Tuesday, March 28, 2006

Financial jiujutsu for the paranoid.

So, since I don't prefer to be a peasant my whole life, and want to have a debt/income ratio that lets my wife and I do all the things we currently cannot do, I have a thought. I'm one year and no catastrophes (crossing fingers) from being totally out of consumer non-mortgage debt (a car). That's been a long time coming, and enough paychecks and bonus money signed away into the netherworld to make me want to puke, but it's done.

So, what, in principle, would keep one from doing the same thing with the mortgage? Not much. It's an old immigrant tactic. So, here's a strategy for the paranoid, folks like me who simply don't know if the reports they're reading from various stocks and funds is being reported correctly.

1. Pay down the mortgage (live on one person's check, use the other's to pay it off). Unless you're in Fairfax Co., Boston, SF, or one of those Officially Nutzoid Real-Estate Markets(tm), it shouldn't be that bad. We could do it in three to four years, and would have, had we not been still having to buy stuff that folks who haven't spent the last four years in another country take for granted or have three of. And we're pretty middle class. I knew guys moonlighting in freight yards doing the same thing.

2. Once the mortgage is gone, you're then out a tax shelter. If Congress continues with its current exemptions, which assume that you're paying down a mortgage, no biggie. But if not, you'll want that mortgage exemption. So, pick up another mortgage, and pay interest on it. Since you've got the total asset as collateral, it shouldnt' be all that hard to get a decent rate.

3. Roll the money into 3 or 6 month 25k minimum CDs and the like, for an average yearly return of around 5%.

That's not a stellar rate of return, but it's tax-defended, very liquid if you've staggered your deposits in time, and the returns are pretty-much guaranteed, in stark contrast to stocks, which might get me 8%... but which might vanish in a puff of corporate malfeasance tomorrow. If you're a financial smart guy, you could probably do much better, but anybody can pull this one off, and use their hard-bought asset to at least stay a little bit ahead of inflation.

So, come on, financial smart guys: what's a better strategy?

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