As part of that analysis, mortgage debt is something that many Americans have.  Further, over time, the bank’s amortization schedule structures it so that the overwhelming majority of one’s payment in the first decade goes to interest alone and not reducing much of the balance at all.  It is for that reason that many Americans end up paying hundreds of thousands of dollars in interest over the life of a mortgage.

One of the key lessons about debt is one that isn’t all that intuitive.  It is not necessarily the interest rate that you pay, it is the VOLUME of interest you pay over the life of the loan.  For instance, paying 4% interest on a mortgage over 30 years can be a lot more prohibitive to your net worth than paying 7% interest over a shorter amortization schedule.  There are all sorts of amortization tables available on the internet such as this one from Credit Karma  Hypothetically, I used the calculator to put in a $300,000 mortgage at 4.5% interest over 30 years for a monthly payment of $1,520.  What I found is that the VOLUME of money going toward interest exceeds the VOLUME of money going toward principal until year 14!  That is right, it is crazy when you actually look at it.  In fact, it will take this hypothetical person $547,220 in payments to pay off a $300,000 loan! Mortgages were set up for banks to profit and provide access to capital for home buyers that they wouldn’t normally have access to.   It is not in the bank’s interest to have you pay down your mortgage faster so they will NOT educate you on ways to do so.  If you are serious about trying to reduce the VOLUME of interest you are paying and increase the net worth in your life…read on…

How to Successfully Pay Off Your Mortgage Efficiently

First Option:

Shorten Your Term

This one sounds easy and intuitive.  Instead of amortizing over 30 years, amortize it over 15 years.  Of course, you end up with a much, much larger monthly mortgage payment.  When I shortened the term to 15 years the payment increased 51% to $2,295!  For most Americans that is just not doable because of the much higher payment, but the interest savings are enormous.  Instead of over 83% of your payment in year one going to interest, it is roughly 50%.  Instead of paying $547,220 in the example above, this individual only made payments of $413,096…improving their net worth by over $134,000!  And that is assuming this individual doesn’t earn ANY interest on that capital over the next 15 years!

Further, a 15-year loan with an extra month’s payment each year would pay off the loan in roughly 10 years!

Second Option:

The Bi-Weekly Mortgage

Many individuals have heard of this strategy, but still many have not.  The bi-weekly mortgage payment takes advantage of the fact that there are 52 weeks in the year.  By paying bi-weekly, you send 50% of your monthly mortgage every two weeks. By making this slight change in HOW YOU PAY, you send twenty-six 50% payments or 13 FULL payments instead of 12 each year.  By employing this strategy, generally, you pay off your loan in 2/3 the time!  That is pretty doable for most Americans.  It does end up with extra money coming out of your pocket but only one extra payment annually.

The risk to this strategy depends upon who your mortgage lender is.  Many lenders will not apply the extra principal until the end of the month.  This negates the ability to have the extra principal applied for 2 weeks each month.  Reducing the interest cost each month is the core of this strategy.  There is, however, a potential workaround…  Divide your monthly mortgage payment by 12 and add that amount to each month’s mortgage payment.  These funds are applied directly to the amount owed. On the $300,000 mortgage example, that means, send an extra $126.66 each month and your mortgage will be paid off in 2/3 the time!

The following methods require more diligence and planning but are much more beneficial if followed correctly.

Third Option:

Single Payment Acceleration

If you are into your current mortgage by a few years at least, you have likely paid down your mortgage by some measure.  The longer you are into the loan the more equity you have built.   If interest rates are the same or lower than your current mortgage the potential for this to work is there.  Additionally, if your home equity has increased you may have the potential for this strategy.

What you do is the following:

1. Refinance your current mortgage to your original terms, (AMOUNT AND LENGTH).  By doing so, you should free up some cash.
   1. Let’s say you had a $250,000 original mortgage for 30 years and you are now 20 years into it.  Your balance owed is roughly $166,666.  Instead of refinancing the $166k you would refiance the original $250,000 for 30 years again, but…..
2. Along with your first month’s mortgage payment on the new loan, make a one-time principal reduction payment.  With this additional lump sum payment, you have just reset your amortization to the term left on your original loan!

Just run the numbers either on your own or with your mortgage broker to check out the possibility.

Fourth Option:

The HEAP method (Home Equity Acceleration)

This more advance strategy uses a Home Equity Line of Credit (HELOC) and a mortgage.  If done correctly, it can reduce your payment period from 30 years down to 10 or even less!  Are you kidding me?  Why isn’t everyone doing this?  First, not too many know about the strategy.  Second, not too many are disciplined enough to follow it.  Remember, it is not in the bank’s interest to tell you how to pay down your loan faster…

Here is the strategy:

1. Obtain a HELOC (the largest line the bank will allow), with interest-only payments and the interest charged is compounded daily.
2. Immediately pay down your 30-year mortgage with a portion of the HELOC.
3. Direct your paycheck into the HELOC account every pay period.
4. Take out less than you deposit every month from your paycheck and transfer to your checking account for bill paying.

Well, that sounds really simple.  How does this actually work?  Spending LESS than what is deposited each month is the key to this strategy.  You are in essence applying “savings” to your mortgage in a systematic way and reducing the ways your funds “leak” out through the year.  The reason this works so well is that the remaining money from your paycheck is not sitting in a random bank account doing nothing for you, with this model it’s actually paying down your loan balance.  Not surprisingly, if you try this and then spend even more than you are depositing it will backfire.  If however, you actually do spend less than what is deposited you may be able to pay it off even faster.

By depositing your paycheck into your HELOC you are cutting out the middleman or at least reducing it.  The time that your funds are applied to the HELOC reduces the VOLUME of interest you pay over time because the daily interest compounding is temporarily reduced.  Doing this consistently adds up over time.  With this strategy, you stop lending YOUR money to the bank to use for free.  You are borrowing the bank’s money to reduce YOUR mortgage.  This is the concept of OPM. Using other people’s money.

Further, this strategy can potentially work using credit lines other than a HELOC if you have excess savings or excess cash flow.  I have seen it done with credit cards, other unsecured lines of credit or business loans.  In general, HEAP is more complicated but a much more efficient to reduce your debt than just paying more to the mortgage each month. It all has to do with how the bank computes the amortization.  Unsurprisingly, the amortization tables are some of the most confusing tables there are and are buried within all the pages of your mortgage paperwork.

Even without using the HELOC, here is another hypothetical using the example of the $300,000, 4.5% mortgage with a $1,520 monthly payment.

• If you have the available cash flow and planned to pay an extra 1/12 each month for a total of $1,619.92 over 12 months, pay it all up front at once with your mortgage payment and reset the amortization schedule. Do this annually and you will reduce the volume of interest paid and improve your net worth faster.
• Whether the funds come from a “savings” account or from a HELOC really doesn’t matter.  What matters is getting idle “savings” working for you rather than sitting in a bank doing nothing for you but providing the bank capital.
• If you have an extra $20,000 sitting in a bank savings account earning meager interest, but have access to a $20,000 credit line you may want to consider putting the $20,000 immediately toward the mortgage and then using that line of credit as your emergency fund.

All of these strategies above can be incredible ways to improve your net worth and pay off debt in an efficient, accelerated way.  It is important to remember these strategies require discipline and thinking about your finances differently.  While DEBT is a four letter word, it doesn’t have to be treated like other four letter words.  Use your cash flow, access to capital and savings efficiently and your situation could be greatly enhanced in the next five to ten years!

The information above is not considered educational and not specific investment advice.  If you would like to learn more about paying off your mortgage early and how to apply these strategies to your specific financial situation please send me a message via http://celestialwm.com/contact

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The past 118 years include several golden ages, as well as many bear markets; periods of great prosperity as well as recessions, financial crises, and the Great Depression; periods of peace, and episodes of war. In order to obtain a realistic understanding of what long-run returns can tell us about the future, it is important to have a large data set.

According to the Credit Suisse Global Investment Yearbook, stock markets in the developed world delivered an annualized 9.6% return over the 118 years leading up to 2018.

In the book Debunkery, Ken Fisher found that from 1926-2009 the annualized return was 9.7% and the simple average was 11.7%.  However, actual 12 month periods rarely looked like that.  Returns were between 10-12% only 5 times in 84 years!

66% of calendar years produced returns either north of 20% or worse than -10%! 

Normal returns are hardly normal.  Maybe that is why so many investors struggle with the markets.  Maybe the investment community is getting its messaging all wrong.  I started my career on Wall Street.  I learned a tremendous amount from my time there.  One of the key lessons I learned is that Wall Street is a marketing machine.  Do investors really understand that 2/3 of the time their hard-earned savings invested in the stock market would earn more than 20% or lose more than 10%?  That is a lot of volatility for the average investor to handle.  Maybe that is why emotions sometimes get the best of us.

If you are waiting on stocks to earn you their normal 9.6% or 9.7% return you may be waiting awhile.  Sharp declines followed by soaring recoveries are the norm…both for individual stocks, industries, and markets.

If those single-digit returns are so hard to achieve in a calendar year, why do so many Wall Street “strategists” year after year prognosticate that stocks will earn somewhere between 6% and 11%?

The daily noise, the talking heads on television and the Wall Street strategists are consistently telling the public to expect something that happens less than 1/3 of the time.  Why do they constantly prognosticate something that statistically is unlikely to occur?  I have my opinions, but I will keep them to myself.

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Sarah Berger wrote a great piece on CNBC that I wanted to share titled,   “5 of the biggest travel booking mistakes people make- and how to avoid them.  It was a great piece I thought worth sharing.

Enjoy your summer vacation!

The post Don’t Make These Mistakes When Booking Travel! appeared first on See The Forest Through The Trees.

I have had clients ask me about what they should do with their receipts from dining out with clients, buying food for the office, getting supplies from Office Depot, etc.  I have an almost paperless office. My credit card and bank statements list every transaction I made so is a receipt even necessary?  Watch the video here to find out. #sourceofthesource

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I thought this chart was interesting.  The vast majority of the U.S. smokes their Thanksgiving Turkey.  I grew up in Michigan and moved to MD but we still roast our turkeys.  I have always wanted to try frying a turkey however like a large number of Marylanders do.

Additionally, here is a Trends chart of the most searched for Thanksgiving recipes.  Green bean casserole is one of my favorites.  Apparently, others like it too…or just can’t ever remember how to make it.  Tip:  its always on the back of the fried onion can!

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Lastly,  searches for “Friendsgiving” are significantly on the rise since 2010.  Not sure exactly what to make of this trend but it is interesting…

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Enjoy the time with your family and friends.  Happy Thanksgiving friends!

The post How to cook a turkey…in Different areas of the United States appeared first on See The Forest Through The Trees.

That was met with some backlash, as employees were forced to work on a holiday.  Many consumers thought retailers were taking it too far in the name of sales.  For that reason, Thanksgiving sales have been pulled back somewhat and there is a renewed focus on Black Friday and Cyber Monday.  In fact, Black Friday has its own website!  What a genius that girl or guy was to secure that URL back in the day.  Just go to www.blackfriday.com and they aggregate many of the deals from major retailers.  It’s a quick way to see what deals are coming down the pipe.  You can also check out Dealnews.com and Bfads.net.  According to RetailMeNot, 68% of Americans will be shopping during Black Friday weekend, spending an average of $743; an increase of 47% over what they spent in 2016!

If you are looking to save money and score some deals, here are 10 suggestions…

1. Make A List!  The biggest problem many of us have is we buy too many things on impulse.  Make a list of each person you would like to buy for and how much you would like to spend…..and then stick to it.
2. Research from the past five years proves that the number of deals hit a peak the week before Thanksgiving.  That means get shopping now!
3. Make sure you sign up for your favorite retailers’ email distribution lists, Instagram and Facebook feeds.  They will be offering deals through here so make sure to watch for them.
4. Many stores allow you to match a competitors price if you happen to miss a deal.  So, if you are in a store and tempted to make a purchase, make sure you check prices on your smartphone and ask the store if they will match it before purchasing.
5. Another site to check out is www.greentoe.com. Similar to Priceline, Greentoe allows you to name your own price for a variety of products including outdoor sporting goods, music, computers, photography and fitness.
6. If you typically spend too much or are trying to manage credit card debt the easiest way to stay on a budget is to use your debit card.  By spending within your means, you can avoid running up debt and having a shopping hangover in January.
7. If you are responsible with your credit, now is the time to review your credit card point system.  Figure out which card would be most advantageous to use.  Cashback, double rewards points, and other perks can add up quickly.  These can help you repay yourself after the holiday season.
8. If you are an avid Pinterest fan and a bit creative, maybe try some crafts as presents.  Kids love custom crafts…and do they really need ANOTHER transformer or baby doll?  Gifts from the heart often mean more anyway.  I have seen some amazing things done if you love to shop at Michaels and have that creative bone.  Try one creative gift per person on your list and you probably save big bucks!
9. Wisebread says that if you are looking for high demand items, they don’t go on sale until retailers have an idea of inventory levels.  For instance, if you are looking for a high-end laptop you’ll want to wait until December 13, which is when computers are the cheapest of the season.
10. When shopping online try this trick…Load an online shopping cart with your wants this week and then clear or empty it without making any purchases.  Online algorithms watch this since they now know your interests.  Isn’t AI a beautiful thing?  If you don’t purchase right away, many retailers will then email you a coupon for up to 30% off for Black Friday.

Hopefully, these tips can save you a few bucks over the next few weeks.  Happy Hunting!

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The post Due Diligence appeared first on See The Forest Through The Trees.

However, some investment managers add more and more securities to portfolios as they raise assets. The practice of adding too many securities for diversification purposes has significantly diminishing results on risk reduction. While diversification has many benefits, the process of adding too many securities can have the effect of “diworsification“.

This practice can have the effect of producing “closet index strategies”. When analyzing investment strategies you want to make sure you are not paying active management fees for a strategy that basically mimics its benchmark. Thankfully there is a metric that can be analyzed to see how “active” a manager is. “Active Share” measures the percentage of a portfolio’s holdings that differ from its benchmark. A low active share could be problematic because it may limit the ability to outperform. Conversely, higher active share has the potential to identify managers who are more likely to outperform over time. The use of “active share” in addition to other analysis techniques such as factor tilting toward value, quality or momentum has the potential to not only avoid underperforming funds but identify ones more likely to provide outperformance in the future.

In a 2006 paper by Cremers and Pegajisto of Yale, they examined 2,650 mutual funds from 1980 to 2003. They found that those funds with an “active share” of 80% or higher beat their benchmark indexes on average by 2% to 2.71% before fees and 1.49% to 1.59% after fees, per year. Active management has the potential to outperform benchmarks over time, but it must be truly “active”. In addition, the authors found that those that consistently outperformed were extremely disciplined within their strategies and held their securities much longer than average (through periods of weakness).

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Investing in stocks and mutual funds involves risk, including possible loss of principal.

Investors should consider the investment objectives, risk, charges and expenses of the mutual fund carefully before investing. The prospectus contains this and other important information about the mutual fund. You can obtain the prospectus from your financial representative. Read carefully before investing.

Source: DeMarzo, Peter, and Jarrad Harford. “Chapter 12 Systematic Risk and the Equity Risk Premium.”

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Dual income households have changed the dynamics of the family. Many of us are trying to figure out how to find the right balance. Between getting ready for work, getting the kids ready for school, going to work, coming home from work, picking up the kids from school, preparing dinner, helping with homework, working out at the gym, cleaning the house, doing the laundry AND enjoying quality time as a family, many of us are walking around exhausted! What if I told you there was a way to create some free time… Quality time to connect with your kids, to connect with your spouse, or to just decompress.

While many of us struggle day to day to find time to perform all these duties in addition to our responsibilities at our job, there is something we can do to create more quality time in our day and it is often overlooked.

It seems to me, now more than ever I hear about cases of “road rage” on the news. It now takes the average worker 26 minutes to travel to work, according to the U.S. Census Bureau. That’s the longest it’s been since the Census began tracking this data in 1980! Back then, the typical commute was only 21.7 minutes. The average American commute is now nearly 20 percent longer. Doing the math, that is 52 minutes a day, five days a week and roughly 49 weeks a year (an average 23 vacation, sick and holidays make up the rest according to the BLS). That is a little over 212 hours spent commuting, just getting to and from work. A full 50% of us are commuting far more than that.

There are many reasons for a long commute; your company may have moved, you may not be able to afford to live near your place of employment or you may be taking care of an elderly family member. But, for many of us, it was a choice.

If you are looking for a better work-life balance it may come down to choice. Either find a great company to work for near where you want to live or find a place to live near the company you work for. Life is full of choices. For many of us, we get caught up in the day to day drama of life and forget that we do often have choices. The internet has leveled the playing field and provided more options than ever for people to find their ideal situation. If you are trying to find a better balance and find more time for you and your family, explore ways to limit your commute. You may find you have more time, are less stressed and are generally happier.

The post How to Find More Time in Your Day appeared first on See The Forest Through The Trees.

Many people get stuck focusing on the minutia and miss the bigger picture.  Hopefully, I will help guide those that read this blog by providing pros and cons of widely believed parts of financial planning.  I encourage your feedback, positive and negative as I begin this blog.  Til Next Time!

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