As the world goes wonky, yet another topic I’ve seen come up is that of finances, value stores, mortgages, etc.
Conventional financial wisdom involves looking back, running simulations for the past N years, projecting forward, and saying “This is optimal!” - which has worked better than it ought for a while, though this while has been the era of “Make sure the markets go up at all costs” style meddling.
And that works, for quite a while. It can’t work forever, so it won’t, but it’s been a good run.
So, some random things to discuss:
Mortgages, paying them off, investing vs paying them, etc.
How to store value for the future in a generally robust way against {unknown unknowns coming}
Spending, investment, etc.
For a mortgage, my only real contribution is that a partially prepaid mortgage is mostly useless compared to cash in the bank - it’s only once you actually get rid of it that the benefits of not having one show up.
Value stores are tricky. Metal has gotten… quite silly lately, it seems, with gold rocketing towards $2000 and me wishing I’d bought some back in grad school. Silver’s up, gold’s up, bitcoin’s up… or the dollar is down. Does anyone know of a website where you can compare various commodities in terms of price? Dollar in terms of ounces of gold, oil in terms of bitcoin, etc?
Spending, though, is an easy one. Spend less than you make, preferably a lot less than you make. That gives more buffer zone, and more cash on hand to take advantage of opportunities that may arise.
Great topic, one worthy of much discussion that I haven’t seen on the major boards. They’re all still stuck in “the markets will always return in the long run” which I don’t believe is remotely true. I’m very interested in identifying potential alternatives to market-based investments or ways to filter the market to identify investments that are likely, in the shortish run, to return very well even in a down economy (those will no doubt exist for quite some time yet) and perhaps even identify foreign investments which will make a lot of sense to hold, though that’s more difficult for US citizens thanks to some insanely onerous reporting and tax filing necessary.
The dollar in real terms is definitely down hard, although because a large set of the market has adjusted with it (CPA, in general) the average citizen hasn’t noticed it, yet, and the world has mostly ridden along as the dollar is still a reserve currency. That’s changing though and you bet it’ll change faster now.
I agree on the mortgage bit… a house the bank can repossess is still vulnerable in times of crisis. And look at all the utterly illegal repos that were ostensibly done during the '08 crisis and thereafter - including reports of paid-off mortgages that were literally “reopened” due to “missing records” - if you don’t read the paper of record every day they can sneak an announcement by you in 30 days pretty damn quick and apparently it’s legalized after it’s gone to a court you weren’t aware of… bizarre, really, if it’s true. I’m as worried about stuff like that as I am the security of real value over time.
Usually this involves shorting stocks, which is, IMO, needlessly hazardous. I know people who’ve done it and made a killing, but it exceeds my risk tolerances by quite a bit.
Definitely agree on foreign investments for US citizens. It’s quite hard, especially in certain fields.
Even without a mortgage, a house still requires some level of funding (property taxes, utilities, etc), but it’s a lot lower risk. I wasn’t aware of the games played with paid off mortgages, though - doesn’t surprise me, the banks didn’t bother with any of the other supposed rules during that time, but in general, having a paid-for house is useful.
I’ve been trying to focus a bit more on “productive property improvements” with money lately - things like the solar arrays, and after those are done a deck with planter boxes, raised beds, etc. Eventually, a large greenhouse, but that’s a bit more of a retirement project as I plan to hand build the thing with basalt and mortar. I’ve missed some market gains, but also have missed some losses… how to balance all this, well, I’ve no idea.
My general attempt is to keep “value stores” split out from “investments” - because, yes, I agree that “The markets always go up!” is less likely to be true as we hit headwinds. The nominal value may keep going up, but how much of that is real value and how much of that is just stealth dollar devaluing, well… certain decisions will come home to roost eventually and I’d like to not be fully tied into that which gets totally devalued.
SHTF (or equivalent), possession is 9/10ths of the law. That said short of that, an early payoff isn’t a bad thing as long as you an assume stability after that so that you can reap the economic benefit. However, at the current interest rate levels (sub 3%) … there’s not a lot of payoff in paying off early.
Diversify. Knowledge is likely the most important resource, followed by the kernels from which things can be built around. Seeds (and the knowledge to use them), the useful electronics that are easy to crank out now but hard to replicate (pis and arduinos and the like), tools to build things, tools to extract raw materials.
Stockpiles are merely a transition until you can get those resources. Same for firearms, really. You’re either using them as extraction tools or protection tools. But they can’t be the primary prep you have, or else, yes, you’re gonna be a bad guy.
And values are different things to different people. I don’t care how much gold you have, unless I have a future use for it, it’s not going to get you food from my garden. Give or take of course.
Well yeah. We’ve been running the (virtual) presses nonstop.
To be fair they haven’t been particularly accurate on this as they’ve sounded that alarm many times over the past couple decades. I guess they’re shooting for the “stopped clock” situation.
My guess is that its a signal to the Fed to “do that thing again” or whatever.
It’s been a bit of an open question over the years just exactly how much one can abuse the dollar’s reserve status to “print” them without massive inflation hitting.
General consensus is that if the dollar stops being the global reserve currency, the US is in for a huge world of hurt, not the least because politicians get fixated on one solution, and when “print money” has worked every time before, why, it’s just gotta work this time.
Oh certainly. It’ll happen sooner or later. I’m just never sure how much weight to give the conventional wisdom of the market elite as to timing and what matters. There’s far too much incentive there to mislead or plain misunderstand the real nature of things.
Sure, forever is a long time. Currencies and countries are replaced. But is that the sort of thing you have in mind, @Vertiginous?
How could the (stock) market not go up over the (very) long term? Most of the ways that come quickly to mind are catastrophic: the market ceases to exist, knowledge or capital is irretrievably lost on a large scale, people cease to invent or invest…
Of course, the market going up over a usefully short time span is different.
[quote=“SirDrew, post:10, topic:36”]
How could the (stock) market not go up over the (very) long term? Most of the ways that come quickly to mind are catastrophic: the market ceases to exist, knowledge or capital is irretrievably lost on a large scale, people cease to invent or invest…[/quote]
It’s probably worth distinguishing the original intent of a stock market from the current western implementation - one is more or less what it is, one is quite heavily manipulated and gamed. The US Federal Reserve seems to have taken it as their sole mission lately to make sure the Dow Always Goes Up, and we’re going to see the impacts of that sooner or later. On the plus side, the stock market will likely keep up with inflation for the most part. On the minus side, if you’re not fully invested in the markets, there goes your saved value. So, feature, I think? The rich get richer and destroy everyone else in the process.
Markets going up indefinitely implies, generally speaking, continuing wealth creation. In our current ways of thinking, that requires exponential growth (1% YoY growth may be a slow exponential curve, but it’s still exponential), and that runs rather rapidly into the problem that we are on a finite planet. This is why certain ways of thinking more or less assume that we have to go to the stars (initially at least asteroids, Mars, etc), because the alternative of ending exponential growth is literally unthinkable.
But I don’t see anything that requires markets going up as required over the long term - steady state economies will, eventually, be a thing.
For that, we can rely on the Fed. As long as they’ve got power, well, the numbers will go up, and don’t look hard at how much a dollar actually buys you.
First, this flipped version is a better question. Second, for the Ultimate Long-term it probably doesn’t matter, regardless of whether you expect a finite, closed universe with an eventual heat-death or an infinite and/or open universe that escapes heat-death.
If we mean the total future value of all economic activity as measured in some currency, then inflation devalues the currency and makes the numbers bigger. This is unhelpful but I don’t see an inherent limit. When the numbers become too big to be convenient, relabel the currency with a “new” dollar/peso/whatever becoming equal to some convenient multiple of the old. When economic activity ceases calling it “up” or “down” is probably inconsequential compared to whatever caused the end of the economy.
Of course not all economic activity is captured in the stock market. This is perhaps more interesting, but even under a different organizational structure I’d expect /someone/ to influence economic activity and extract some value/pleasure/benefit/etc. from doing so.
Why would the total real value of future economic activity go up? Let’s assume population and productivity both plateau (perhaps after dropping below current levels). Fine, future value stops going up, but we still have bits of the future becoming “now” and then the past. It seems reasonable to expect the profit from that formerly-future activity to be distributed (dividends) or re-invested with intent to further increase future profits (capital growth). If we consider dividends, even a plateau looks like a win.
Spending a lot less than you make implies either wealth accumulation or waste/destruction (such keeping all your wealth in depreciating assets). If everyone accumulates wealth, someone has to create wealth.
Any reason the growth needs to be exponential? Linear profit seems relatively sustainable. I grow an average of n units of food and consume an average of n-m units annually. Annually I realize m units of food as profit. If I try to store that food, then yes, we run into problems of finite storage. If I trade it away for services finite storage isn’t a problem.
Oops, in trading it away I failed to spend less than I made – if storing wealth is problematic, then so is spending less than you make.
Also, I again gave up capital growth for mere ongoing profit (or dividends in the previous post).
So in this case “up” is purely semantic and has no utility from the perspective of increase value to shareholders, it’s just that the numbers necessarily get bigger as a result of “Inflation” (which we will deal with later).
This doesn’t sound an awful like “up” to me either… my main point was similar to Syonyk’s, we’re at a point where the “value” (in terms of purchasing power per aggregate share, or by any other general value-to-the-end-user perspective, not in terms of raw dollars themselves, but what one can do with them elsewhere) of the market is wildly disconnected from any base of reality in terms of underlying assets, etc.
So, let’s take a step back.
“The Market” is a huge term. It encompasses US-traded stocks, bonds, derivatives, currencies, commodities, and the futures/options/etc. on all of those, plus of course the composites such as mutual funds, etc, but there are similar markets around the world. There is also ‘the market’ or ‘markets’ which refers to the notional places where things are bought and sold, as in ‘the invisible hand of the market’.
“Value” is a term I use to mean real value, that is, when you de-abstract the purchase “price” in terms of dollars or whatever other currency or cost, opportunity and otherwise, is wrapped up in obtaining whatever “share” of “The Market” one gets, minus any returns (such as dividends, later capital gains, etc).
“Up” means a meaningful increase in Value, not an increase in price.
For a very long time between the early 1900’s when The Market was getting established up until near the end of the 1970’s, The Market did not go up in Value at all, when adjusted for inflation. It bounced around along a surprisingly flat trajectory, and this was during a time of immense real growth in the US population, GDP, net exports, etc. In the early 80’s (it’s pretty obvious whose administration it was under), the market began it’s first hesitant rise, which rapidly escalated to a boom, then a near-vertical takeoff in the 90’s. I won’t go into reasons here for exactly why, those are well documented in many places elsewhere. However, that situation, which most of those who were born in the 70’s and later have come to feel is “normal”, was entirely artificial, created by the removal of restrictions on behaviour that had before then been recognized as long-term harmful and heavily regulated. The various crashes of the late 90’s and 00’s were sharp reminders of the volatility that these relaxed regulations enabled, and only literal trillions of dollars of QE prevented them from being worse, longer, and perhaps even permanent. Basically, to anybody with an eye and not a bias, it was prima facie evidence The Market had not only utterly failed, but completely broken the premise of capitalism in the process.
Since then, it has taken continuous QE to even maintain the markets at a “normal” (the new normal, that is) clip. The ability of the US government to continue easing may continue for yet some time, but more and more economists are saying they have no idea why it’s still working. The truth is: it’s working because it’s literally just the rich printing money for other rich.
To summarize quickly: The Market going Up is a relatively recent thing, caused by specific financial deregulation and ignorance of sane and well-understood rules, which has put The Market in a position where it is disconnected from true Value creation and the economy which it used to ostensibly represent. That economy has measurably gone stiffly downwards, and yet The Market has not corrected, due to deliberate fist-on-the-scale QE tactics and other external manipulation. The leverage for that manipulation is not well understood, nor clearly communicated, and the cost in terms of Value (as in, inflation, dollar-adjusted currency relationships, and the carry-on effects to loans and governmental flexiblity, among many other real Value but non-priced side effects) is still not entirely known. So the bill is likely to come due, and when and to what tune, it is nearly impossible to say. Given that The Market has been in heavy deregulation for only about 40 years of its ~120 year existence (depending on when you see the opening bell), it’s somewhat surprising the bill hasn’t come due by now, but the US was a literal superpower for much of the time and it forced the rest of the world to deal. Now that is clearly no longer the case, and again, it’s only a matter of time before the “Up” doesn’t just stabilize, but becomes a solid “Down” until it either reflects some variant of reality again (at which point I expect it to plateau and ride whatever real economics underpin it) or it disappears because in it’s current form it will be unworkable in the chaos.
While I can’t say when I expect this to happen, I believe The Market is highly vulnerable to external shocks and we’re only beginning to see (COVID, the coming recession from it, etc) the real threats to its hegemony emerging. As a result, the days of Up are clearly numbered, in my view, so it’s become a gamble, not a sure thing. And I don’t expect a definitive Up is at all sustainable across another 40 years. And most of us here, I think, hope to be on this planet for at least that much longer.
So when I talk “long term” I’m thinking 40 years or so. When I talk “short term” I mean < 10 years.
Certainly - though I do think it’s useful to differentiate between “What would be a better economic system” and “How to optimize in the system we have now.” For now, I certainly think accumulation of wealth is handy.
No, beyond “That’s what we currently expect to see.” The expectation is that you’ll grow by some percentage, not some fixed value.
One of the other large problems (distortions?) we’ve seen is that the stock market now reflects, instead of companies who generally build “things” (for some definition of things), a lot of rather vague, virtual wealth that’s tossed around as though it’s an actual resource.
This is found in the tech companies, but, worse, the financial products companies - they claim insane valuations for options comprised of derivatives betting on the movement of other options based on the price of oil as tied to mortgage interest rates (or something like that), but as we saw in 2008, when you actually try to redeem some of those, the whole house of cards falls apart. If you can’t calculate risk (which we can’t - just a general truism not known to the financial sectors), your valuation numbers are off.
I’d agree that in the 1980s is when a lot of this took off, but there’s an insane amount of stuff sloshing around that has no basis in any reality.
One visualization that makes the general point about some of the creative financial markets:
And I agree, that stuff will eventually come crumbling down. But there’s an awful lot of resources invested in making sure it stays afloat long past the time it should have sunk.
With the 40 year timespan, there’s a reason I’m happy to spend dollars now on productive property improvements that should last the 60 or so years I expect to be around.
In real-terms I’m happy to call dividends received periodically and with value directly proportional to the value of the asset (with a positive proportionality constant) “up” if the invested real-value can be recovered at the end of each period. If I can also use the dividends to continue purchasing assets at similar prices with similar proportionality constants, I’m even happy to call that “exponential growth”.
I’ll grant that speculation and manipulation can cause large price swings in real-terms. Applying that to currency, it’s even more true in nominal terms. But “wildly disconnected”? That doesn’t seem like something new to me. We’ve had speculative bubbles, booms, busts, and famines going way back. We’ve also had devalued currency going way back.
1-3 seem reasonable.
I’m not seeing the major transition in the late 70’s or early 80’s. I’m not seeing lack of real growth prior, either. Sources? Here’s one – and sure S&P Composite and CPIs are imperfect measures: Too big to scale: Long-term stock market returns - Monevator
While that’s an interesting visualization, I expect risk transfer mechanisms to grow or shrink wildly compared to less abstract assets. $1M doesn’t seem an outlandish life insurance payout, but it is a lot more than I have in a bank account or in land or in any other concrete asset. Life insurance is a relatively simple risk transfer mechanism. So is auto insurance. So are homeowners and renters insurance. Commodity producers have reason to transfer risk of price changes. Commodity consumers have reason to transfer risk of price changes. Speculators might want to offset some of the risk – or magnify it – or do one, then the other, then a bit more.
It seems unreasonable to think of these as stored value matching the face-value of a policy, but it doesn’t seem unreasonable that the face-value should be huge. It even seems plausible that there might be good reason to try to reduce risk by transferring more risk around rather than un-transferring the risk (that is, for speculators to create more derivatives rather than undoing ones that were already created).
Stacking risk on top of risk does seem problematic, but:
I’m inclined to agree that in many meaningful cases we can’t calculate risk – we can only estimate (guess at) it.
Given that, I’m not sure what a world that allows meaningful risk transfer but doesn’t allow accumulation of risk would look like.
It seems to me useful to be able to reduce my risk (sometimes insurance makes sense to me) and increase my risk (sometimes putting money into investments that may lose value makes more sense than putting money somewhere “safer” where it will lose value).
Here’s another stab at why markets might be expected to generally go up (but no guarantees).
It seems reasonable to expect (but not guarantee) when deferring consumption now to enable consumption later proportional to the consumption deferred now. Said another way, I expect stored value to be associated with a storage fee that scales with the amount stored. Said another way, I expect a loan to be repaid with interest that scales with the amount loaned. This isn’t perfect; very large or very small loans will likely have different fees, but it seems a reasonable approximation.
If I can store value like this at-will, a fee proportional to (linear in) the amount stored accumulates exponentially as I repeat this process over time. For an initial (AKA base) amount b and a rate r the total after a single storage time-period is the product, b*r. If b is doubled, then so is the product. If the resulting amount is re-stored for a second time-period, we get (b*r)*r or b*r^2. If we continue this for t time-periods, we get b*r^t. We’ve taken a fee linear in the initial amount and demonstrated the resulting amount is exponential in time.
What kind of exponential is it? I’ll ignore imaginary and other non-real rates as well as negative rates. I’ll also consider only positive t. (We can discuss time travel in another post ) That leaves us with several possibilities. r = 0: In this case b*r^t = b*0^t = 0, I’d like to think a value store would actually store some value, but if it’s taken by force, maybe storing value really is impossible. Let’s try to avoid that. 0 < r < 1: In this case we have exponential decay. r = 1: That seems an unusually precise case, but let’s consider it. b*1^t = b*1 = b. No growth, but no loss either. r > 1: Here we have exponential growth.
This brings us back to spending less than we make. On average, do we expect people to prefer to consume now (r > 1; you pay me to borrow my money) or to consume later (r < 1; I pay you to store my money) or to balance the two desires perfectly (r = 1). I’ve been taught to expect people to prefer to consume now (“the time-value of money”). While I feel that impulse, I also feel an impulse to save for the future. Are negative real interest rates (0 < r < 1) reasonable long-term? It seemed highly unlikely to me yesterday, but now I feel less certain.
That’s not growth at all. That’s return on investment. You’re confusing capital asset value with monetary return. I’ll get into this more shortly.
I’m afraid to tell you that you’re also missing another point: inflation affects the real value of your investments, AND your return. If you adjust the stock market for inflation, you see a VERY different story (graph is about halfway down this page, I’ve seen many others - doesn’t really matter which index or measurement tool you use or how you draw inflation, the general trend remains):
For other vehicles, negative interest rates have been floated by the Fed a lot, it seems like they’re priming the market for them. They said they wouldn’t back in May, but the article which reported that indicates that other countries have used them before. Now that they’re changing their mind and saying (June/July, at least) that it’s again on the table, I’d expect we’ll see them sooner than later in many more markets than just T-bills.
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Looking at the rest of your post, I believe you’re missing the entire point. The “market” doesn’t give a damn about consumer savings patterns. It doesn’t give a damn about interest either. It seems to me you’re confusing capital assets, dividends, risk assets, and loan interest in a manner that suggests you think they’re all roughly equivalent. They’re not remotely related.
The value of a capital asset (stock, real estate) is what you get when you sell it, minus what you paid when you bought it, plus the net profit you earned from holding it. When aggregated into a stock price, it reduces to just the first two factors, because the net profit is not paid out to you. If the price of the stock has not increased relative to inflation when you go to sell it, you have not experienced any return from the capital asset. Commodities behave similarly in this respect - they’re only actually valuable at the moment of sale.
The value of a dividend is the payment minus the opportunity cost of the capital asset it derives from minus the effects of inflation. If you make a decent chunk in dividends but end up with a devalued asset at the end, or experienced significant inflation, the net result may well have been lost money. More lost than not having it? Maybe yes, if you could have put the capital into a better vehicle in the interim.
Risk, as I’ve hinted at before, is not an investment. It’s pure speculation, usually without complete information. Aggregating risk tends to make it behave, in aggregate, more predictably, but it’s risk, so it’s purely gambling.
Interest, on the other hand, is the least interesting of all of these (pun intended). You, as a consumer, can neither access prime rates or anything close to them, nor will the interest rates you can access compensate for inflation. All interest bearing vehicles I’m currently aware of that are consumer-facing pay roughly at or below the real inflation, including CDs, high interest savings accounts, etc. There’s a reason for that: the interest comes from somewhere and that somewhere is effectively printing money. Forget what you learned in microeconomics about bank withholding rates and loans coming back and all that - what they don’t tell you in those classes is that the math never works unless the entire economy is exponentially growing - and the central bank is constantly issuing additional cash (liquidity) to cover the increasing amount of interest in circulation. This, naturally, has an influence on inflation (but so do other things like massive QE, which has orders of magnitude greater effect today). Forget about interest, it’s not relevant to real-world economics anymore. It might be relevant to you, but you don’t get to pick the terms it’s offered on, and those are not likely to ever be favourable again.
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Now, let’s talk about increase in value. When a dividend is paid out, since you seem to be interested in those, that money is ostensibly a share of profits in the firm - which presupposes profits, first of all. Now, profits don’t come from nowhere, they come from money the firm brings in due to operations. With a steady-state economy, profits are more or less passed around in a big circle, nobody really grows (except perhaps at the expense of somewhere else) but nobody really shrinks either. In this case, dividends are stable, predictable, and baked into the asset price. Buying the asset is more a matter of weighing out whether or not you feel the firm is more stable than your other alternatives for storing that value, since that’s basically al you’re doing: storing that value in the dividend-bearing asset, expecting the firm to pay better than other places you could store the money.
With a growing economy, the growth comes from somewhere, and results in more profits. With respect to the dividend, this causes an increase in the capital asset value, as accelerating dividend payouts in the future have an increased present value, and dividend payouts may or may not increase (and might even decrease, if the company feels the need to boost capital expenses in order to finance growth). You might gain, you might lose, depending on how the market behaves over the term you hold the asset and what the expectations are for the future. At this point, there are two things to keep in mind: the price factors in an expectation of that future, and the dividend factors in a reaction to it from the company. So you’re starting to play with psychology more than fact. This is where the mechanisms of the market cause it to break from reality, because – just like in the real world – the price of the asset is governed by what people are willing to pay for it, which is governed by how it is socially perceived. The difference is that the real markets are now perceived separately from the assets which represent the firms. And the dividends themselves are doled out by yet another layer of expectation and perception.
Now that we’ve established that the only reason the asset value has increased (and the even more distant reason the dividends might, or might not) is market perception, let’s take a look at where the money comes from that causes that increase - there are two aspects to this too:
First, there’s the aspect of the growth in the market that causes the excess valuation. This growth comes from somewhere, and the money comes from governments/central banks. This means either there is suddenly some liquidity somewhere else or additional money in the supply. If the additional money in the supply is backed by real value (e.g. capital assets), the increase in value does not always cause inflation (or may not immediately). It might even strengthen the currency internationally. If it is not, however, it almost always causes inflation, because cheaper money to someone means they’re willing to pay more for something which generally causes prices to go up. Macroeconomics are complicated and not entirely well known even to macroeconomists, but since we’re talking general principles here I hope you’ll allow me not to need to write four books and three white-papers on why this is the case!
The second issue is where the additional money comes from for the market to purchase your capital asset at that increased value (remember: capital assets have NO VALUE until you sell them). This must, also, come from additional liquidity (read: excess cash) available on the part of interested purchasers. Same issues apply: where did the cash come from to cause this increase, does it affect inflation, can it be sustained, what are the expectations around it, etc. This is important because if this came only from stored value (their savings) there is no reason to value the market any more highly than before - it must come from a gain in liquidity in order for the market, as a whole, to see the effect. Remember, we’re talking markets here, not individual assets.
This is only one trivial example, but the point hopefully is made: nothing happens in a vacuum. Markets only go up when there is both a driving force (a belief that they’re worth it) and liquidity (additional money) to support it. Capital assets in aggregate can only appreciate in value on the whole (at market level) if this is the case across the market. Dividends/Bond coupons don’t factor into this really, since they’re already priced in and they’re the compensation for tying up your money, so they’re not increased value – and additionally they’re predicated on the same thing: profits and expectations. Liquidity always comes at a price - either real growth in some way (which cannot be sustained indefinitely), or inflation.
So, to the point on the market going up - up can only mean one thing: an increase in capital asset value - when compared to inflation - over the time you hold the asset, holding through the sale of said asset. Dividends are not “up” by definition - they’re payment for borrowing money, and that payment is priced into the capital asset’s cost up front, so you only really gain if the market increases in value - which … means the market has to go up. Interest accessible to consumers is almost always below the cost of inflation. Bonds have realized that they are competitive value stores and have stopped trying to woo investors because they’ve realized they don’t have to - they’re a hedge. And risk is just going to Vegas.
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Few notes on why this is important:
The difference between a value store and an investment vehicle is that you don’t expect a value store to return a yield - it’s a hedge against inflation. Investment vehicles are not hedges - they’re intended to return a value over and above inflation - a profit. If you’re thinking of investment vehicles as simply value stores - if you’re content to get a break-even or even a net loss compared to inflation so long as they do better than not investing at all, I’m afraid that’s not a particularly good strategy - there are other vehicles (hell, even gold) that do FAR FAR better in times of high inflation than most investment vehicles. The real performance of dividend stocks and bonds is pretty dismal these days, on par or sometimes worse than just accepting whatever the bank will give you for a CD. And now that housing prices have been demonstrated more than once to not be a guaranteed value store, you’re looking more and more on a case-by-case basis for real estate too.
This is why I think it’s very important to comprehend why a given market, investment vehicle, commodity, etc. is behaving the way it is and what is fueling it. The stock market couldn’t be as high as it is right now without great risk of inflation because that huge notional value is not backed by anything other than the expectation that it will go up, and the QE from the treasury that permits the necessary liquidity. In other words, some players get cheap money which drives the price up for others, since the price goes up, people set expectations that it will continue to do so, and as long as there is easing which permits the liquidity, at least some players can continue to play that game at scale. There’s a limit to this behaviour pattern though, and it’s caused by a multitude of factors: foreign currency plays a strong role, since the strength of the dollar is mostly predicated on it’s ability to import goods cheaply - the US cannot really afford it’s own locally produced product. This is one of the main factors that prevents runaway inflation under this current scheme, and it’s definitely not the only one.
That said short of that, an early payoff isn’t a bad thing as long as you an assume stability after that so that you can reap the economic benefit. However, at the current interest rate levels (sub 3%) … there’s not a lot of payoff in paying off early.
) That leaves us with several possibilities.