All things STOCKS

#1,602
#1,602
ninerplaya57 said:
Thunder I think you might have read it wrong- he isn’t getting a return of 3.25% that is his mortgage interest rate. What high quality dividends do you recommend?
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I know. That's just one way to look at it. If you have $100k cash and an outstanding loan that costs 3.25%, you are in effect getting a 3.25% return on that $100k by paying off the loan.

If keeping the loan and investing the $100k in an income producing asset such as dividend payers, the dividends will be taxed. The mortgage interest isn't usually deductable anymore since it (plus all other itemized deductions) is less than the standard deductions are today. So depending on the individual's tax bracket the dividend needs to be greater than 3.25% (assuming that the value of investment doesn't go up or down).

Most every company that is currently paying a dividend higher than 3-4% is highly likely to have their dividend reduced soon. Very large corporations with little debt on their books with a lot of cash are least likely to cut those payments. Think the best companies in the Dow 30 possibly weathering a cash crises and maintaining their dividends.

A company like Caterpillar might pay 4% now, but if their revenues are tanking... that dividend likely gets slashed soon.

It all comes down to the risk tolerance of each person and how soon they must have cash. If they can wait 5 or more years, there are lots of investments that should do better than 3.25%, but there are no guarantees.
 
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#1,606
#1,606
ninerplaya57 said:
I was asked a question today from a client of mine and I told him I couldn’t answer it because I’m not a financial adviser and to contact his, but I found his question interesting and want to pose it to yall.
If you had $100,000 would you pay off your mortgage (he owes $100,000 at a 3.25% interest rate) or would you put it in the stock market right now with how crazy the market has been? For some insight the client is about 70 years old and has an IRA which is separate from this $100,000. Looking forward to hearing your responses.
Click to expand...

Not enough information.
Is the mortgage his only debt? Pay off highest rate first.
He will most likely owe taxes on any investment income so the income to net a return of .0325 is probably 4% + - . Most 70 year olds do not itemize so no benefit from interest paid.
Will he need the 100k? Dont pay off today and get another loan next year. Reverse mortgage.
End of life considerations about the cash. Possible Medicaid?
Etc, etc, etc,

If you want to say "all things equal"?
People feel good today. The DOW was up 2000 pts. In one year we might be in the middle of another depression. He loses money or has almost no return and still owes the mortgage. At 70 better safe than sorry. Pay the mortgage.
 
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#1,607
#1,607
OldandStillaVol said:
Yes, a stock index fund is a collection of stocks. Thunder and others know better and follow them more closely - there are all kinds of index funds and certainly ones that focus on dividend paying stocks. Index funds typically have lower operating expenses than mutual funds therefore you are getting more for your money.
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Mutual funds and index funds aren't mutually exclusive. A mutual fund is just a legal form of a fund. An Exchange Traded Fund (ETF) is a more recent version of a fund and has been growing in popularity as mutual funds are becoming less popular. There are a couple of other investments that are very similar to ETFs (such as a UIT) but one of, if not, the biggest difference between a mutual fund and an ETF is that ETFs trade on exchanges throughout the day like shares of stock. Mutual funds do the math on the value of all their holdings and determine their (share) price once per day. Mutual fund share prices equate to the proportional share of all of the underlying investments inside of that fund while ETF share prices can be at a premium or a discount to the total proportional value of the underlying investments. Most likely the difference is very small as that is where arbitrage trading comes into play. They syphon off any differences in value between the ETF's share (market) price and the price of all the underlying investments.

Mutual funds also can be tax inefficient as they typically pay out their accumulated capital gains late in the year to their shareholders.

ETFs can be shorted and can have options written on them (derivatives). ETFs can be bought on margin and I think that can also be done with mutual funds, although I'm not 100% certain.

Index Funds can be either mutual funds or ETFs. They are priced to the various published indexes so their fees are low. They are not actively managed, they simply track the components of the index. The management fees for index funds are typically well below 1% and the fees for actively managed funds can easily be 2% or higher. Many naive investors have no idea or concept of the drag that management fees have on their returns since there isn't a highly transparent transaction visible as the firms syphon off their fees. Wall Street firms love that ignorance and it's not a surprise that many former members of Congress take Wall Street jobs after leaving public office... the Rs AND the Ds.

Investopedia dot com has more concise, better worded explanations than mine of:
-Mutual Funds
-Exchange Traded Funds
-Unit Investment Trusts
-Index Funds
 
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#1,608
#1,608
Go aeiou said:
Not enough information.
Is the mortgage his only debt? Pay off highest rate first.
He will most likely owe taxes on any investment income so the income to net a return of .0325 is probably 4% + - . Most 70 year olds do not itemize so no benefit from interest paid.
Will he need the 100k? Dont pay off today and get another loan next year. Reverse mortgage.
End of life considerations about the cash. Possible Medicaid?
Etc, etc, etc,

If you want to say "all things equal"?
People feel good today. The DOW was up 2000 pts. In one year we might be in the middle of another depression. He loses money or has almost no return and still owes the mortgage. At 70 better safe than sorry. Pay the mortgage.
Click to expand...

Good point on the other loans. Pay off all credit card debt first and personal loans. The highest rate first as you pointed out. Zero interest car loans should be held to maturity. Some loans also have early pay off penalties as well.

Additionally, is the 3.25% rate on the mortgage the rate calculated on the outstanding balance if the loan is held until maturity or does it factor in fees and points on the front end? If there are sunk costs on the front end, the actual rate on the balance could/would be less than 3.25%

A couple hours of time purchased from a Certified Financial Planner (CFP)(fee based only, not a planner compensated by commission) could be a great investment. The free ones would actually be pushing their own firm's funds and accounts. They also need to declare in writing that they are acting as a fiduciary for the client.
 
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#1,611
#1,611
Anybody been looking at AYTU? FDA recently approved them to starting shipping their COVID-19 rapid tests (2-10 min turnaround time)... Stock is sitting at $1.99 right now
 
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#1,615
#1,615
VolNRaleighNC said:
Anybody been looking at AYTU? FDA recently approved them to starting shipping their COVID-19 rapid tests (2-10 min turnaround time)... Stock is sitting at $1.99 right now
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I think it’s run is over. I made a few bucks off of it last week playing the 1 to 1.50 range
 
#1,617
#1,617
Go aeiou said:
Not enough information.
Is the mortgage his only debt? Pay off highest rate first.
He will most likely owe taxes on any investment income so the income to net a return of .0325 is probably 4% + - . Most 70 year olds do not itemize so no benefit from interest paid.
Will he need the 100k? Dont pay off today and get another loan next year. Reverse mortgage.
End of life considerations about the cash. Possible Medicaid?
Etc, etc, etc,

If you want to say "all things equal"?
People feel good today. The DOW was up 2000 pts. In one year we might be in the middle of another depression. He loses money or has almost no return and still owes the mortgage. At 70 better safe than sorry. Pay the mortgage.
Click to expand...
It’s a client of mine so I don’t know everything about the situation but I do know that he doesn’t owe any other debt because he was saying he wasn’t sure if he should get rid of the mortgage which is the only debt he has or if he should put it in the market. I know that he has a few kids and was looking out for them as well because said the reason he was thinking about the stock market was to hope it would give him a nice return. On the flip side he said it would be nice not to have a mortgage payment any longer. I just found the question interesting and since I couldn’t answer it I thought I’d pose it to yall.
 
#1,618
#1,618
Thunder Good-Oil said:
Good point on the other loans. Pay off all credit card debt first and personal loans. The highest rate first as you pointed out. Zero interest car loans should be held to maturity. Some loans also have early pay off penalties as well.

Additionally, is the 3.25% rate on the mortgage the rate calculated on the outstanding balance if the loan is held until maturity or does it factor in fees and points on the front end? If there are sunk costs on the front end, the actual rate on the balance could/would be less than 3.25%

A couple hours of time purchased from a Certified Financial Planner (CFP)(fee based only, not a planner compensated by commission) could be a great investment. The free ones would actually be pushing their own firm's funds and accounts. They also need to declare in writing that they are acting as a fiduciary for the client.
Click to expand...
There are no points or penalties for paying the mortgage off early. He just owes about $100,000 and the rate is 3.25%.
The whole reason he asked me is he has a financial guy that has been trying to steer him into an annuity with the money and he doesn’t want to do an annuity. Then his financial guy tried talking him into a life insurance policy and he said he thinks he might rather put it in stocks. He said he likes his financial guy but even though it’s supposed to be a fiduciary relationship he worries that the guy is looking out for himself as well because he gets 2% on the annuity and 1% on the life insurance policy he said if he puts it in stocks he pays less or if he pays off his mortgage it’s one less thing he has to worry about. I told him I couldn’t help him because I’m not a financial adviser. Maybe he should talk to another one too to see what he/she would say.
 
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