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Cheat Sheet Q & A:
Refi into a shorter duration loan:
Bottom Line: Today’s question comes around every so often but my answer is almost always the same. Should I refinance a 30 year fixed rate mortgage in a shorter duration loan (20 or 15 years in this case)?
My mostly static answer is no. Why you ask? Let’s go through the pros and cons of a shorter duration mortgage.
Pretty straight forward. So why does the flexibility outweigh the shorter duration and lower mortgage payment?
I’m a fan of a disciplined strategy of paying off all debt including your home (in addition to investing) and my first rule of retirement planning is “a mortgage isn’t a retirement plan”. I believe in setting yourself up for the best chance of success as you work towards those objectives.
You’ll save about half of one percent with a 20 year duration vs. a 30 year & about three-quarters of a percent with a 15 year fixed rate. While that’s nice it’s not near significant enough to warrant limiting the flexibility on an ongoing monthly basis. The odds are that over the course of 15 years or more you’ll face a period of adversity which could include leaner earning years and/or significant unplanned for expenses. Instead I prefer that you pay extra principal towards the mortgage when you have the opportunity to do so. You may well still be able to pay your home off in 20 or 15 years while having a lower minimum monthly payment over the long run if life throws you unwanted adversity.
If you have a topic or question you’d like me to address email me: email@example.com
Update Newspaper circulation:
Bottom Line: Earlier in the week I cited a story that showed newspaper circulation suddenly increasing around the country by 5% in 2012 after a decade of straight declines. I also hypothesized that something fishy likely was behind the increase. In particular I cited a practice that began in the late 90’s with a newspaper I worked for at the time. The practice… Just deliver the paper – regardless of who pays and who doesn’t.
No company will come right out and say they are doing this but I was told point blank that hitting certain circulation levels for advertising purposes was more important than some people actually paying for the paper. It appears as though my hypothesis may actually be correct.
Since citing that story I’ve heard from numerous listeners that have cited receiving newspapers they hadn’t paid for. In all situations they did have a subscription once upon a time (in one case it had been ten years since they paid for a paper). So if this is taking place that could be the dividing line. Some newspapers may be sending former subscribers papers for free to hit certain circulation goals. Two different local newspapers were cited by listeners who reached out to me…
Survey shows stunning insight into the economic reality of most adults:
Bottom Line: I don’t think any of us would be surprised to find out that the biggest societal concern for adults is the economy. In a WSJ/NBC survey just over 50% of adults cited economic concerns as the biggest stressor today. More alarming was the follow up question that dug a little deeper on the economic situation for the average adult.
84% of adults cited consistent stress over meeting monthly expenses. 84%! That’s far and away the highest number I’ve seen. It’s certainly explainable though.
We’ve been suffering in a stagnant economy for years. For meaningful improvement in the quality of life for the average American, we need sustained economic growth of 3% or better. We haven’t had that since 2007. We’re now six years into a negative or slow growth economy that only reached 3% one time during that period. It’s why we have low wage growth (averaging 1.8%) that has been eliminated by inflation on food and energy. It’s why unemployment and underemployment rates haven’t significantly improved. Add in the tax increase in January that every American had to swallow (2% Social Security tax) it’s its understandable that more than 80% of adults are stressed every month by the economy. It’s also very sad. What we really need is economic growth. Unfortunately we don’t have political leaders that understand how to enact policy to meaningfully grow the economy. Since we elected them in an ironic way we’ve brought this stress on to ourselves.
Today is the big day for T-Mobile – the debut of the $99 iPhone 5 without a contract:
Bottom Line: So we’ve talked about the new era of T-Mobile. Today it’s here. T-Mobile has become the first national wireless company to end the two year contract model and today they will present the iPhone to their customers for the first time. We’ll soon know if this new approach is what many have been waiting for. Let’s go through the details of the new iPhone 5 plan with T-Mobile:
It’s worth noting that this is the new standard structure for other high end smart phones at T-mobile. Now while there aren’t two year contracts that you have to agree to you’ll notice the $20 monthly surcharge for two years. If you do the quick math you’ll notice that you’ll end up paying $480 in surcharges over the 24 months and a total of $579 for the iPhone in total (including the original $99 payment). That’s not necessarily a good deal vs. $199 upfront with a two year contract… But that’s for you to decide starting today.
Yes the stock market is at a new high even if you adjust for inflation:
Bottom Line: The stock market just keeps on keeping on. Decent economic news – new highs… Poor economic news – new highs… Occasionally you’ll hear someone say that the market really isn’t at an all-time high though. Why? Let’s first address the individual indexes. The Dow, S&P 500 and NASDAQ. The Dow and S&P 500 have been posting new highs but the NASDAQ hasn’t been (and isn’t close it’s at 3300 vs. an all-time high of over 5000 in March of 2000).
Some have made the argument that in reality the Dow and S&P 500 aren’t at real all-time highs. When you adjust for inflation the indexes are still about 11% off of their inflation adjusted highs – or are they?
In reality both indexes are at all-times highs even when you adjust for inflation if you accurately factor in what investors actually received on a total return basis. The index values don’t factor in dividend payments which account for 2/3rds of investment returns historically.
The new era of TV watching putting Netflix in perspective:
Bottom Line: The future of TV watching is through streaming. Eventually all TV will be transmitted through an internet connection rather than a piece of cable or satellite dish or boxes. It’s being used by tens of millions already and we have new perspective on the size of the largest streamer – Netflix.
In the first quarter of 2013 - 4 billion minutes of streaming TV content was consumed. By comparison that’s the size of the Disney Network already.