Comments on: “Another Bank to Fail: Gone Fishin’ Portfolio?” Oxford Club

By: M Toleno

M Toleno — Sun, 16 Aug 2009 18:09:16 +0000

If you’re in a 9.3% state tax bracket and the 25% federal tax bracket and you pay (as most do) 7.65% on all dollars for FICA, your overall marginal tax rate is 41.95%.

Assuming you have enough to itemize to begin with: If your mortgage is 6%, and you pay an extra $100 in principal, over one year you would reduce your state & federal tax deduction (no deduction for FICA) by $6.00, which would cost you $2.06 in tax savings ($6.00 x 34.3%). Keep that $2.06 figure in mind.

On the plus side, over the course of a year, you would save $6.00 in interest. In order to have $6.00 extra in your pocket, you would need to earn $10.34 ($6.00 / (1 – 0.4195)).

So, you gain $10.34 but lose $2.06, for a net gain of $8.28. So by paying down principal, you are getting the equivalent of an 8.28% before-tax return, even considering the impact of lost tax deductions.

I don’t know any investment that will give me a rock-solid, 100% guaranteed 8.28% before-tax return in any market. That’s why I’m paying off my mortgage as fast as I can. (But we’re also maxing Roth IRAs and almost maxing 401(k) contributions.)

By: Don’t Worry, Go Fishin’ «

Don’t Worry, Go Fishin’ « — Thu, 09 Oct 2008 13:10:17 +0000

[...] a couple of opinions on Green’s investment strategy out in the market place: Daily Wealth, and Stock Gumshoe. We’d love to hear your thoughts as [...]

By: farley 5

farley 5 — Mon, 22 Sep 2008 14:31:29 +0000

I am also puzzzled. Most folks are at 28% Federal and 5% state. (Yes, some states do not have taxes). A 6% loan after the tax deduction equals a net 4%. Not a tough nut to crack in a “normal” market. Add to that the real return on your downpayment for the house and home mortgage looks good.

By: bob zimmerman

bob zimmerman — Mon, 22 Sep 2008 12:48:03 +0000

I am always puzzled by the advice to ‘pay off’ the home mortgage. It is the best tax shelter avilable to the man on the street.

These days it is possible to have your investment grow over 7% in a tax sheltered account and still participate in the stock market. Yes, there are fees, and yes it is an annuity account. Would it not be great if Vanguard would let you aggressively and give you a 7% guarantee? Would anyone care to pay a fee?

By: theaccusersgift

theaccusersgift — Thu, 18 Sep 2008 04:36:06 +0000

http://www.amazon.com/Live-Without-Outliving-Your-Money/dp/0470226501/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1221712510&sr=8-1