Credit Card Debt
I have no actual consumer debt. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 3-5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how I make money off of credit cards this way. However, given the current lack of good low fee 0% APR credit card offers, I don’t think I’ll be doing anymore in the near future.
Retirement and Brokerage accounts
Ignoring new contributions, my retirement accounts have lost about ~$8,500 over the last month. I will perform another portfolio update soon to find more accurate year-to-date return numbers.
I have sent in another $5,000 late last month and $5,000 this month in order to max out my pre-tax 401k contributions for this year. My asset allocation is way off target so I need to sit down and try to rebalance using these funds today. It might be tricky to due to the $10,000 minimums for index funds at Fidelity, and I might actually buy ETFs and pay the trade commission.
Cash Savings and Emergency Funds
Why am I not panicking (yet)? Well, I think a big part is my fat cash pile that serves as my emergency fund. In my mind, having a separate short-term reserve keeps me from worrying about my long-term “can’t touch” portfolio.
I have about $49,000 net in sitting in different forms of safe cash earning from 3 to 6% interest, while now my entire retirement portfolio is worth about $93,000. I will keep accumulating cash until I reach a full year’s worth of expenses, which is about $60,000. I think this is prudent given the high unemployment rate right now.
Home Equity
This is the second month of testing out my new way of estimating our house’s value. Again, I take the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. Then, I shave off 5% to be conservative and subtract 6% for expected real estate agent commissions (11% total). I use this final number as my estimate for home value. Looks like my home value has dropped by another 1% or so.
Overall, another tough month. However, I am very thankful we both still have jobs – knock on virtual wood!
You can see our previous net worth updates here.
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How do you use the BOFA estimate, it’s a range? And, which coldwell banker option do you choose? I only see ranges, no actual estimated value.
I just took the average of the high and low bounds of the range.
I think BoA uses CyberHomes for their estimate, so that might be redundant.
Interesting, I think BofA has two home value estimate tools.
The one I used here is different than the Cyberhomes co-branded one here. The first one gives different numbers than Cyberhomes, while the latter is indeed identical.
That’s an awful lot of cash. It could be working against your mortgage interest. I understand you’re balancing against short-term emergencies (i.e. job loss), and it’s a personal decision.
But still, it’s worth working out the numbers on it.
Stephen,
Sometimes cash is king. Can you imagine if Jonathan put 50% of it in a S & P 500 mutual a couple of months ago? He would be crying!
I sometimes ask myself why I have money in my various savings account (Etrade, Countrywide, ING, Emigrant Direct), but when I look at the market now, I can sleep at night without worrying about losing 6 – 7% on a bad day
I’m not suggesting it should be invested in stocks. I’m suggesting that the interest on a $475k mortgage, through the term, is significantly more than the interest on a $425k mortgage.
Debt is the bigger, badder king.
But, I stress, it depends on each individual’s situation, loan terms, etc. It’s a personal decision, balancing the security of a rainy-day fund against the cost of debt. So, I’m not suggesting it’s for everyone. I *am* suggesting that everyone needs to run the numbers, and be aware of what that cash is really costing them.
Prolly better to hold some cash to pay for living expenses in case something happens … beyond that, I’m all for paying down the mortgage. If you lose your job, at least you can pay for your house and survive. Otherwise you may lose your house and the savings you used to pay down the mortgage. Everyone should have an emergency cash stash. Maybe if not 1 year at least 6 months.
Agreed.
How did your Pre-Tax IRAs increase by ~$6K when you contributed $5K and it was a nasty bear market for Nov.? Are you shorting or in some super high yield bonds to make the extra $1K?
Why pay down the mortgage, when the treasury/fed will most likely offer you to refinance at 4.5%.
http://online.wsj.com/article/SB122833771718976731.html
Where do you get the best interest rate for your savings right now?
Hey Jonathon,
This is a bit off topic, but I was wondering if you knew how I might go about purchasing individual bond issues.
@Super:
First off, those loans are only hot air as of today. They may exist in the future. I’m hoping within the next 3 or 4 months as I’m at 5.625 (jumbo) now. If you can get a killer refi, great. But, if mortgage rates go down, so will deposit rates.
Second, Jonathan’s mortgage is non-conforming; which usually bears a slightly higher interest rate. He could pay down to $417k today (with $58k cash) to get under the jumbo line. At minimum, at least worth consideration.
I’m interested in learning more tips on the 0% credit cards and investing them in short term vehicles. Would you recomend this practice if I found the correct card?
@Aurelien:
If you have a brokerage account, you can purchase them directly through your account. Just go online into your account and type in Bonds in the search and you should get a wizard or something similar that guides you through the process of finding and buying bonds.
My recommendation is that you lay off the bonds UNLESS you’re looking to hold them to maturity. This is a great time to buy if you’re looking to hold the bonds until they mature b/c bonds of “good” companies are yielding great right now. But if you think you might sell the bonds before maturity, beware of the bond prices falling.
Based on the current record low treasury yields, impending inflation that’ll hit hard after this deflationary period subsides, and the current spread on the corporate yields over treasuries, we have a trifecta that could lead to a big fall in bond prices. If you’re not going to hold the bond to maturity (or until it’s called in), you could lose money on the bond.
Stephen – I am not opposed to paying down mortgage debt. If if were to pay it down, I would simply treat it as a long-term bond that pays my interest rate for 29 years. The big difference is lack of liquidity. At 5.75%, I’m not in a real big hurry. Most of the emergency funds are earning an average of at least 5%.
Of course, my mortgage broker just e-mailed me that I could refi at 4.75% today – not sure of credit score requirements and closing costs though.
Stephen2 – I contributed $10,000 total, sorry the way I wrote it was weird because my updates are not exactly a month apart.
Aurelien – I recommend only buying individual bonds for things like Treasuries and TIPS, because they have basically zero credit risk. Otherwise, a mutual fund helps spread out the credit risk of one bond defaulting. You can google about the lady who had $1,000,000 in a Lehman AAA bond that is now worthless.
Brian – See here for more tips on 0% credit cards.
@Jonathan: I understand. Have you factored in inflation? Also, if you do refi, consider trading some of that cash in to get down to a conforming loan. If your broker has a 4.75% jumbo loan for you, they must have a great rate on a conforming loan.
Well, a mortgage would be a great inflation hedge. One day we could be earning 7% again on savings accounts, with mortgage rates at 9% or something. Then I’d really have no reason to pay it off early.
It’s coming.. M3 expanded by half of our GDP. Anyway, best of luck to you.
@Phoenix,
Thanks for the info. I’m def planning to hold to maturity, unless the price went back up substantially. I’ve found a couple companies which I feel have solid prospects with bond’s yielding 15%+, so I’d like to buy some of that.
Tried again to refi with Countrywide at 4.875 based on mone values from a 507K tax assessment;a 479K Zillow assessment and their bank says its e-appraisal is 444K with the possibility that a physical appraisal will come in as low as 400K.
the banks are still trying to screw the customer with bad loans – the rates are just a bait a switch tactic
Excellent credit rating; combined income 150+ and 5K in other debt.
Barry – times have changed. Without knowing your location or circumstance, i’d bet chances are a buyer wouldn’t pay $444K for your property b/c they can probably find similar property cheaper. In a declining market appraisers for the institutions giving out the money will be more conservative.
And that’s (one of) the fundamental problem(s) here. We hear all this great news about mortgage rates dropping and the hope that people will re-finance, but banks aren’t refinancing under-water debt. So it’s great news for new qualifying buyers, but not much help for people who can’t pay down their current mortgage to get it below their current home value.
@Aurelien – Be weary of “solid” prospects. If other buyers aren’t touching a corporate bond for less than 15% return, there’s a reason they’re not buying it. And you gotta thing these very informed investors know something you don’t about those “solid” prospects. Tread w/ caution.
Phoenix
Boston MA
original purchase was 465K refi amount 372K even with a 400K appraisal that a 90% LTV – at 440K we’re at 85% LTV and at 465K 80%
at 440K the rate is 4.875 BUT I won’t know the appraised value until the BANK’s appraiser makes a physical inventory
None of the 4 e-home value programs Jonathon references place my home value below 440K but I can’t hire my own appraiser to choose the best comps to make my home value in my favor.
Very frustrating IMHO