What If

What if I’d kept my original loan and just paid extra.  How much would I have had to pay to be finished by now?  \$1200 extra payment/month.  Would have been \$24.4K total interest… which is less than what I paid before I refinanced.  So that would’ve been a good deal.

Q:  What if, instead of paying down the loan, I’d invested \$1200/month in the S&P 500?

S&P 500 Dividend Reinvestment and Periodic Investment Calculator

After tax result: \$128,171.6

And what would my loan look like?  \$110k loan remaining.  \$44.5k of interest paid.

After paying off the remaining loan, I’d have \$17,950.94 in the bank… plus the tax writeoff on \$20k of additional interest, which would be \$12,400.  So investing was better by \$30k.  Given that I think there’s going to be another recession, and given the interest on my current loan is relatively small… should I make a different choice this time around?  Use my “cheap” debt to invest in the overall market after the coming crash?

Regardless… any scenario where I saved \$1200/month starting in 2009 would be better than where I’m at now.

What an amazing time that I wasted.  If I had money in 2009 to invest, like a big lump, the total returns, dividends reinvested was 128.554%.

For that matter, if this is going to be a repeat, then I should sell the condo now and invest everything in a stock index after the crash.  That would put me at \$685.5k in 2023 just from the condo proceeds.  If I’m investing \$4k a month on top of that, then I’d have \$445,413.03.  Total of \$1.13M.  And I’d be 38, which is when I want to be worth \$1M.  So that would be right on schedule…

Assuming condo price has to stay constant b/c salaries don’t increase, if I pay off the condo and just invest money and the same thing happens, I’d have \$370k+\$668k = 1.038M.  So similar as before… the important thing is that I save money.  It’s possible the market can come out better.

For moving out of the condo, I’d be compensated \$92k over 7 years.  \$13k/year after tax.  A little over \$1k a month.

Of course, that’s also assuming the stock market drops and then goes straight up starting from like yesterday, which is not really the scenario I’m dealing with.  Plus, it would require me to sell the condo *before* the crash for top dollar.

Q: What did the P/E ratios look like in 2007, before the crash?

A: 17.36.  Guess what it is now?  17.  But realize that 2008 it was 21 and 2009 it was 70.  I guess because the earnings went way down.  So P/E ratio by itself doesn’t seem to indicate much.

Okay now, let’s look at a worse case scenario.  In 7 years, the condo is worth \$300k.  I save \$5k a month instead of \$6k, and I get no value from the stock market.  Then I’m at \$660k.  Which isn’t bad exactly, but it’s no fun compared to the other numbers.  Okay, so the question is, if the stock market is going to be crap, What should I invest in?  Let’s assume I can get a 6% return from Lending Club or whatever.  Then instead of just get \$360k from investing, I’d get… \$443k.  Leaving me \$743k.  Nothing to sneeze at, but still doesn’t hit my \$1M minimum goal.

Okay cool.  So we’re talking about a result of \$685k – \$1.13M, depending on the market and depending on my behavior.  Okay cool.  That’s where I’m going… what about where I’ve been?

What was my net worth when I bought the condo?  I had a net worth around \$56k.  Today, mostly because I leveraged the condo mortgage debt, I have a net worth around \$385k.  It could have been much higher.  I mean, if I’d just saved \$2000 a month for the last 7 years,  I would have \$168k more than I do now.  If I’d invested it in the stock market, I’d be at least \$200k ahead of where I am now.  Percentage wise, that’s 50% greater.  So I really messed up.  I could have had \$585k by now and been that much closer to freedom.  I sacrificed my freedom for… a closet full of crap I don’t use.  And \$585k is a low estimate, because for the last 5 years, I likely could have invested \$3-5K instead of \$2k.  So really I could have had \$700k by now, and already been “retired”.  Oh well.  No point in moping.