Does the state of the market influence your strategy? (I'm not talking about selling, just where you put your surplus.) I have a couple thousand in surplus per month and have been putting it in a taxable brokerage, but while the market is down I'm wondering if I should use it to pay down my mortgage (5.25%) or keep investing it. I'm still ~20 years from retirement and not sure if we'll retire in this house, or even buy another house after this one or go back to renting, but maybe worth noting that I'm about $100k underwater because we bought at the price peak in 2022.
Thanks for your insight!
While the market is down, should I continue dumping cash into investments, or pay down my mortgage?
byu/formalde_heidi inpersonalfinance
Posted by formalde_heidi
15 Comments
>Does the state of the market influence your strategy?
No. It’s temporary. You can’t predict the market, so changing how much you invest based on what the market is doing this week/month/year is pretty pointless.
Generally, you should not pay attention to the state of the market in your personal financial choices. That’s exactly what we call trying to time the market, which is a losing strategy.
With your mortgage interest rate, it’s slightly better to invest than pay down the mortgage early. That said, being underwater is bad so you might want to pay it down to at least even for peace of mind.
Why would you stop buying into the market when the market is on sale?
I’d pay down my mortgage as fast as I could.
You are thinking this all wrong. The market is ON SALE. Best time to buy.
However, do you also have an emergency fund? If you have no other debt and 3-6 months of cash in savings, then you can go either way.
Redditors argue all the time about whether to pay off mortgage or invest. 5.75 is right about where I’d be wanting to pay it off early rather than investing.
So you’re asking if you should stop buying stocks when they are cheaper, and only buy stocks when they are expensive?
Your strategy should be dollar cost averaging, meaning you stay consistent with your investments regardless of swings.
>but while the market is down I’m wondering if I should use it to pay down my mortgage (5.25%) or keep investing it.
Why would you not want to buy more now that things are cheaper? You’re asking if you should invest more when they cost more. If you are uncomfortable being underwater on the mortgage you could do 50/50 split with your extra money. Being underwater isn’t a concern till you sell and you may not do that anytime soon.
No.
Your mortgage rate remains the same regardless of what’s happening in the stock market, so not sure what the logic would be for increasing your payments as a result of current conditions. Yeah, you should probably get yourself out from being underwater. But that was true before the correction.
How you choose to prioritize allocating your surplus shouldn’t change with each tweet or headline.
You’ve heard of “buy low, sell high?” This is the “low” part.
Look at it this way. The market is currently on sale. Why wouldn’t you buy something when it’s on sale. DCA is your friend.
Depends. Do you think this will impact where the market will be in 20 years? If yes, then you need to re-evaluate if your investments are good investments. If no… then keep going.
Is this a trick question?
Honestly at 5.25% it would be close for me. My interest rate is 3.6% so an easy decision
At 5.25 percent keep investing. They can’t foreclose on your stocks; they can foreclose on your house and regardless of how much equity you paid in you’ll still loose at all if they do because you’re underwater. And if you itemized 5.2% is more like 4.
In otherwords, I’d rather have the money available to use.
I would consider paying extra principal into the mortgage. It’s a guaranteed 5.25+% (after taxes) return on the money. The market is not in “sale” territory, and there’s too much uncertainty there IMHO to keep dumping cash in there. Balance is never a bad strategy.