1- Mike, I was rather horrified by your degrading messages. Money strategies aside, making asanine and inane comments about someone’s trailer and alluminum can selling is ridiculous and certainly brings no merit to your arguments.

2- I wanted to share my personal plan, which is as follows:
we own two houses, one in my name and one in his. We live in “my house” and rent out “his.” He has a 30 year mortgage but has been paying on bi-weekly payments plus extra payments for a few years, and is roughly three years from paying it off (about 12 years early.) I bought my house in 2008 at 5.625% on a 15 year fixed loan. I made the minimum payments until around 2010 when I started making bi-weekly payments, but still the minimum payment for that plan. We started the plan to pay off all other debt, he sold a car, paid off his 2010 dodge ram truck (4 years early), and I just paid off my TL-S last month (3 years early.) We have no other debt besides our two mortgages.

I was contacted by my mortgage company (Wells Fargo, for those interested) who advised me that my loan was owned by Fannie Mae, and just managed by WF. FM was offering a program for a free refinance. After a lot of questions and research on my end I discovered it is actually a zero cost refinance being paid for by the American tax payers (so, thank you!) and have chosen to go through that process. They’re dropping my rate from 5.625 to 3.625% with zero cost to me (yes, I’ve read the fine print.)

I’ve made the decision to a) continue with bi-weekly payments, b) keep paying what I WAS paying on my mortgage, which will be about $300 more a month than the new minimum required payment, and c) ADD the $750 I was paying each month on my car to the mortgage payment.

By doing this I will have my house paid off in under 6 years, so that by the time I’m 39 (and he’s 46) we will own outright two homes, one worth about $155,000 and the other worth about $200,000.

At the same time he puts what he can into his IRA and I put 15% (with an annual increase of 1%) into my 401k until I’m maxed out on the amount I can contribute (at my current income level I will be maxed out in something like 2 or 3 years, so will just maintain the maximum contribution limit after that, and start adding more into my IRA.)

So, I am accomplishing two very important (to ME) things: 1) I’m paying off my mortgage as early as I can, thereby reducing my stress and my personal risk, and 2) I’m contributing to my 401K and IRA (i.e. diversifying my investments) to aid in my comfortable future.

Combined with my pension and SS (if that’s still around when I retire, which I’m highly doubtful of) I should be doing okay.

Our plan after we pay everything off is to increase our investments but also dramatically increase our savings so that we can purchase another home and have two rentals plus one live-in (and possibly have additional rentals down the road, as we can afford to purchase them with cash or near-cash.)

This is our plan for our future, at the risk level that we tolerate.

If our cars break down, we will have money in savings (liquid) to pay for a new one (or should I say “gently used one”) with cash, maintaining a zero-debt balance.

I applaud everyone who has looked into their hearts and minds and chosen the right path toward financial independence, the path that is right for THEM. This is MY path for financial independence – my ultimate goal of being totally independent of anyone else for my comfort and wellbeing.

Oh, and Mike? I actually DO recycle my aluminum cans for money, so I guess that makes me a trailer park sheep?

I readily concede that one solution does not fit all AND I salute your newfound moderation in tone.

MY bottom line issue with your posts, sir, is that you’ve done a little math and found an investment strategy that you like.
Having done so, you have come onto this forum to berate a bunch of people whose gut-level understanding of risk is leading them to a strategy that might well be “better” than yours.

By “better”, I’ll even concede that what you recommend will likely yield more money 8 times out of 10.
However,
(gotta throw this in there because I know you love it when I use metaphors I’ve heard from someone else)
if you cannot swim, the fact that the average depth of a lake is 3 feet WILL NOT HELP YOU when you’re in the 9 feet deep part.

Translation: people who live well within their means and pay off their mortgages are managing the risk that they will get laid off, become disabled, or otherwise loss significant sources of income. Even if these unfortunate events never occur and they suffer some opportunity costs based on their actions, that doesn’t necessarily make them wrong. Or sheep. Or lemmings.

It’s also clear that you don’t know

http://en.wikipedia.org/wiki/Ruin_theory
http://risktheory.net/
http://en.wikipedia.org/wiki/Expected_utility_hypothesis

what you don’t know, and it appears you are unlikely to learn.

Good luck anyway, things will probably work out ok for you.

A real-life example of why maximizing the expected value of the return is not always the way to go:
When you buy homeowner’s insurance that is correctly priced, you will ALWAYS pay more than the expected value of any loss you might suffer.

In order for your insurance company to remain viable, your insurance premium must cover
1) the annual expected value of any loss you will suffer.
2) administrative costs (administering billing/premium collections, paying adjusters to evaluate your claim when you suffer a loss, determining and filing insurance rates, underwriting & pricing your policy, paying agents’ commissions, etc.)
3) a PROFIT for the insurance company.

Paying for all of the above means paying a premium that is, on average, MUCH higher than the average loss suffered by a group of similar properties in a given year.

Despite the fact that, on average (like investing in the stock market vs. paying down your mortgage) you would come out ahead skipping homeowner’s insurance and investing the premium, reasonable people would rightly view someone who chose to “go it alone” as an idiot.

This is because not all dollars are created equal.

$400,000 LOST to a house fire (for argument’s sake, with a probability of 0.0015 X 400,000 = an expected loss of $600)

is much more BAD than $800 GAINED in saved insurance premiums is GOOD.

That is, for most folks (and rightly so), investment losses have a higher negative utility (they “hurt” more) than similar investment gains have positive utility. People intuitively get this. It doesn’t make them “sheep”, it is actually very reasonable.

Of course,
“we shouldn’t just assume that mortage lenders always know what they are doing, as 2 of the largest ones became insolvent as a result of bad mortgage loans”
is a point well made, and well taken.

MY beef with above financial savant above is that, in grasping the concept of maximum expected value, he thinks he understands EVERYTHING about finance and investing. Even though he is blind to risk, utility, and ruin theory.

Like a chimpanzee with a handgun, he means no harm, and yet…