Debt Is a Trap That Will Hold You Back From Building Wealth
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What advice should I follow when paying off my mortgage?
You too. What's up?
I have a husband who's retiring within the next 12 months. and we'd like to finish paying off the mortgage on the house. Good. Yes, per your advice. And our financial advisor is advising us not to because the mortgage is at under 3%, and our investments are doing well above that. However, that doesn't matter to us. We want to plow ahead and get this done. And our next question to him is, how can we best divest of our investments and pull the money out, make the cash available to do this? And his next tier of advice is to pull from our bonds that are earning at tax-free rates as opposed to pulling from our mutual funds that we'll have to pay capital gains taxes on. What do you suggest we do?
You probably got no gain on your bonds. Their probably value is down even though the coupon rate stayed the same. But as interest rates rise, bond values go down. And so my guess is that you bought them during a lower interest rate environment, so they're probably not even worth what you paid for them today. Is that right?
I'm not sure. That's a good question.
I don't think you're gonna have any gain to amount to anything. So I like his advice on that basis.
Okay.
And what is your total nest egg?
$4 million. $800,000. Okay.
Good. Good. And you guys are how old?
69 and 67.
Cool. And how much have you got in these bonds?
That I don't know. That's a good question.
Is it about $800? Is it enough to do this?
Yep. I think so, yes. Yes. By the way he was talking about it. I wasn't that, not that specific with him. Okay. Is he the one that put you guys in the ponds, Carol, to begin with? Or was that something that you had? Yes. No, he's been, we've been with him for our entire working career. Oh, okay.
Okay, yes, I agree with his advice on that. I would use the bonds first to answer your question. Okay, this guy, you need to be aware of a couple things here with this guy. I'm not quite ready to fire him, but I'm close. Right. Okay? I hear you. Number one, because he... His job is not to take his glasses on the end of his nose and speak down to you little people who have $4 million and you shouldn't be paying off your mortgage. Listen to the wise financial advisor because bull crap. His job is to say, okay, what are your goals and how can I help you accomplish them?
Yes.
So I don't like his approach to this, and it's very typical in the financial advising world, this level of arrogance. It's not overt arrogance, but it's a subversive arrogance.
But this advice is very prominent among financial advisors.
That's the second problem I've got with him is he did two very standard things in the financial world that I completely disagree with. One is he told you not to pay off your mortgage, and the second is he put you in bonds.
Right.
And so these bonds, you know, you have a fourth of your money tied up in something that's substantially underperforming because of this guy.
Right. Gotcha. OK.
And that's these bonds. So I'm and because here's the thing. Again, the simple thing to remember about bonds is this in the financial advising world. We have been taught, and everyone for some reason decided to agree with it rather than actually making their own decisions, but the people like me and him that are trained in this stuff, we've been taught that as you get older, we use what's called the asset allocation methodology or theory, and that as you get older, you should be in less and less and less risk. And so that by the time your age, you should largely be in bonds and money markets and have very little inequities, okay? The problem is that everybody just accepted this as if it's a fact. It's not a fact. It's a theory. It's an idea. And I disagree with it. I'm 64. I have zero in bonds and almost the same amount in money markets.
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Chapters
7 chapters
1
What advice should I follow when paying off my mortgage?
0:54–6:32
2
How should I prioritize my debts?
6:32–19:46
3
Why do banks issue so many credit cards?
19:46–22:57
4
How can I stay disciplined while getting out of debt?
22:57–25:21
5
What should I do about my medical bills?
25:21–41:54
6
How can financial advice differ from personal goals?
41:54
7
What are the dangers of credit card debt?
37:48–1:14:02