Monday, October 29, 2018

Today's Painful Financial Lesson

If you hold individual stocks or bonds, you must keep a regular eye on them and any news about them.  One of the mildly risky bonds in the oil business (PVL) was attractive because it had a high dividend.  Sometime when I was not looking, the dividend dropped to .8% per year.  A few others have gone from decent dividends to very poor, like FTR.  Of course the value of those bonds and stocks has fallen with the rest of the market, to levels that profoundly disappoint me.  I would like to think this is going to turn around soon, but the risk that the probably overestimated Blue Wave might happen in a few days means that I do not expect any dramatic recovery in the near future.  A Red Wave might help, but higher interest rates are likely to keep a damper on the party.

I had taken out loans on the Jaguar and the Jeep because when I was getting 28% gains in portfolio balances, paying 2.3% and 0.6% interest on car loans made sense.  Tomorrow I will sell some of the losers and pay off both loans, saving about $1000 a month in cash outflow.  Also, no need for gap insurance rider on my car insurance.  It would be nice if today's bloodbath was followed by some recovery tomorrow as I sell.

And I think I will pay off the mortgage, too.  Debt free and $2100 less bills to pay each month.

4 comments:

  1. But... if inflation increases a bunch, which bonds may be signaling, it's better to have cash and be paying interest on old loans with devalued dollars than to have paid them off.

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  2. Probably true. But the Fed increasing interest rates may also be virtue signalling to the rest of the Swamp. I think inflation remains a very legitimate concern, but over the remaining several years of the car loans, that is not as valuable as having $2000 surplus each month. The mortgage is another matter: it has 18 years to go and it is an ARM, so rising interest rates are going to make it increasingly painful.

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  3. One reason to pay off the mortgage now would be the potential loss of some of your income that a severe economy upset could cause. Paying it off over time with decreasingly worthless dollars is all well and good, providing you have a guaranteed income. Such an entity is looking to be a vanishingly rare item. Better to have a roof over your head that is paid for, than being in the position of trying to find a buyer in the equivalent of the Great Depression or worse.

    A friend lived on a street of $2M+ McMansions in San Jose that were only a few years old when the Obama crash hit. Lots of those houses were sold at short sale for ~$600k. People were dropping off the keys at the bank and walking away. 10 years later, they are just reaching the same price as they were new. I suspect that a fair number of those were speculators caught in the process of flipping them.

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  4. Will: My Social Security Disability check is an guaranteed as anything can be said to be. The income from my IRA is not so much.

    For a while realtors in the Boise area flew speculators in from California and took them around in buses. Some bought 40 houses in a trip. The results by 2010 were horrifying.

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