Hey—-I like Ramen
I haven't looked all that hard at the CARES act, but from what I read on my retirement fund's site, my understanding is that they're basically only waiving the 10% early withdrawal penalty--they're still going to tag you for your full income tax rate, even if they're allowing you to spread it over a few years. If this were a regular investment where they were just going to hit you with capital gains, it would be a good idea to cash out and clear debts, but even without the 10% penalty, you're looking at paying Uncle Sugar upwards of 35% for this--and it'll likely push you into a higher tax bracket, to boot.
Look at it this way: if you cash it out to pay off your mortgage, you are, in effect, "borrowing" at 35% to pay off a debt with an interest rate that's what, 4%? And that's not counting the loss of the gains over the long haul that the money would've made if you left it in your retirement account.
Pulling money out of your 401k will make you lose any compounding that would have been seen. And you know what Buffet says about compounding. This loss will be substantially more than what you save on interest. If you want, I can put this in a spreadsheet to show this.
What’s the interest rates on the debt? What is the company match on the 401k?
The trick to gain wealth in the stock market is diversification and dollar cost averaging over a long period of time. People shouldn’t invest in the market if they think they need cash. This is a big source of frustration and worry. For market gains, it could take 5 to 10 years of dollar cost averaging.
One reason the market as a whole makes gains is due to the value of the dollar dropping over time. There are exceptions like Tesla or Amazon that have taken or expect to take market share from other companies.
A few years ago, I was planning to start making extra payments on my house mortgage to pay it off early. Thanks to obama, interest rates cratered and I refinanced my home with a 1.99% fixed rate mortgage. After that, I read an article on the Motley Fool about people who made extra payments on their house to get it paid off. They were house rich and cash poor. Not a great position to be in at retirement.
With such a low rate on the mortgage, there was no financial reason to make extra payments. Instead I started saving the money and investing some of it. Now, about 5 years later, I could pay off my house and still have savings.
Debt is not bad if you use it as a tool, but most people can’t manage or control the amount of their debt.
Are you using an advisor for your investments? I’m not sure why you would be down in this market unless you bought a lump sum right before the crash cause of the COVID.
Just an fyi, tech stocks/nasdaq have rebounded much faster than the s&p and Dow and it’s up about 10% over the high before the covid.
I have 3 spreadsheets that help me make decisions.
A cash flow that I use for monthly expenses and income. It helps me manage and forecast when I can move money to savings and my forecast goes out to 2022. This gives me piece of mind because I know what large purchases or bills will do to the monthly cash flow. I don’t know how anyone can get along without something like this.
An asset file that tracks investments. This includes retirement and discretionary savings investments.
And a file that I use to analyze my mortgage and truck debt. The reason I have truck debt is because the rate was almost nothing, and I got a better price on the truck that covered more than the interest I had to repay. This file shows me what I would save if I paid off the loans early. The analysis indicated there was no financial reason to pay off the debt early.
Before covid, I was earning more interest, due to a higher interest rate, in a high yield savings account than I was paying on the debt. The money in the savings account is an emergency fund of cash.
Wealth management is looking at everything together and analyzing as a whole and not looking at finances independently. My spreadsheets are linked together so I can see the big picture.
Exactly! Age is HUGE factor.A lot of it depends on your age. I’m mid 60’s so need to be more conservative with the market-Less then 50% stocks in the portfolio. I think as long as the Fed keeps rates near zero, you have no where else to go other than the market. If we get a vaccine soon, the market will prob take off. So I might sell all stocks & convert to cash & bonds after it jumps, & hold till it eventually crashes. Buy low & sell high, however it’s impossible to time the market. Safe play for my age group. If I was 30 again, I’d still be in 100% stocks.
Exactly! Age is HUGE factor.
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