A10, Stock Trader Dude

Chapter three is Wipe out your debt and the author recommends paying off your debts since it should be obvious that you are paying more in interest than any of your investments are generating, and if you don’t have any investments, the idea is the same, the return you are getting is what you are saving in interest charges. Chapter four, Your safety net, and it states – You buy life insurance for just one reason: to support the people who depend on your income if you die prematurely. That’s it. Everything else is noise.

Prepaying your mortgage is an investment and I can tell you exactly what the return on that investment will be. Your gain is always the same as the interest rate you pay. So when does the book recommend paying early would be appropriate?

1. In middle age

2. In a flat housing market

3. If you inherit money (prepaying reduces your cost of living)

4. If prepaying looks like a good investment

5. To shorten a long-term mortgage

6. If you just hate debt

Add 1/12 of a payment each month to what you are already paying.

I see a number of problems with the above. While you may be building equity faster in your home, there is no inherent return associated with your home equity investment and you reduce your tax deductions. If prepaying is your preference, without an audit of how your additional 1/12 payment is being applied – you don’t know if it is going directly to the principal loan balance or how soon that portion of the payment is being applied. Prepaying your mortgage doesn’t maximize your leverage. The author doesn’t understand the pitfalls of traditional IRA and 401k account investments, nor the tax consequences compared to alternative investments and tax deductions that can be duplicated with a mortgage. An interest only mortgage can be your best friend when properly utilized.

Only a few things work and they work really well. If you set up a system that runs automatically, you can’t fail. Success comes from starting right, then keeping a hands-off approach. You can’t see the future but if you’re saving money steadily, that doesn’t matter. All that really matters is getting more out of life.

Chapter seven, Better investing, I like how the book ends. Good news: The smartest investments are the simplest ones. Ignore it all! You don’t need 99.9% of what Wall Street is selling.

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