Pay Off Your Mortgage Early or Invest?

With higher safe returns available, the calculus on this important household capital allocation decision has changed. [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_improvingfinances&utm_content=52566&elqTrackId=7ed98acd52bd49f09b3cb48c9855ab71&elq=f2a81bf22fb94d00a965ab71edf38cd8&elqaid=52566&elqat=1&elqCampaignId=26520) [Improving Your Finances] Improving Your Finances with [Christine Benz]( [Christine Benz] “Remind me why you still have a mortgage?” Our financial planner posed that question to my husband and me about a decade ago. He pointed out that we weren’t getting much of a tax benefit from carrying the debt because such a big percentage of our payments were going toward the principal at the tail end of our 15-year loan. He could also see that we had the cash; it was sitting in our Vanguard municipal money market fund earning much less than our 2.875% mortgage rate. In other words, mortgage paydown promised a higher return on our money than it was earning in our investment accounts. But with higher yields now available on safe securities, and many people holding mortgages with rates below those levels, the calculus around mortgage paydown has changed meaningfully. In this week’s column, I walk through [the key questions to ask when deciding to pay down the mortgage or invest](. This article is part of a recent series about the implications of higher yields for financial and retirement planning, including [retirement asset allocation and withdrawal rates]( as well as [annuities, long-term-care insurance, and Social Security](. I also appreciated [John Rekenthaler’s closer look at the stocks that have been dubbed “The Magnificent Seven.”]( If, like me, you’ve been thinking this feels a lot like the late-1990s period, John compares the Mag 7 with the top-performing tech stocks in the late 1990s as well as the Nifty Fifty of the early 1970s on valuation, business quality, and more. John comes away more sanguine than I am, but as always, his piece is great food for thought. We’re coming into the home stretch on tax season. And I’ll confess, having just reviewed our 1099s, that our record with [asset location]( has been less than perfect. A fund that we hold in our taxable account and very much like otherwise has been a serial capital gains distributor. The good news is that [a tax-efficient makeover may cost less than you think]( if you’ve been reinvesting those distributions back into your holdings. Many folks also rush to get money into an IRA before the April 15 deadline (for the 2023 tax year). The question is, does the backdoor Roth IRA still pass muster? [Tax-planning guru Ed Slott says the answer is yes, but just be sure to mind your p’s and q’s](. Finally, Amy Arnott and I had a delightful conversation with Anne Lester about her new book, [Your Best Financial Life](. Anne was in charge of retirement funds for many years at JP Morgan, but this book is entirely personal and focused on helping young adults get their financial footing. I hope that you’ll enjoy the discussion as much as Amy and I did. With warm regards, Christine [Pay Off Your Mortgage Early or Invest?]( Higher safe yields in 2024 upend the old rules related to mortgage paydown. [Find Out More]( Share: [facebook]( [twitter]( [linkedin]( ADVERTISEMENT [media]( [media] [Anne Lester: You’re Bad at Savings and It’s Not Your Fault]( An author and retirement expert discusses the financial challenges confronting young adults and what financial advice she’d give her younger self. [Listen Today]( [How Rising Interest Rates Affect Your Retirement Plan]( Be aware of implications for returns, withdrawal rates, and asset allocation. [Read More]( [3 Key Retirement Decisions Affected By Higher Yields]( How to factor in higher rates when deciding whether to purchase an annuity or buy long-term-care insurance. [Take a Closer Look]( [The Magnificent Seven: Fortune or Folly?]( An impartial look at these stocks’ long-term prospects. [Dive In]( [How to Use a Backdoor Roth IRA]( Details and tax implications to keep in mind from tax and IRA expert Ed Slott. [Watch Now]( [A Tax-Efficient Portfolio Makeover May Be Less Painful Than You Think]( Proper accounting of cost basis is essential to avoid paying more in taxes. [Find Out More]( [Best Practices for Tax-Efficient Portfolio Management]( ‘Asset location’—deciding which assets go in which accounts—should be a dynamic process, argues financial planning expert Michael Kitces. [Watch Today]( [Should You Keep Foreign Stocks Out of Your IRA?]( Tax considerations suggest yes, but other factors may argue against it. [Read More]( Listen Now Get the latest investing insights and market updates with [Morningstar’s podcasts]( available on your iPhone, iPad, Android, PC, or smart speaker. Stay connected: [twitter]( [facebook]( [linkedin]( [instagram]( [YouTube]( [Apple News]( [View online]( | [See all newsletters]( | [Share your feedback]( [Unsubscribe]( from this newsletter. Or update your [email preferences](. © 2024 Morningstar, Inc. All Rights Reserved. 22 W. Washington St. Chicago, IL 60602