% on my 30 yr fixed mortgage, so even when all the stars align, buying here still feels like you're eating shit.

My plan so far is to tough it out for another 4-5 years in biglaw, then look to move in-house or gov (I've heard lit in-house moves occur later than corp in-house moves), then sell my home and hope at least the appreciation covers the buying and selling closing costs. With any luck the NYC real estate market can make me some money, but at the very least, my "rent" (mortgage interest + property tax + fees) is still going to be a lot less than my regular rent in a similar unit in the same neighborhood over the next 5 years, especially since rent goes up annually.

Financially it made sense for me but I guess if I get shitcanned in 2 years I'm in a bit of a pickle.

Unrelated, but thank fucking god we're getting SALT deductions back for 2020 so I can deduct this boat load of property tax/mortgage interest I'm paying, on top of NYC state and local income taxes.

[eastcoast_iub]

NYC homebuyer here. I'll add that I bought in during a buyer's market, after the seller has dropped over 15% off its initial asking price, I bought one of the cheaper 1BRs in my non-Manhattan neighborhood, and I'm paying <3.5% on my 30 yr fixed mortgage, so even when all the stars align, buying here still feels like you're eating shit.

My plan so far is to tough it out for another 4-5 years in biglaw, then look to move in-house or gov (I've heard lit in-house moves occur later than corp in-house moves), then sell my home and hope at least the appreciation covers the buying and selling closing costs. With any luck the NYC real estate market can make me some money, but at the very least, my "rent" (mortgage interest + property tax + fees) is still going to be a lot less than my regular rent in a similar unit in the same neighborhood over the next 5 years, especially since rent goes up annually.

Financially it made sense for me but I guess if I get shitcanned in 2 years I'm in a bit of a pickle.

Unrelated, but thank fucking god we're getting SALT deductions back for 2020 so I can deduct this boat load of property tax/mortgage interest I'm paying, on top of NYC state and local income taxes.

Pending DC area (Montgomery County) homebuyer here.

The SALT deduction is not coming back except in the unlikely event that the Dems retake the Senate. Only the House passed this.

Separately, get a 15-year mortgage to anyone thinking about buying if at all possible. Will save an incredible amount of interest over the life of the loan.

[nealric]

Separately, get a 15-year mortgage to anyone thinking about buying if at all possible. Will save an incredible amount of interest over the life of the loan.

That advice was spot on 30 years ago in the days of double digit interest rates. It's not necessarily the case now. With the flat to inverted yield curve, interest rates aren't that different between 15 and 30 year mortgages (depending on size and other particulars). When I recently bought a house, the difference was a whopping .3%. When that's the case, you might as well go for the 30 and just make extra principal payments if you want to pay off early. But mortgage rates are so low now that you will probably beat the mortgage interest investing. It's really a question of risk tolerance.

[eastcoast_iub]

Separately, get a 15-year mortgage to anyone thinking about buying if at all possible. Will save an incredible amount of interest over the life of the loan.

That advice was spot on 30 years ago in the days of double digit interest rates. It's not necessarily the case now. With the flat to inverted yield curve, interest rates aren't that different between 15 and 30 year mortgages (depending on size and other particulars). When I recently bought a house, the difference was a whopping .3%. When that's the case, you might as well go for the 30 and just make extra principal payments if you want to pay off early. But mortgage rates are so low now, that you will probably beat the mortgage interest investing. It's really a question of risk tolerance.

Correct that the difference in rates is lower now (about 1% when I bought my last place 4 years ago; lower now (it was .5 or .625%)). Regardless, because of the lower amortization period the savings are well into the six figures over the life of the loan in HCOL areas most biglaw attorneys are likely buying in. Also expected returns on the stockmarket in the near term are not looking great right now given the run the market has been on / historically high P/E ratios.

[nealric]

Separately, get a 15-year mortgage to anyone thinking about buying if at all possible. Will save an incredible amount of interest over the life of the loan.

That advice was spot on 30 years ago in the days of double digit interest rates. It's not necessarily the case now. With the flat to inverted yield curve, interest rates aren't that different between 15 and 30 year mortgages (depending on size and other particulars). When I recently bought a house, the difference was a whopping .3%. When that's the case, you might as well go for the 30 and just make extra principal payments if you want to pay off early. But mortgage rates are so low now, that you will probably beat the mortgage interest investing. It's really a question of risk tolerance.

Correct that the difference in rates is lower now (about 1% when I bought my last place 4 years ago; lower now (it was .5 or .625%)). Regardless, because of the lower amortization period the savings are well into the six figures over the life of the loan in HCOL areas most biglaw attorneys are likely buying in. Also expected returns on the stockmarket in the near term are not looking great right now given the run the market has been on / historically high P/E ratios.

Literally nobody can predict what the stock market will do. PE ratios have been "elevated" for the last 25 years compared to the 25 years before. Which is not to say returns will be good, but that we just have no idea. Historically the market has returned between 7 and 9%, and that's with data going back to the invention of equity investing. Your odds of getting that return are better over a 30 year time horizon as compared to the next 2-3 years.

Again, it's a matter or risk tolerance. You might save $100k in interest and lose out on $200k in market gains. Or you could compound your losses if the market does poorly.

[eastcoast_iub]

Separately, get a 15-year mortgage to anyone thinking about buying if at all possible. Will save an incredible amount of interest over the life of the loan.

That advice was spot on 30 years ago in the days of double digit interest rates. It's not necessarily the case now. With the flat to inverted yield curve, interest rates aren't that different between 15 and 30 year mortgages (depending on size and other particulars). When I recently bought a house, the difference was a whopping .3%. When that's the case, you might as well go for the 30 and just make extra principal payments if you want to pay off early. But mortgage rates are so low now, that you will probably beat the mortgage interest investing. It's really a question of risk tolerance.

Correct that the difference in rates is lower now (about 1% when I bought my last place 4 years ago; lower now (it was .5 or .625%)). Regardless, because of the lower amortization period the savings are well into the six figures over the life of the loan in HCOL areas most biglaw attorneys are likely buying in. Also expected returns on the stockmarket in the near term are not looking great right now given the run the market has been on / historically high P/E ratios.

Literally nobody can predict what the stock market will do. PE ratios have been "elevated" for the last 25 years compared to the 25 years before. Which is not to say returns will be good, but that we just have no idea. Historically the market has returned between 7 and 9%, and that's with data going back to the invention of equity investing. Your odds of getting that return are better over a 30 year time horizon as compared to the next 2-3 years. Again, it's a matter or risk tolerance.

We can certainly make an educated guess based on historical trends. The past 10 years have seen returns well over 7 - 9%, suggesting that the odds of a correction are higher than usual. We'll also have a clearer picture on where the market may be headed after Super Tuesday.

[AVBucks4239]

Separately, get a 15-year mortgage to anyone thinking about buying if at all possible. Will save an incredible amount of interest over the life of the loan.

That advice was spot on 30 years ago in the days of double digit interest rates. It's not necessarily the case now. With the flat to inverted yield curve, interest rates aren't that different between 15 and 30 year mortgages (depending on size and other particulars). When I recently bought a house, the difference was a whopping .3%. When that's the case, you might as well go for the 30 and just make extra principal payments if you want to pay off early. But mortgage rates are so low now, that you will probably beat the mortgage interest investing. It's really a question of risk tolerance.

Correct that the difference in rates is lower now (about 1% when I bought my last place 4 years ago; lower now (it was .5 or .625%)). Regardless, because of the lower amortization period the savings are well into the six figures over the life of the loan in HCOL areas most biglaw attorneys are likely buying in. Also expected returns on the stockmarket in the near term are not looking great right now given the run the market has been on / historically high P/E ratios.

This is just bad advice given how low rates are, the marginal difference between 15 and 30 year mortgage interest rates, and the long term gains of the market.

If you take out a 30 year mortgage for $750k, and have a 3.625% rate (what I just got), you will pay $1.251M over the life of the loan. Your monthly mortgage payment is $3,420.

If you take out a 15 year mortgage for $750k, and have a 3.25% rate, you will pay $948k over the life of the loan. But your monthly mortgage payment would be $5,270 per month.

It’s easy to look at those and think $1.251M minus $948k means you’ve “saved” 303k, but what you’ve really missed is the opportunity for gains in the market.

Over 15 years, you were paying $22.2k more per year on your mortgage versus a 30 year loan. If you invested that and gained 8 percent returns — the historical average over 130 years — you’d have $651k in investments. If you just let this balance ride for 15 more years (no more contributions) you’d have $2.065M. Or, if you continued to invest $22.2k per year, you’d end up with $2.716M.

This is the power of the long term difference between 8 percent (the market) and 3.5 percent (the interest rate on your mortgage). It’s a huge spread, and the mortgage will never catch up.

Don’t get me wrong — I hate debt, and I’ve irrationally paid off debt. I’ve even paid off a 2% car note at $10k. But paying off debt like this is an emotional decision, not a mathematical one. With rates this low, the numbers will always come out ahead for stretching your mortgage out as long as possible.

[64Fl]

Separately, get a 15-year mortgage to anyone thinking about buying if at all possible. Will save an incredible amount of interest over the life of the loan.

That advice was spot on 30 years ago in the days of double digit interest rates. It's not necessarily the case now. With the flat to inverted yield curve, interest rates aren't that different between 15 and 30 year mortgages (depending on size and other particulars). When I recently bought a house, the difference was a whopping .3%. When that's the case, you might as well go for the 30 and just make extra principal payments if you want to pay off early. But mortgage rates are so low now that you will probably beat the mortgage interest investing. It's really a question of risk tolerance.

I was literally quoted for a mortgage loan yesterday, and the difference between the 15YR and 30YR was 0.5%. Completely agree with your advice. The difference is just too small these days.

[eastcoast_iub]

This is grossly oversimplifying historical returns. That 8% average conceals some huge downturns. If you had invested in the S&P around the turn of the century, you wouldn't have even broken even until about 12 years later. People are falling into this fallacy right now that the market is a one-way bet. P/E ratios are so historically high that you are foolish if you think you're getting 8% average returns in the market over the next decade, especially if Bernie or Warren gets elected. There is huge looming political risk (and I hate Trump, but that much is clear; Ray Dalio didn't buy $1.5 billion of S&P puts that expire after Super Tuesday for no reason). To get an 8% return you will need to take a lot of risk in the coming decade, which could easily blow up in your face.

You're also ignoring the fact that homes are an appreciating asset (which is also not taken for granted, but home values are less volatile and if there is a market correction, they will not decrease nearly as much, especially in a market with the automatic stabilizer of a large federal workforce). So the relevant comparison is not anywhere close to 8% vs 3.5%.

I am already heavy in the market between my retirement accounts and savings and don't need to put all my eggs in one basket. I'll take the certainty of hundreds of thousands of dollars of interest saved versus a very uncertain market right now.

[Pulsar]

One problem with your reasoning is that you'll take "hundreds of thousands of dollars of interest saved versus a very uncertain market" -- "right now." Emphasis on the "right now."

The problem with this thinking is that mortgages aren't "right now." They take years (15, 30, etc.). You think stocks are overvalued right now, I get it. But so what? Say the market corrects -- now there's a buying opportunity. The person with the 15-year mortgage can't take advantage because they are throwing too much money at the house. The person with the 30-year mortgage, on the other hand, is much more flexible and can throw money at the market. Indeed, the 30-year mortgagee can even just pre-pay his/her mortgage early on if markets are too high -- and still save interest (albeit not quite as much as the 15-year person) that way.

If you really think a correction is imminent (which you must, if you are not willing to hop in to the glorious bull run), then the worst possible thing you could do is lock up all your liquidity in a house instead of being ready to buy once we are down 10/20/30% or whatever.

[Anonymous User]

Market timing is notoriously difficult and stagnation could persist for years. Who’s to say when we will be close to the bottom - valuations could stay below their current peaks for the foreseeable future post-correction.

Not saying that I may not seek to buy on the dip in moderation, but I already have substantial exposure to the stockmarket and it is a defensible approach to hedge.

Not to mention the value of knowing that much more of my payments are going to principal from the jump rather than the bank’s pockets, allowing me to own the house outright much quicker and convert it into an income producing rental asset if I want.

In any event this is not my forever home and it is unlikely I’ll be in it for the full mortgage term. If I assume I’m only staying 5-7 years or so the risk calculus changes in my favor and the opportunity cost is lower assuming a fairly extended period of stagnation or correction.

Opportunity cost is a relevant factor to consider but the decision is not as clear cut as you all are portraying. I’d have to beat 3.625 (30 year rate) plus, let’s assume, 1.5% annual house price inflation. That is a highly uncertain proposition in the next 5,7,10 years.

[AVBucks4239]

Are you guys pinning your hopes on the real estate market *not* fluctuating again?

I’m not a NYC real estate expert but I know prices have dropped more than 30% at least 3-4 times in the last forty years.

What are you going to do if you’ve dumped a bunch of money in a house and can’t get it out?

[nealric]

This is grossly oversimplifying historical returns. That 8% average conceals some huge downturns. If you had invested in the S&P around the turn of the century, you wouldn't have even broken even until about 12 years later. People are falling into this fallacy right now that the market is a one-way bet. P/E ratios are so historically high that you are foolish if you think you're getting 8% average returns in the market over the next decade, especially if Bernie or Warren gets elected. There is huge looming political risk (and I hate Trump, but that much is clear; Ray Dalio didn't buy $1.5 billion of S&P puts that expire after Super Tuesday for no reason). To get an 8% return you will need to take a lot of risk in the coming decade, which could easily blow up in your face.

You're also ignoring the fact that homes are an appreciating asset (which is also not taken for granted, but home values are less volatile and if there is a market correction, they will not decrease nearly as much, especially in a market with the automatic stabilizer of a large federal workforce). So the relevant comparison is not anywhere close to 8% vs 3.5%.

I am already heavy in the market between my retirement accounts and savings and don't need to put all my eggs in one basket. I'll take the certainty of hundreds of thousands of dollars of interest saved versus a very uncertain market right now.

I'm not arguing that there can't be extended downturns, or even discounting the possibility that it might happen starting tomorrow. If you are that wary of the market and would rather get a guaranteed 3.5% return over a much riskier (but larger) return, then by all means get a 15 year mortgage. A 15 year is absolutely right for some people.

But I will say there's no 30 year period in modern U.S. history where dollar cost averaging over a period of 30 years would not have at least earned a modest return. Trading on politics is a short term game. Bernie and Trump will both be long gone by the time you retire. The markets are always uncertain- nothing special about today's in that regard. I remember "uncertainty" as the buzzword of the day when I started investing 10 years ago.

As far as the stability of housing values. It depends on where you live and how real estate fits into your overall asset allocation. You are fully exposed to the real estate market in the amount of the value of your house regardless of how you finance it. What you do with the funds that would otherwise go into the house will impact your overall asset allocation, but the real estate allocation will never be less than the house you own.

[eastcoast_iub]

Are you guys pinning your hopes on the real estate market *not* fluctuating again?

I’m not a NYC real estate expert but I know prices have dropped more than 30% at least 3-4 times in the last forty years.

What are you going to do if you’ve dumped a bunch of money in a house and can’t get it out?

Last post was accidental anon. I am buying in the DC area, where I understand prices did not dip very much after the prior downturn b/c the area is somewhat immune to economic trends b/c the workforce is so dependent on the federal government. Certainly possible that prices could stagnate but given supply constraints and continued population increases I think it is a safe bet.

[Anonymous User]

Are you guys pinning your hopes on the real estate market *not* fluctuating again?

I’m not a NYC real estate expert but I know prices have dropped more than 30% at least 3-4 times in the last forty years.

What are you going to do if you’ve dumped a bunch of money in a house and can’t get it out?

NYC home buyer. My plans would be to rent out my unit until the market rebounds. My home is an easy enough to commute to the main office areas of Manhattan that I'm confident renting is possible. In any even, NYC real estate didn't take nearly as hard a hit as the rest of the country during the most recent real estate crash, so if we're in a world where home values in and near Manhattan drop 30%, I'm going to have bigger problems than my mortgage payment.

NYC real estate is expensive but it's a much safer bet than, say, Indianapolis real estate or even Chicago real estate. The only things I can imagine really destroying an investment in NYC would be: (1) terrorism, (2) war which impacts NYC, (3) large-scale environmental disaster, (4) catastrophic cyber attack, (5) global economic crisis, etc. Basically, anything that would screw with NYC real estate would probably plunge the country into chaos.

Also, according to this article, I already bought during a downturn in the real estate market.

https://www.cnbc.com/2019/10/02/manhatt ... risis.html

[nealric]

NYC real estate is expensive but it's a much safer bet than, say, Indianapolis real estate or even Chicago real estate. The only things I can imagine really destroying an investment in NYC would be: (1) terrorism, (2) war which impacts NYC, (3) large-scale environmental disaster, (4) catastrophic cyber attack, (5) global economic crisis, etc. Basically, anything that would screw with NYC real estate would probably plunge the country into chaos.

There's other potential sources of downturn. NYC could experience another period like the 1970s/80s with high crime and business fleeing for the burbs.

[jdoe12345]

NYC real estate is expensive but it's a much safer bet than, say, Indianapolis real estate or even Chicago real estate. The only things I can imagine really destroying an investment in NYC would be: (1) terrorism, (2) war which impacts NYC, (3) large-scale environmental disaster, (4) catastrophic cyber attack, (5) global economic crisis, etc. Basically, anything that would screw with NYC real estate would probably plunge the country into chaos.

There's other potential sources of downturn. NYC could experience another period like the 1970s/80s with high crime and business fleeing for the burbs.

House-hacking may be the answer here. I'm on the West Coast, but from what I've seen a lot of times the marginal increase in the price of a 2bd vs 1bd is lower than the rent that one would collect by renting out the second bedroom. Effectively that would allow you to own a 2bd, but pay less than you would for a 1bd. Of course, this doesn't take into consideration other variables like a bad tenant, privacy, etc. However, you would have some peace of mind in the event of a drop in the price of the home itself, since your monthly payments would be lower and rent tends to be more stable than home prices.

[AVBucks4239]

I don't want to continue derailing this thread, but what you guys are missing is liquidity. I don't care if you are in NYC or DC or Oberlin Ohio -- if you dump $180,000 into a down payment, that money is into the ether until you sell the place; and that is very rarely as easy as you think it will be.

$180,000 could probably cover your living expenses for -- conservatively -- three years. But you've locked that liquidity into an asset that *might* give you a return on your investment or provide monthly revenue via a rental.

Everyone has their thing, and that's why personal finance is personal; but this is an area where I will not budge. It is not a wise mathematical decision to dump a ton of money into real estate when (a) interest rates are this low; (b) you are likely going to get a better return elsewhere; and (c) you will have significantly more liquidity if you put it almost anywhere else.

Dumping money into real estate is an emotional decision, not a financial one.

[Saltnpeppa1]

They way I figure it, I would like about $200,000-$250,000 in investments and another 6 months in emergency savings/down payment for a house around the time I am 30 before I would be financially comfortable leaving.

According to this link https://dqydj.com/sp-500-return-calculator/, in the past 35 years the market has returned 8.5% adjusted for inflation and after reinvesting dividends. (That's actually just the S&P500, but the Dow Jones is in a similar range.)

Assuming that repeats, I could just sit on my $200-$250,000 lump sump and retire at 65 with around $3.5 million-$4.3 million in today's dollars. According to the Trinity Study https://en.wikipedia.org/wiki/Trinity_study, you can withdrawal 4% of your investments into perpetuity in most scenarios (i.e. as long as you don't start your retirement on top of a bubble). That equates to about $140,000-$172,000 per year in retirement in today's dollars. That's most likely way too much, so I would just lower my withdrawal rate to 3.5% or so to make sure the money doesn't run out.

That's not to say I will stop investing once I reach this goal or leave big law; I will most likely just start diverting more money to my eventual childrens' education fund, which I see as one of the other upcoming big lump payments which could benefit from compound growth. Although the shorter time horizon means that the making money in the market is more uncertain, I figure that the crazy tax benefits from a 529 plan should at least make up for some of that.

[eastcoast_iub]

I don't want to continue derailing this thread, but what you guys are missing is liquidity. I don't care if you are in NYC or DC or Oberlin Ohio -- if you dump $180,000 into a down payment, that money is into the ether until you sell the place; and that is very rarely as easy as you think it will be.

$180,000 could probably cover your living expenses for -- conservatively -- three years. But you've locked that liquidity into an asset that *might* give you a return on your investment or provide monthly revenue via a rental.

Everyone has their thing, and that's why personal finance is personal; but this is an area where I will not budge. It is not a wise mathematical decision to dump a ton of money into real estate when (a) interest rates are this low; (b) you are likely going to get a better return elsewhere; and (c) you will have significantly more liquidity if you put it almost anywhere else.

Dumping money into real estate is an emotional decision, not a financial one.

Equity can be borrowed at any time through a HELOC loan at a comparable rate to a 30-year mortgage (maybe 0.5% higher). So the money is not irrevocably locked up.

Also, again historical returns conceal great variations over long periods. Valuations being on fire does not suggest that historical average returns are on the horizon for the next decade.

[AVBucks4239]

Equity can be borrowed at any time through a HELOC loan at a comparable rate to a 30-year mortgage (maybe 0.5% higher). So the money is not irrevocably locked up.

Also, again historical returns conceal great variations over long periods. Valuations being on fire does not suggest that historical average returns are on the horizon for the next decade.

The only reason I keep responding to you is because I want to be absolutely clear to those who might be lurking that what you are saying is generally horrible advice and should not be followed.

Leaving aside the downsides of needing to take out a HELOC (timing, fees, paying interest on equity that you have only because you were trying to avoid paying interest in the first place, etc.), I find it odd that you can somehow get through the cognitive dissonance of "historical average returns in the stock market = bad" and "Washington DC real estate is immune from significant price fluctuations that may cause problems."

Since you think DC is recession proof (presumably a bunch of hogwash the real estate industry in your area vomits to get people to buy), here's a chart for you:



Say you bought a house for $125,000 in cash and now, yay, it's worth $400,000. Big return? No.

If you invested $125,000 in the S&P 500 in 1987 (which is where that line starts), you'd have north of $1.8M (inflation adjusted).

It's not close, it's not ever close, and stop telling other people it's close.

Over the long term, aggressively paying down a mortgage with a low interest rate is an objectively horrible decision that will cost you hundreds of thousands, if not millions, over the long term. And even if you have a unicorn property that can give you a huge return -- great! -- that's even more reason to pay the minimum on the mortgage there.

And that's my end of the discussion. Cheers.

PS: if you do not believe me, go and post your hypothetical on personal finance forums (r/personalfinance, Bogleheads, MrMoneyMustache, etc.). The inquiry is not close.

***

Lastly, transitioning this back to the topic at hand -- if you are thinking about changing or quitting jobs, you are ALWAYS better off having liquid cash versus having it tied up in real estate. So if you are reading this and thinking you might be switching jobs within a year, keep renting, and keep hoarding cash/investing.

[legalpotato]

[quote="AVBucks4239"][quote="eastcoast_iub"]Equity can be borrowed at any time through a HELOC loan at a comparable rate to a 30-year mortgage (maybe 0.5% higher). So the money is not irrevocably locked up.

Also, again historical returns conceal great variations over long periods. Valuations being on fire does not suggest that historical average returns are on the horizon for the next decade.[/quote]

The only reason I keep responding to you is because I want to be absolutely clear to those who might be lurking that what you are saying is generally horrible advice and should not be followed.

Leaving aside the downsides of needing to take out a HELOC (timing, fees, paying interest on equity that you have only because you were trying to avoid paying interest in the first place, etc.), I find it odd that you can somehow get through the cognitive dissonance of "historical average returns in the stock market = bad" and "Washington DC real estate is immune from significant price fluctuations that may cause problems."

Since you think DC is recession proof (presumably a bunch of hogwash the real estate industry in your area vomits to get people to buy), here's a chart for you:

[img]http://www.jparsons.net/housingbubble/washington.png[/img]

Say you bought a house for $125,000 in cash and now, yay, it's worth $400,000. Big return? No.

If you invested $125,000 in the S&P 500 in 1987 (which is where that line starts), you'd have north of $1.8M (inflation adjusted).

It's not close, it's not ever close, and stop telling other people it's close.

Over the long term, aggressively paying down a mortgage with a low interest rate is an objectively horrible decision that will cost you hundreds of thousands, if not millions, over the long term. And even if you have a unicorn property that can give you a huge return -- great! -- that's even more reason to pay the minimum on the mortgage there.

And that's my end of the discussion. Cheers.

PS: if you do not believe me, go and post your hypothetical on personal finance forums (r/personalfinance, Bogleheads, MrMoneyMustache, etc.). The inquiry is not close.[/quote]

Think you are both a little off (no offense). Agree real estate is not necessarily the best investment, but I think the point some of the other posters are making is that if you view your own property as an investment, that is a good deal as you are combining a consumable good and an investment (you have to pay for shelter) — you can’t eat or sleep in your vanguard account.

That said, agree doing a 15 yr or getting a hel are both bad ideas.

[eastcoast_iub]

Equity can be borrowed at any time through a HELOC loan at a comparable rate to a 30-year mortgage (maybe 0.5% higher). So the money is not irrevocably locked up.

Also, again historical returns conceal great variations over long periods. Valuations being on fire does not suggest that historical average returns are on the horizon for the next decade.

The only reason I keep responding to you is because I want to be absolutely clear to those who might be lurking that what you are saying is generally horrible advice and should not be followed.

Leaving aside the downsides of needing to take out a HELOC (timing, fees, paying interest on equity that you have only because you were trying to avoid paying interest in the first place, etc.), I find it odd that you can somehow get through the cognitive dissonance of "historical average returns in the stock market = bad" and "Washington DC real estate is immune from significant price fluctuations that may cause problems."

Since you think DC is recession proof (presumably a bunch of hogwash the real estate industry in your area vomits to get people to buy), here's a chart for you:



Say you bought a house for $125,000 in cash and now, yay, it's worth $400,000. Big return? No.

If you invested $125,000 in the S&P 500 in 1987 (which is where that line starts), you'd have north of $1.8M (inflation adjusted).

It's not close, it's not ever close, and stop telling other people it's close.

Over the long term, aggressively paying down a mortgage with a low interest rate is an objectively horrible decision that will cost you hundreds of thousands, if not millions, over the long term. And even if you have a unicorn property that can give you a huge return -- great! -- that's even more reason to pay the minimum on the mortgage there.

And that's my end of the discussion. Cheers.

PS: if you do not believe me, go and post your hypothetical on personal finance forums (r/personalfinance, Bogleheads, MrMoneyMustache, etc.). The inquiry is not close.

It is terrible advice to tell people that the market is a one-way bet and that historical average returns can be expected at all times for any time period. 1987 is a nice cherry-pick by you that assumes that someone can time the bottom of the market, which is extremely difficult. Try starting with 2000 to 2010 (assuming a 10-year holding period on my parent which is more likely) and tell me what the numbers are then.

A HELOC loan has no fees except for the interest, so if I want to do so at any time I can withdraw the funds at nearly the same interest rate of a current 30-year mortgage.

Real estate fluctuated way less than the stock market in the past downturn and more affluent areas such as where I have purchased fluctuate even less and have a structural supply/demand imbalance which tilts the market in owners' favor. Also a 15-year mortgage imposes forced discipline of saving more each month, not to mention 2/3 of my payments are going to principal right of the bat as opposed to a way lower percentage for a 30-year mortgage where my funds would be vanishing into the $10,000 SALT tax-deduction capped ether.

A case can be made on both sides but it is a foolish oversimplification to assert that there is a single right answer.

[nealric]

It is terrible advice to tell people that the market is a one-way bet and that historical average returns can be expected at all times for any time period. 1987 is a nice cherry-pick by you that assumes that someone can time the bottom of the market, which is extremely difficult. Try starting with 2000 to 2010 (assuming a 10-year holding period on my parent which is more likely) and tell me what the numbers are then.

I agree that the decision about mortgages isn't one size fits all, but using any specific time period is completely misleading. In the real world, almost nobody goes all in on equity in year 1 and then completely cashes in at the end of year 10 (or any other arbitrary period).

Working folks add to their position over time as they earn money, and then withdraw over time during retirement. This averaging significantly decreases the risk of a bad period form the market killing your returns. Your market exposure is averaged over your entire life beginning when you start investing, which could be 70+ years for many.

Another point I'd like to add is that bad market timing doesn't necessarily hurt you as much as you'd think if you buy and hold over a long period. Here's an interesting analysis of how things would look if you ONLY purchased equities during historic market peaks right before a big downturn (such as the top of the tech bubble and right before the great recession).

https://awealthofcommonsense.com/2014/0 ... ket-timer/

The result is actually not terribly bad so long as you keep holding. Note that the article only includes returns through the end of 2013, so the numbers would be substantially better for the hypothetical "world's worst market timer" if done through the end of 2019.