I have a friend (Mitch) that always shares: “I’ll start investing in my brokerage account when we get the house paid off.”
Mitch and his wife responsibly contribute to their 401(k) plan, but unfortunately, that’s it. All their extra money goes toward paying down the mortgage.
Some context on Mitch’s situation:
- At age 40, Mitch and his family moved into a $500k house, 3.625% mortgage
- Five years later, at age 45, Mitch and family purchased an $800k house, 2.75% mortgage
- Age 50, his family moves again, into a gorgeous $1.3m house, 6.25% mortgage
Mitch, like me and many others we work with, upgrade homes often.
However, now he is 5 years away from where he would like to retire with all (ok, about 98%) his money in two places:
- A pre-tax retirement plan
- His primary residence
Mitch and family are millionaires on paper—but they feel broke. They’re not quite living paycheck to paycheck, but there isn’t much margin. They have about 98% of their money in only two places: pre-tax retirement plan (401k), and their primary residence.
Neither of these are liquid.
Mitches wife, Samantha, works at home and raises their two girls. He has a great career in operations and makes good money, but also a somewhat capped upside.
In a recent conversation, he said, “I sure wish I took your guidance more seriously, I would’ve started investing in our joint brokerage account years ago instead of funneling every extra dollar onto a low-interest mortgage… that we were going to move on from anyway!”
Look, I’m certainly not against paying down debt or your mortgage, but I just want everyone to understand that it comes at the cost of something else.
Like most things in life, moderation is reasonable.
After 20 years in the business, I wish I would have started saving investing more in my joint brokerage account earlier and I think most other people do as well.
It isn’t the most efficient. It doesn’t provide any tax perks. But…
It provides financial confidence & freedom.
Just maybe, it
- Gives you the courage to take the leap of faith to start the business you dreamed of
- Inspires you to buy the beach house
- Empowers you to take a sabbatical
- Provides the comfort to leave your high paying job for something else with more long-term potential or meaning
Math doesn’t have to math.
It doesn’t have to make sense to your Dad, uncle, neighbor, or anyone else, but it does need to make sense to you.
Mitch and family will be fine. They will get to the finish line, but just with a little less margin and a little more stress than they’d like. Financial confidence isn’t found on an Excel spreadsheet.
If you want help building some extra confidence into your plan, let’s get to work.
–Nic
This is a hypothetical story and not indicative of any specific situations or client. It is presented only as an example and not intended as investment advice. Investing involved risk and there is no assurance that any investment strategy will be successful.
