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GenXer
Joined: 20 Feb 2009
Posts: 703
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 Posted: Sun May 24, 2009 3:14 pm GMT Post subject: |
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| Quote: | | My frustration is that this is a once-in-a-lifetime windfall. I want to take the opportunity to be debt-free and reduce risk, not expand our appetites. Debt and leverage are what's gotten everyone in trouble. |
Herein lies the problem. I figured it was an inheritance. You can not afford to lose it because you will not have the means to replenish it. Its no use agonizing over this - you are not accomplishing anything useful. You need to get emotions out of the way. Many people spend more time thinking about their vacation than about their investments and financial future, so you really can not make a mistake here. Get together with your financial planner and do the numbers, as well as get another opinion. You may even be able to negotiate with your wife and the mediator may be able to get her to compromise - something you don't seem to be able to do right now. |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Sun May 24, 2009 4:27 pm GMT Post subject: |
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| Anonymous wrote: |
Still have not heard of any financial instrument with a risk-free return of 5%. |
High Yield Checking Deals.
Also follow Bank Deal Blogs.
There's only 1 bank in MA offering 5% at this point. There are 4 available nationwide. These aren't risk free though. First, you have to meet the requirements, which is pretty easy if you are creative. Second, the interest rates can change. Each bank has their own terms but usually they have a guarantee through a certain date or will provide some notice. Last, they have deposit limits. Between you and your wife with a few accounts you can probably hold a lot but you likely won't be able to earn 5% on $500k. |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Sun May 24, 2009 4:31 pm GMT Post subject: |
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| I also made the point, by the way, that it is highly likely that over the term of the loan if you just accept a high CD or money market rate that you'll come out ahead, even if you can't earn 5% risk free right now. The only way you'd lose is if we had 15-years of deflation, which is possible but unlikely given current leadership. Normally I wouldn't suggest market timing in this way but we don't live within a free market in this case. The mortgage rate is artificially depressed by government intervention and it is a battle that they are slowly losing at the moment. I expect that within 5 years you have a very good chance of finding a risk free investment. |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Sun May 24, 2009 4:33 pm GMT Post subject: |
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| You could consider a [url=http://en.wikipedia.org/wiki/Carry_(investment)]carry trade[/url] by the way. It exposes you against currency fluctuations but on the bright side it protects you against a falling dollar! You should also be able to buy a currency hedge. I would look at countries with strong economies right now, like Israel. |
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melonrightcoast
Joined: 22 Feb 2009
Posts: 236
Location: metrowest
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| Posted: Sun May 24, 2009 5:12 pm GMT Post subject: peace of mind |
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RandomWalker,
This isn't to replace the advice of a good financial planner, but from our experience, it is hard to describe how much less stress we have in our lives now that we are debt free. It has been over three years now, and although I REALLY want a house, I know better than to give up that peace of mind. If we wanted to, we could really stretch and buy the big, brand new house that my hubby wants, but he values MY peace of mind and he knows that I would be a basket case if we were stretched too thin and didn't have enough savings. Maybe you could try to impress upon your wife that being in debt too much would stress you out and how that would make HER unhappy.
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Sun May 24, 2009 5:32 pm GMT Post subject: |
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| Quote: | | Maybe you could try to impress upon your wife that being in debt too much would stress you out and how that would make HER unhappy. |
If it was that easy! She is unhappy NOW because she can't get what she wants! This is hardest with the inheritance. The first impulse is to spend it, because our psychology says that this is the money we can spend since we didn't plan for it anyway. But this is just an easy way to get further into debt, because if you didn't have the money, you wouldn't have made that decision in the first place, so it goes against psychology to try to make decisions as if the money wasn't there. This is why people need a buffer between them and their bad decisions.
High yield checking deals are all fluff. The requirements are too restrictive. Its like my blue cash credit card from AMEX - even though the top dividend rate is 5%, the best you can ever do is probably 2% overall when you consider the consequences of all the restrictions (still better than anything else out there).
In the futile quest of 'beating inflation' people take risks that end up costing them more than if they simply used a decent CD or a money market. Just because you get an extra 1% on 100k is not a good enough reason to take stupid risks with your money. I do recommend certain short term bonds which yield >4% right now, but again, only for a small portion of your cash, because these are risky.
The argument that says: 'Oh, I can't make enough with my cash, so I'll sink it all into a house' is ludicrous. If you have extra cash, pretend you don't have it, and put it into a decent bond portfolio. This way if you select your bonds right, you can be sure that your principal is relatively safe, while your investment grows at or a little bit over inflation rate. This will not work for your entire investment portfolio (unless you have what I call 'critical mass' which can sustain you indefinitely at 5% growth), but its better than 99% of all the stupid things people do with money simply because most people have no idea how to construct a bond portfolio (and actually, most financial planners don't know either, unless you hire a very experienced bond manager who will charge an arm and a leg). So many people end up doing the next worst thing - sinking it all into a depreciating asset called 'house'. |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Mon May 25, 2009 4:09 pm GMT Post subject: Re: peace of mind |
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| melonrightcoast wrote: | RandomWalker,
the big, brand new house that my hubby wants |
I thought people here liked old houses with "character"? |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Mon May 25, 2009 4:13 pm GMT Post subject: |
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| GenXer wrote: |
High yield checking deals are all fluff. The requirements are too restrictive. Its like my blue cash credit card from AMEX - even though the top dividend rate is 5%, the best you can ever do is probably 2% overall when you consider the consequences of all the restrictions (still better than anything else out there). |
Like I said, you have to be creative but it is possbile! I get 5% (flat and unlimited) back from other cards that are closed to new applicants.
| GenXer wrote: |
In the futile quest of 'beating inflation' people take risks that end up costing them more than if they simply used a decent CD or a money market. |
I assume you aren't referring to high yield checking accounts here? They are usually FDIC or NCUA insured. |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Mon May 25, 2009 5:33 pm GMT Post subject: |
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| Well, it is possible to lose money in checking accounts too - just rack up enough fees and overdrafts, etc., and you can do it for sure. But if you don't jump through all the hoops, you won't get near 5%. Checking accounts, and credit cards. Especially not on gas, groceries, drug stores, etc. I have never heard of a flat 5% card - they all change their terms on the fly. |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Mon May 25, 2009 5:42 pm GMT Post subject: |
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It's really not that hard not to jump through the hoops. They aren't profiting off the fees as these accounts are actually quite fee generous (ATM fee refunds for example) but rather the cash back on the debit card transactions. The key is to not lose opportunities for cash back on credit cards. There are places that you can game the system (paying your phone bill $1 at a time for example) but I prefer to be a real customer that's just not profitable (12 $1 Rebox rentals for example).
You haven't heard of a flat 5% card because you haven't followed them for long enough. Citibank used to have a card called Dividend Rewards that was 5% for several years. Eventually they changed the terms and everyone moved to Chase Rewards, which quickly closed to new applications. Those of us who got them have been able to keep them so far. I've heard reports that some Chase Freedom customers are losing their accounts though but I've still got mine so I've been getting 5% gas, groceries, and drug stores for roughly 5 years. The 5% restaurant cards have been coming and going but there's one available now. Costo card is 3% flat which also isn't bad. Youc an get 2% flat on the Schwab card. |
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melonrightcoast
Joined: 22 Feb 2009
Posts: 236
Location: metrowest
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| Posted: Mon May 25, 2009 8:39 pm GMT Post subject: houses with character |
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| Quote: | | I thought people here liked old houses with "character"? |
Oh, I do! They are beautiful to look at and quite pleasing to live in. That is, until you realize how much it is going to cost to replace all the windows in the house, not to mention how much it will cost to have window treatments for all the odd shaped windows, have insulation blown in because you almost fainted from a gigantic heating bill in February when you froze with the thermostat at 62 all month, have it rewired and re-plumbed, have the foundation repointed, etc., etc. And the plaster. OMG, i HATE plaster and lath walls.
We've done the old house with character bit and know how much maintenance they require (even when you get the big stuff done). MAYBE I will consider it again if we don't end up buying again for several more years and our kids are older and in school. If we buy this year or next, then my husband will hopefully compromise and we'll get a 20 - 30 year old house that has been well maintained.
It is definitely a personal preference, and also if you have the time and gumption to do a lot of the work yourself. Do you like houses with character, or do you prefer new?
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Tue May 26, 2009 1:43 am GMT Post subject: |
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I don't appreciate "character". I guess I can see a little in some turn of the century homes but those are very expensive. The ones that I see were always crummy. Also, I like modern amenities and knowing what's growing within my walls (hopefully nothing). I would insist that all the asbestos be removed and the lead paint stripped. If you are going to go old, then I think you should go really old, but not too old. Turn of the century  |
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melonrightcoast
Joined: 22 Feb 2009
Posts: 236
Location: metrowest
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| Posted: Tue May 26, 2009 2:01 am GMT Post subject: |
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| Quote: | | Turn of the century Smile |
Exactly. I'd be thrilled with anything built between 1995 and 2005  .
We had a modest Victorian, circa 1910. My two favorite styles are Greek Revival (~1820s) and Arts & Crafts (~1910-1940). I've drawn plans up for a Greek Revival...not that it'll be built anytime soon. Every time I see a house of that style, I stop and stare.
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RandomWalker
Joined: 23 May 2009
Posts: 4
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| Posted: Tue Jun 30, 2009 4:38 am GMT Post subject: |
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Well, we found a house we really liked, everything clicked, moving mid Aug. House is 1950, but the owner (a contractor) basically completely redid it. We got a great inspector who found only minor issues. We're taking out a 50K loan, mainly because wife wanted 100 for her comfort level of emergency fund, so we compromised. I'll want to pay this sucker down ASAP.
I've been listening to a lot of Dave Ramsey lately, and he's all about no debt.
The $ was from a biz event, not inheritance... woohoo! |
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