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Author: decath Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1483  
Subject: Re: Howdy Date: 5/27/2004 9:57 AM
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As I've heard many times on the FIRE board, LBYM board and many other places on the Fool, this is a personal decision that has more to do with the risk aversion of the individual than it does with the right choice. The only way to know for sure which is the right thing to do is to have a time portal about 10 years into the future so you know what interest rates and investment returns will be. <g>

As long as you LBYM and continue to make regular progress towards your investments, you will succeed regardless of which option you choose. Just don't kick yourself too hard if you end of choosing the least rewarding option.

I'm 42 and have battled this issue back and forth ever since I bought my 1st home at the age of 24. I had a mortgage rate at 10 3/8%. At that time, I chose to put 10% of my salary in a 401k and another 10% to pay down the mortgage. After 10 years, my first home was paid off. The feeling of having a paid off home was euphoric as you can imagine but I missed out on the 20% gains of the 80's and 90's that money could have gained.

I bought my 2nd home in 96 and decided to put only 20% down and invested the remaining profits in individual stocks and a tech fund. The tech fund did spectacular for 4 years and I thought I was an investing genious (just lucky of course). After 8 years now, the tech fund is about even and the individual stock investments have returned an average of around 15%. So it was basically a wash with the investments averaging about 7-8% compared to an interest rate of 7.5% for the new home mortgage.

The same decision in 1991 would have brought me spectacular gains but if I had done that in early 2000, I would have done miserable. Its all about timing which most of us can't predict. In my case, it also involved the stupidity to shove 50% of my house profits into a tech fund but I've learned since then and will not repeat that mistake.

decath

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