If you’ve been following my blog lately you’ve been noticing that I’ve been questioning why one would ever have any money in bonds in the long-term due to their sub-par performance vs. stocks. I’ve had tons of great comments and I thought I even summarized things pretty good, but in the end I don’t know that I really had it nailed down. I was still able to shoot my mouth off somewhat about how in the long-term stocks are still the best investment and I really kind of wanted someone to stick my foot in my mouth, well maybe not that harsh but there are two great posts about why bonds are a vital part of an investment portfolio.
Well turns out that me suggesting that young people with long investing time horizons invest 100% in stocks sturred up a lot of activity on my blog and to be honest I never could have imagined I would have gotten so many high quality comments on this post. I’ve learned a lot in the process (I think) and I figured it would do good to sort of recap the comments from the other post and give a general idea of what my readers thought (or at least my convoluted interpretation of their thoughts).
I know I have had a few people comment on some of my posts that I’m too heavily weighted towards stocks (100%) and it’s sort of common knowledge that when laying out your asset allocation in your portfolio that it is a mixture of stocks and bonds. Even most lifestyle funds for the most risky aggressive young punk classification have some money in bonds. For some reason I can’t get it through my thick skull why someone would put any money in a historically lower performing investment tool for money that won’t be touched for 30 or more years.
This is the fourth post in a series of posts on Realistic Rate of Return. You can view Part I, Part II, and Part III here. In this part I will try to touch on inflation and how it can affect my nest egg’s value as we travel through time. Sorry for the small delay between Part III and Part IV as this post has been sitting in my drafts folder 60% done for oh the last 9 months 😉
What got me going was that I it was pointed out that I did not consider taxes and inflation in posts like this. While the original post was suppose to be more motivational than scientific it did bring up a good point that I have not talked too much about taxes and inflation on my blog and what do you know I had an article on inflation half done in my drafts folder so here you go.
Kind of feel weird even suggesting such a thought, because as a personal finance nut it is my job to fully take advantage of every possible edge I can use to stretch my dollars. Whether it is signing up for the rewards card with the biggest cash back, putting money in the highest yeild savings account, or stashing as much money away as possible where Uncle Sam can’t get his grimey mits on it. However I am continually wondering if I may be going overboard on my retirement savings, in fact I’m honestly worried that by putting so much money away in my retirement accounts that I may actually be delaying my retirement. Eeek!
Well today I took my own advice and transferred about $6,000 that I had laying around in my ING Direct account and used it to pay down my HELOC. Some of this money is spoken for (2007 Roth IRAs), but either way I am better off putting any money that isn’t immediately needed towards my HELOC and then when Jan 1 comes around next year I will simply just write the checks from my HELOC for the IRA contributions.
My wife and I bought a house this last summer, and we opted not to put 20% down because well I’m not sure we had exactly 20% to put down and the interest rates we so low that I figured I would be better off investing the extra money rather than putting more money down on the house. Well this discussion (paying off mortgage vs. investing) gets debated all the time. Some people argue you should pay off the mortgage as fast as you can because it’s a guaranteed return on your money and you have that sense of security when your house is paid off and you don’t have that payment hanging over your head every month. Other people say your mortgage rate is probably only 5-8% and those payments are tax deductible so you’re likely really only paying in 3-6% and you can certainly do better than 3-6% in the stock market, so you are better off investing the money. Really in many cases its personal preference, and me being the young optimistic investor that I am decided that I was going to go the investing route vs. paying off the mortgage.