Everyone, please stop deferring your retirement savings to prepay your mortgages, student loans, and anything else with a low interest rate.

I decided to branch off from http://thewolfweb.com/message_topic.aspx?topic=456138&page=1

[Edited on January 18, 2007 at 10:56 AM. Reason : link]

1/18/2007 10:55:06 AM

ok

1/18/2007 10:56:22 AM

nicely done

http://www.daveramsey.com

1/18/2007 12:58:22 PM

Take with a grain of salt. Like Orman and all financial talkers, they don't make money making you rich, they make money selling products and advertising revenue.

1/18/2007 1:00:49 PM

So, what are your loans at kdawg?

1/18/2007 1:05:08 PM

Dave is such a silly bastard:

Quote :

"Myth: Debt is a tool and should be used to help create prosperity. Truth: Debt is not a tool; it is a method to make banks wealthy, not you."

Wrong answer. Truth: Debt is a tool and can should be used to help create prosperity.

Quote :

"Myth: I should pay off the debt with the highest interest rate first to get out of debt quickly. Truth: You should pay off the smallest debt first to create the greatest momentum in your debt reduction."

This is flat out false. It doesn't create any fucking momentum. Sure, you may feel better that one of your 8 debts is paid off, but the reality is that paying off the smallest debts without regard to interest rates is the worst way to pay off your debts. Fortunately for this tool, most people's debt lines up so that the smallest debt has the highest rate, so it doesn't hurt as much as it could.

[Edited on January 18, 2007 at 1:13 PM. Reason : .]

1/18/2007 1:11:24 PM

Anyone ever read the "Your Money" message board on msn? Its basically full of people who worship the ground Dave walks on. They don't like me there.

1/18/2007 1:38:01 PM

^^ good call on both.

i wonder what this Dave Ramsey cat thinks about buying investments on margin.

1/18/2007 4:11:36 PM

Obviously he isn't for the sophisticated investor. But the majority of America would be better served to follow his advice than the current mindset, which is to spend spend spend putting it all on credit.

He isn't really advocating carry no debt when you think about it, he is advocating don't acquire the debt, because if you are focused on getting rid of debt, then you won't do something stupid like go and by another HDTV and put it on your credit card. It's just the concept of "saving", labeled a different way.

[Edited on January 18, 2007 at 4:20 PM. Reason : a]

1/18/2007 4:20:04 PM

Sure, I bet he thinks social security is great too, right. Afterall, it is just another form of savings...

1/18/2007 4:55:26 PM

Quote :

"Anyone ever read the "Your Money" message board on msn? Its basically full of people who worship the ground Dave walks on. They don't like me there."

That's probably because you say you hate him and then say you haven't ever read any of his stuff.

My rates are 4.9% on my car loan and 5.89% on my student loans.

Quote :

"Sure, you may feel better that one of your 8 debts is paid off, but the reality is that paying off the smallest debts without regard to interest rates is the worst way to pay off your debts."

Very true. But honestly, who cares, as long as you are paying off your debt?

Quote :

"Take with a grain of salt. Like Orman and all financial talkers, they don't make money making you rich, they make money selling products and advertising revenue."

When my wife and I started our budget and plan to get out of debt using the principles Dave Ramsey teaches, we hadn't bought anything from him. I found his first book, Financial Peace, sitting on my parents' bookshelf about two years ago and took it from them. On the same note, if you've benefited from or agree with a service some company/organization provides, wouldn't you want to support the organization when you could?

1/18/2007 5:06:18 PM

Quote :

"Very true. But honestly, who cares, as long as you are paying off your debt?"

You don't think doing it in the most efficient manner possible is of consequence? You must not be very far in debt.

And on the last point: Sure, it is quite alright to purchase Dave Ramsey materials and support him monetarily. The point I'm saying is: He's not your financial planner. He doesn't make his money getting you out of debt. He makes his money with radio shows, books, "debt reduction plans", etc.

A financial planner, however, does make his money getting you out of debt. You should look at the incentives that are lined up for him versus those lined up for you. I'm not saying following some of his principles won't help you, I'm suggesting you make sure to examine every option for yourself rather than swallowing what he offers without reading the warning label.

1/18/2007 5:09:55 PM

Quote :

"Very true. But honestly, who cares, as long as you are paying off your debt?"

That was the exact reply of someone on the other message board who paid their 200K house off in 5 years. Another posted proved that this cost them $1 million dollars in the long run, but that didn't give a damn because they were debt free.

Quote :

"My rates are 4.9% on my car loan and 5.89% on my student loans."

You can get cds >4.9% That's a no risk investment with a higher return. The 5.89% if very low too, especially if you can write it off on your taxes. Either way, I wouldn't be paying those debts off early.

1/18/2007 5:14:38 PM

^I agree, so long as those rates are fixed. I assume the car loan rate is fixed, but the student loans may not be.

1/18/2007 5:19:02 PM

I figured if they weren't fixed they would be higher. Something around prime.

1/18/2007 5:19:27 PM

Quote :

"Sure, I bet he thinks social security is great too, right. Afterall, it is just another form of savings..."

I doubt he likes SS.

1/18/2007 5:31:09 PM

That sarcasm was directed towards the comment: It's just the concept of "saving", labeled a different way.

1/18/2007 5:34:14 PM

Either way, yes, even if those are fixed the net profit is minimal. The highest paying CD I found via google was only 5.46%. That means he would be losing money on the student loans and gaining 0.56% on the car loan. True enough, but you are leaving out risk.

Just because the stock market has given us 10% a year does not make it reliable. If you need money in the future then you can take another morgage out on your house for ready cash. Money in the stock market is not always so easy to get back without losing all you've gained. Recessions have a strong negative growth component. So, paying off your mortgage guarantees you a 5% annual return AND gives you the option for getting cash in the future whenever you need it.

1/18/2007 5:34:45 PM

[Edited on January 18, 2007 at 5:37 PM. Reason : double post]

1/18/2007 5:35:58 PM

Quote :

"That means he would be losing money on the student loans and gaining 0.56% on the car loan. True enough, but you are leaving out risk."

What risk? It's a fucking cd!

Quote :

"If you need money in the future then you can take another morgage out on your house for ready cash."

Exactly, but this is a car and student loan, not a mortgage. What happens if you prepay thousands on a car and student loan and then get laid off and can't find another job? I bet you would regret prepaying all those loans.

Quote :

"Money in the stock market is not always so easy to get back without losing all you've gained."

Do you know anything about the market???

Quote :

"Recessions have a strong negative growth component."

Ahahahahahahahahahaa

[Edited on January 18, 2007 at 5:39 PM. Reason : ]

1/18/2007 5:37:46 PM

Quote :

"A financial planner, however, does make his money getting you out of debt. You should look at the incentives that are lined up for him versus those lined up for you. I'm not saying following some of his principles won't help you, I'm suggesting you make sure to examine every option for yourself rather than swallowing what he offers without reading the warning label."

What he offers? Warning label? He doesn't offer anything. His warning label is: STOP! YOU MAY BE ABLE TO GET OUT OF DEBT FAST WITHOUT PAYING ME A DIME! He says what anyone who has had 3rd grade math has learned: if Joe owes Mary money and wants his money for himself, he doesn't buy more things from Mary. He pays Mary off.

The incentives lined up for me are being out of debt and having my money to do with what I want.

1/18/2007 5:59:01 PM

Quote :

"Do you know anything about the market???"

Yes, and if you had bought the stock in 2000 and sold it in 2002 you would have gotten back 60 cents for every dollar you put in. Sure, as of 2006 you have turned a profit, about 1% per year (rough guestimate based on graph of DJIA and ignoring dividends). This money would have invariably been better put into your house.

1/18/2007 8:20:02 PM

Did you even read the posts in the original thread???

Quote :

"if you had bought the stock in 2000 and sold it in 2002 you would have gotten back 60 cents for every dollar you put in"

What the hell is "the stock" Are you saying every stock went down between 2000 and 2002, because I made money in those 2 years as did a lot of people.

[Edited on January 18, 2007 at 9:59 PM. Reason : ]

1/18/2007 9:53:49 PM

Quote :

"He says what anyone who has had 3rd grade math has learned"

Well, apparently you could use a refresher course on 3rd grade math.

4.9 < 5.46

1/18/2007 10:02:15 PM

Quote :

"STOP! YOU MAY BE ABLE TO GET OUT OF DEBT FAST WITHOUT PAYING ME A DIME!"

You aren't paying him a dime directly. But the fact remains that he needs you to read his shit so the advertisers continue to pay him. He is selling you a product, just like radio (in fact, EXACTLY like radio) whether you like it or not. And the product he's selling ISN'T getting you out of debt. It just happens to be a component he claims as part of his product, even though he does it inefficiently.

Also, LoneShark, you're right in the sense that a mortgage offers you options that CDs will not, but there is no risk component to CDs (or rather, there is, but it is practicially infintessimal unless you consider interest rate risk of opportunity cost) and also, we're discussing consumer debt, not a mortgage.

1/18/2007 10:10:15 PM

David0603, I said where I got that from. It was based losely on the DJIA and ignores dividends. Don't act shocked when someone points out that playing the stock market comes with no guarantees. For example, I assume you owned no Enron stock.

1/18/2007 11:26:48 PM

Quote :

"He is selling you a product, just like radio (in fact, EXACTLY like radio) whether you like it or not. And the product he's selling ISN'T getting you out of debt. It just happens to be a component he claims as part of his product, even though he does it inefficiently."

What product? And when did I pay for it?

1/19/2007 7:57:45 AM

ABC News is having a Debt Special tonight on 20/20 at 10 p.m.

I know Dave Ramsey contributed to it. Maybe, David, you could take the time and, instead of bashing the guy, listen to what he says. This would be the first time, wouldn't it?

http://abcnews.go.com/2020/story?id=2802096&page=1

1/19/2007 8:04:54 AM

Quote :

"David0603, I said where I got that from. It was based losely on the DJIA and ignores dividends. Don't act shocked when someone points out that playing the stock market comes with no guarantees."

Oh wow. You found a 2 year span when the market went down, one of which had a major terrorist attack? You mean.....I can lose money in the stock market? Gasp!

Quote :

"Maybe, David, you could take the time and, instead of bashing the guy, listen to what he says."

For the record, my original comment about not reading anything he wrote was directed towards his books. I've read plenty of stuff he wrote online for free.

1/19/2007 8:25:44 AM

Quote :

"What product? And when did I pay for it? "

The product was entertainment. You listened to him on the radio and/or read him on the internet, right? Well guess what! Advertisers paid him to do so. Therefore, you didn't directly pay for the product, but you did indirectly pay for it through advertising dollars. You paid for it by listening to the commercials or having your peripherals flooded with ads on the website. If you think the man doesn't do what he does to get paid, you're naive.

Quote :

" ABC News is having a Debt Special tonight on 20/20 at 10 p.m. I know Dave Ramsey contributed to it. Maybe, David, you could take the time and, instead of bashing the guy, listen to what he says. This would be the first time, wouldn't it? "

It would absolutely NOT be the first time. See, as a financial adviser, I needed to listen to Dave so I knew what my clients were hearing. The same reason I listen to Orman's blather (although, like Dave, they have points of salience). The point is: I know what Dave has to say, hence when I quoted him earlier, I had read his arguments first.

1/19/2007 8:32:03 AM

Quote :

"You mean.....I can lose money in the stock market? Gasp!"

Yes, that was my point. I was responding to your assertion that risk either did not exist or was irrelevant.

1/19/2007 9:54:17 AM

When did I state such a thing? Of course risk exists.

1/19/2007 10:05:37 AM

But LoneSnark, the market always goes up, why would anyone want to be debt free and have a clear conscience? Don't you know that you are always better off in life to sack away all your money and watch the compounding interest pile up?

1/19/2007 10:09:28 AM

Didn't it hit an all time high again this week?

1/19/2007 10:23:32 AM

Yes, it peaked in 2000 around 11500 and just hit over 12500 after seven years for an effective annual rate of return of 1.2%.
Even a bad CD would have paid 4%.

So, with the stock market your return depends on when and how you invested. Paying of your house pays about the same regardless of when and how.

1/19/2007 10:58:46 AM

Yes, yes, you can arbitrarily pick time spans when the market did not produce high returns. Good job.

1/19/2007 11:06:34 AM

Look, the point is for many many people, the security of not having a huge home debt is worth a lot of perceived value. You can lay out multiple scenarios both strategies. But the strategy for investing will forever and always be more risky.

1/19/2007 11:17:44 AM

Well, it's not that arbitrary. Lets go back as far as my avilable data goes, way back to 1997. In 1997 it was around 7000. Over the next decade to 2007 it went all over the place, at one point in 2001 your net return was about 0.5%. Well, from 1997 to today you can claim a annual rate of return of 6%. If you had taken your money out at any point between 2001 and 2006 it would have been substantially lower.

So, it is not that arbitrary. Any point before to any point after a recession is going to be unimpressive, getting more impressive the further you move.

Now, what would have been brilliant would have been to pay off your house before 2001 and then, noticing the recession and recovery, taken a second mortgage out on the house and put that money into the stock market around 2003. You would have gained 12.6% per year in the stockmarket and only paid about 6% for a fixed rate mortgage at that time. God help you if you leave it in too long and hit the next recession.

[Edited on January 19, 2007 at 11:22 AM. Reason : .,.]

1/19/2007 11:19:32 AM

Quote :

"Look, the point is for many many people, the security of not having a huge home debt is worth a lot of perceived value."

For the kids in the back...

Quote :

"we're discussing consumer debt, not a mortgage."

1/19/2007 11:31:26 AM

Quote :

"Very true. But honestly, who cares, as long as you are paying off your debt?"

that's a horrible way to look at things. now, if you have $1000 of credit card debt at 6% and $5000 of car loan debt at 5%, then it doesn't make that much difference...but with larger amounts of money, longer times before payoff, and greater disparities in interest rates, it can have a big impact, and you'd be a fool to not take that into account.

Quote :

"That was the exact reply of someone on the other message board who paid their 200K house off in 5 years. Another posted proved that this cost them $1 million dollars in the long run, but that didn't give a damn because they were debt free."

exactly. the only true cost is opportunity cost. that's the true price of everything.

1/19/2007 12:01:27 PM

got it...having debt is a good thing

1/19/2007 2:45:21 PM

You are telling me you would prefer to have $5K in an account and $0 in student loans vs. $50K in an account and $45K in student loans?

1/19/2007 2:53:31 PM

No. I'm telling you that, if I had $50K in a savings account and $45K in a student loan, I would use $45K from my savings account and pay off my student loan.

1/19/2007 3:24:20 PM

^^ no, debt is bad, in and of itself. if that debt enables you greater financial gain than it would cost you to pay it off, though, then the net effect of having the debt is good.

opportunity cost rules the roost, dude.

1/19/2007 3:25:26 PM

Quote :

"No. I'm telling you that, if I had $50K in a savings account and $45K in a student loan, I would use $45K from my savings account and pay off my student loan."

I said account, not savings account.

Since you guys want to talk about mortgages so much, let me ask you this. Do you plan to not invest any money whatsoever until your mortgage is entirely paid off?

1/19/2007 5:19:37 PM

Okay, fine, "account."

please remove "savings" from my statement above and add "orange-colored-dwarfish-bobblehead"

because I really wouldn't be saving the money, right? i would be putting it into an account for a later use, which isn't saving at all, its...a not-spending account....yeah....not-spending

1/20/2007 12:25:36 AM

There is a big difference between a savings account earning .5% interest and some other type of account earning much more.

1/20/2007 1:57:57 AM

is there? okay, thanks.

1/20/2007 10:13:33 AM

Quote :

"Do you plan to not invest any money whatsoever until your mortgage is entirely paid off?"

1/20/2007 11:33:21 AM

Do you plan to not pay any money on your mortgage and invest every penny? (assuming you can find a mortgage company willing to accept just interest payments)

1/20/2007 11:51:57 AM